Understanding the Green Power Market
The green power market is made up of all renewable electricity voluntarily purchased by retail electricity customers through renewable energy certificates (RECs). In 2018, about 6.3 million customers procured about 134 million MWh of renewable energy through green power markets. That represents about 3% of U.S. retail electricity sales and 28% of U.S. non-hydro renewable energy generation. In a report completed by the National Renewable Energy Laboratory, they outline the current market expansion status and trends of the United States voluntary green power market. The voluntary green power market is made up of the following procurement mechanisms:
- Utility green pricing programs
- Utility renewable contracts
- Competitive suppliers
- Unbundled RECs
- Community choice aggregations (CCAs)
- Power purchase agreements (PPAs)
- Community solar
This article will outline each of the 7 mechanisms, briefly describing each, their market share, and expected trends.
Utility Green Pricing:
Renewable power can be sold by the utility to residential and non-residential customers through utility green pricing programs. Typically, the utility company generates the green power and produces RECs to the customer that are proportionate to the quantity of green power they purchase. In this pricing program, the customers pay for the green power simply as another line item added to their utility bill. Currently, utilities are developing new, larger pricing programs that are driving the growth of this procurement mechanism. Utility green pricing sales grew by about 9% from 2017 to 2018 with about 966,000 customers obtaining about 9.7 million MWh of renewable energy through utility green pricing programs in 2018 as seen below.
Due to its trending growth, many utilities have reported that they are considering or are in the process of developing new types of green pricing programs to meet the heightened demand of renewable energy from their customers.
Utility Renewable Contracts:
Utilities offer more targeted renewable contracts to their large commercial customers through bilateral agreements or utility green tariffs. These contracts differ by utility, but generally are long-term agreements that allow the customer to specify the renewable resource for which they procure. These customers pay for their green power through a bilateral contract or utility green tariff rate rather than paying the premium while also receiving credit for the energy and capacity provided by their purchase – which gives them the opportunity for future costs savings. The lengthiness of these contracts also allows for the utility to invest in new generation projects. About 740 MW of green power capacity had been acquired through bilateral contracts through the end of 2018, generating around 2.3 million MWh of green power in 2018. Utility green tariffs are currently offered in 15 different states, with growth expected to surpass bilateral agreements, becoming the largest renewable contract pathway for procurement of green power.
Customers are able to choose their electricity service from a utility offering a green power rate in a restructured electricity market. Due to state renewable portfolio standards, only some utilities offer more renewables than required. However, in 2018, competitive suppliers sold about 25 million MWh of renewable energy to about 2 million customers (a 38% increase), showing there is an increase in demand.
An unbundled REC is one that is sold by a renewable energy generator into the local electricity market separate from the underlying electricity. Any electricity customer in the United States is able to buy an unbundled REC from a third-party – making it the largest source of green power sales in the market. In 2018, about 209,000 customers bought about 63.2 million MWh of renewable energy through unbundled RECs. Sales grew by about 22% from 2017 to 2018.
These increases were primarily driven by an increase in customer demand for renewable energy, and the continuation of low REC prices. Unbundled RECs are attractive to new customers because they offer low transaction costs and no long-term commitment.
Community Choice Aggregations(CCAs):
CCAs allow for the aggregation of customer demand to procure electricity and RECs from an alternative supplier. Presently, only 7 states have green power CCAs (Illinois, California, Ohio, Massachusetts, Rhode Island, New Jersey and New York). Green power sales and participation has grown in all 7 states, with expected increases in the future as more states participate.
Power Purchase Agreements(PPAs):
In a PPA, the customer enters a long-term contract with a generator to buy electricity, most commonly used by large non-residential customers. In a physical PPA, the customer buys electricity at a pre-negotiated PPA rate. The electricity is credited and billed towards the customer’s demand, regardless if the electricity is delivered to the customer or not. In a financial PPA, the customer and generator settle differences between PPA rates and wholesale rates. If wholesale rate is less than the PPA, the customer pays the generator. If the wholesale rate is greater than the PPA, the generator pays the customer. In 2018, 23.5 million MWh of green power was consumed through PPAs. Currently, the tech industry dominates the PPA market, but this is likely to drive demand for smaller businesses to participate as well.
In a community solar program, a utility or third-party developer develops a shared solar array that generates power to the grid and sells it to multiple subscribers. These subscribers are compensated through credits to their utility bill that are proportionate to the size of their subscription. While community solar programs have shown growth, they are often only used by utilities to meet the renewable portfolio standards in their state.
Overall, the green power market continues to grow. This expansionary phase can be seen in the increased sales and consumer participation. While unregulated state markets offer more options for green power procurement, national demand seems to be widespread. As green power providers continue to innovate new programs and renewable energy prices stay low, demand for green power is on track to continue rising in the future.