Green tariffs, also known as Renewable Energy Tariffs, are electricity prices that reflect the cost of generating power from renewable sources. These tariffs are designed to encourage investment in renewable energy and help to reduce greenhouse gas emissions.
It gives customers the option to choose cleaner forms of energy from a standard supply market.
The increase in demand can lead to greater investment in renewable power generation, lower carbon emissions associated with production, less air pollution from power plants, and other positive effects that can benefit the environment.
Understanding Green Tariffs
Because of climate change, energy conservation and environmental protection efforts have been a priority to many people. Some countries and companies are finding ways to conserve energy by adjusting their tariffs (i.e., electricity prices) to fit an environmentally-friendly status.
Green tariffs are fixed premium prices for electricity supplied to end-users through the grid (whether it is a private business or a public facility). They are approved by the state's Public Utility Commission (PUC) and allow customers to get 100% of their electricity from renewable resources like wind, solar, geothermal, biomass, or hydroelectric.
How Do Green Tariffs Work?
Certain standards for eligibility need to be met to receive green tariffs. Consumers should be aware of the terms and conditions specific to their local program to ensure they maximize the benefits while making responsible energy choices.
It is important to note that green tariff rates and eligibility requirements are different for every state that offers them. They typically vary depending on how the company acquires its green energy.
While some programs may allow companies to engage directly with the renewable generation project, some may also allow the following:
- Imposing a market-based rate: Depending on the local utility company, some may impose a market-based rate or electricity market price at a wholesale rate.
Customers should pay attention to whether or not their state charges a tax on electricity purchases. Some states impose such taxes that add cost to the green tariff premium. - Power Purchase Agreement (PPA): A PPA is a long-term contract between a power generation supplier and an end-user. It defines the relationship between the two parties in terms of the electricity supply, rights to it, responsibilities to meet standards or environmental commitments, and payments for purchase that will be made from one party to another at agreed-upon terms.
The PPA may offer a fixed price for a set period which means a renewable energy supplier can make a lower bid for electricity supply knowing they have a guaranteed revenue stream.
Choosing Suppliers of Green Tariffs: How Green Are They?
The state's PUC conducts random audits of green tariffs to ensure that all purchases meet the 100% green standard they promise to consumers. Customers should know how their supplier certifies its energy consumption and if it meets local, regional, and national environmental standards.
Because of the increasing demand for renewable electricity tariffs, clean energy deals have also increased in the market. However, there have been suppliers who are offering deals that are not as green as they seem.
Greenest Tariffs
The greenest tariffs in the market are from suppliers that directly get their renewable electricity and obtain Renewable Energy Certificates (in the U.S. and Canada).
In terms of operating costs, these suppliers will generally have higher costs than moderately green tariffs or greenwashed ones because these suppliers invest in the technology and infrastructure to facilitate a more direct supply of electricity from renewable generators.
Moderately Green Tariffs
Certain suppliers own or partner with other companies with renewable energy and fossil fuel generators. While this sounds acceptable, it does not always entail energy suppliers buying more renewable energy. Instead, suppliers play with the percentages to get the same amount of green energy without buying that much renewable energy.
Thus, moderately green tariffs generally lead to minimal greenhouse gas emissions reductions.
Greenwashed Tariffs
Even though green tariffs are being marketed as environmentally friendly, not all suppliers have the same standards. While some may source their green energy from local or national grids that get their electricity from renewables, others go for other solutions that add cost but do not add environmental value.
Greenwashed tariffs are sourced by purchasing Renewable Energy Certificates (RECs) off the market. The supplier then gets the RECs certified independently to ensure it follows local, regional, and national policies set out in environmental standards.
Note that being greenwashed does not mean that there is no purchase of clean power or that they do not support renewable energy development. Instead, consumers may be unaware of how structurally embedded their purchases are in the grid.
The main difference between green tariffs set up by state utilities and greenwashed ones is the process of monitoring and verification of the supplier's actual consumption.
