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Consider the Source

by Diana Ransom
Wall Street Journal, November 12, 2007

Many homeowners can convert to green energy by simply asking their local utility. The catch: It costs more.

When New York City resident Mary Hawkins recently elected to receive green power from her electric utility, Consolidated Edison Inc., she was surprised by how easy it was. "I just switched on their Web site," she says. "There's an extra page to my statement, but everything else was seamless."

Powering a home with renewable energy doesn't necessarily mean hitching solar panels to the roof or installing wind turbines in the backyard. More than half of all retail power customers in the U.S. can now fuel their homes with green energy -- that is, electricity produced from environmentally friendly sources such as wind, solar and geothermal power, hydropower and various plant materials.

Switching not only is simple, as Ms. Hawkins discovered, it's also free. The main drawback is that in most cases customers end up paying slightly more for green power -- on average, about one to two cents per kilowatt-hour, or about $5 per month for a typical residential user, according to the Department of Energy's National Renewable Energy Laboratory in Golden, Colo. But premiums have been shrinking for several years, and in some cases green energy can be had for less than electricity generated from traditional sources.

Options Vary

The options for switching to green energy vary from state to state. In the District of Columbia and 10 states where the electricity market has been deregulated to allow for competition, customers can choose a green-energy supplier directly. The electricity will be delivered by infrastructure owned by an established utility, which will charge for providing that service, but the supplier sets the price of the energy. Prices for this service depend in part on the type of energy involved and the competitiveness of the market. Electricity generated from solar energy, for instance, generally is more expensive than other options.

In noncompetitive electricity markets, customers tell their utility how much green power they want to purchase, either as a percentage of their total use or in blocks of power, say 100 kilowatt-hours. The utility can then buy green power from a supplier, generate green energy itself, or both, to meet the total demand from its customers. It also might choose to invest in green-power production elsewhere in the country, effectively offsetting a portion of its own production of nonrenewable energy.

When consumers buy green energy this way, it's the utility, not the supplier, that sets the price the customer pays for the energy. Utilities commonly charge a set premium above the price of conventional energy, so the price a customer pays for, say, wind energy is tied to what the company charges for energy generated by natural gas or another nonrenewable source. In some cases, though, utilities set prices independently for green energy, so they aren't affected directly by fluctuations in the market for nonrenewable sources.

The average premium charged by utilities has dropped about 10% annually in recent years, according to Lori Bird, a senior energy analyst at the National Renewable Energy Laboratory. Many utilities, she says, attribute the decline to a combination of factors, including their ability to renegotiate power-purchase contracts at lower rates amid increasing competition among renewable-energy suppliers. Also, increases in natural-gas prices have reduced the spread between the costs of conventional and renewable energy, so a smaller premium for the customer is justified.

Information about the green-power options available in each state can be found on the Department of Energy's Energy Efficiency and Renewable Energy Web site, at

Indirect Support

Consumers can also support the development of green energy by purchasing renewable-energy certificates, or RECs. These certificates are sold by organizations that invest in the generation of renewable energy. Each certificate represents 1,000 kilowatt-hours of renewable energy; the purchaser effectively pays for the generation of that amount of energy.

Consumers who buy RECs aren't buying green energy for their own consumption; the energy they're paying for may be generated and consumed clear across the country. But they are helping to neutralize their own "carbon footprint" -- that is, the amount of carbon or other greenhouse gases emitted into the atmosphere as a result of their use of conventional energy.

RECs generally cost between $5 and $35 each. The price is based mostly on the cost of producing the energy each certificate represents, which varies according to the type of energy and where in the country it is generated, among other factors. Construction costs and the use of the latest technologies at newer facilities tend to drive up the cost of the energy they produce, so certificates representing that energy tend to cost more.

Ms. Bird of the National Renewable Energy Laboratory recommends purchasing certificates representing energy from newer plants. While these certificates cost more, "consumers want to make sure they are driving new [renewable-energy] development," she says.

Related Pages:
A Consumer's Guide to Going Green Wall Street Journal, 11/12/7

Diana Ransom
Consider the Source
Wall Street Journal, November 12, 2007

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