Advantages of Green Tariffs for Consumers
Meeting Sustainability Goals
Renewable energy tariffs have been a popular choice for companies that want to show their customers how dedicated they are to the environment. By switching to green tariffs, companies can show their commitment to sustainability and climate change mitigation goals.
They also help companies meet carbon reduction goals as mandated by government regulations.
Supplier Concentration Risk Reduction
With a Power Purchase Agreement, a company can easily manage its supplier concentration risk because it knows what costs to expect for the next 20 years or so. The agreement enables suppliers who invest in renewables to lower risks and provide stability during market volatility and overcapacity periods.
Advantages of Green Tariffs for Suppliers
Customer Base Expansion
The main advantage of green tariffs to suppliers is expanding their customer base while maintaining existing customers due to increased demand by large businesses. If they can provide stable prices over long periods of time, potential customers will be more eager to switch.
Portfolio Diversification
Green tariffs also help suppliers diversify their portfolios and reduce dependence on current-generation assets, such as coal and natural gas. The diversification helps prepare them for future scenarios in which government policies may limit certain types of power generation or might increase incentives for renewables.
If you're interesting in building your own portfolio for retirement in a way that invests in companies solving climate change, learn more about sustainable investing.
Carbon Footprint Reduction
Suppliers can purchase renewable energy directly from generators with green tariffs, including wind farms, solar farms, hydroelectric dams, or biomass power plants. Renewable energy helps reduce environmental footprint by replacing fossil fuel generation with renewables, lowering greenhouse gas emissions from electricity generation, and reducing the effects of air pollution on local communities.
Switching to Green Tariffs
Although customers must pay a premium for these types of green tariffs, it is an important step toward promoting sustainability. Consumers are given the option of choosing what type of power they want to use without switching providers.
Because green tariffs are typically long-term contracts, consumers are given certainty over prices for 20 years or more which can be beneficial when planning out budgets for both residential and business needs.
The key is transparency, which will allow customers to make informed choices about their energy consumption while allowing suppliers to reduce costs, and risks, and expand into new markets.
Final Thoughts
Green tariffs have been popular among companies because it allows them to communicate their environmental commitments and public image.
While there are many advantages to using green tariff energy deals, consumers should know that not all suppliers have similar environmental strategies. Some may be "greenwashing" their customers by overstating their environmental commitment.
Consumers should always research to check on a supplier's sustainability and public image claims before switching to a green tariff energy deal. Overall, the benefits far outweigh the disadvantages as long as consumers are aware of what they are getting into when signing up with a supplier for this type of renewable energy source.
Green tariffs can serve many purposes depending on the needs of both consumer and supplier but remain a favorable choice by giving consumers transparency into how their power is generated while allowing suppliers to reduce costs and risks and increase market presence.
FAQs
1. What are Renewable Energy Certificates?
Renewable Energy Certificates (RECs), also called green tags, are tradable, non-tangible energy commodities in the United States that represent proof that one megawatt-hour (MWh) of electricity was generated from an eligible renewable energy resource like wind or solar.
These certificates can be purchased by retail electric providers (REPs), also called electric suppliers, who then supply these RECs to their customers through green pricing programs.
2. What companies use green tariffs?
In the United States, companies that have been known to use green tariffs include Apple and Google.
3. How do I find out if my local utility company offers a green tariff?
Because green tariffs vary from state to state, the best way to determine if your utility company offers a green tariff is to visit or contact your utility company directly for more information on their products and services.
4. How can green tariffs be beneficial?
By using green tariffs, both suppliers and consumers will benefit. Suppliers can save money on marketing by integrating their environmental commitments with the electricity supply. At the same time, customers can feel better about paying a premium for their power source, knowing that it is sustainable.
5. How does green tariff power affect the environment?
Green tariff power allows consumers to choose their preferred type of energy generation without having to switch providers, which can positively impact the environment in several ways: decreased carbon dioxide emissions, less water usage in comparison with conventional sources, and deforestation prevention through reduced dependence on fossil fuels.
