I got an email from my electric company a couple of days ago. It was an offer from Dominion Energy (née Virginia Power). For the low, low price of just $5 per month, I can buy 100% clean electricity.
Or something.
In fact, I got an offer to enroll in Dominion Energy’s 100% Renewable Energy program. Let me give you their verbiage first:
Dominion Energy 100% Renewable Energy℠ allows customers' monthly energy usage to be sourced by renewable energy that is generated in the same month and ensures the Renewable Energy Certificates (REC) produced by that same renewable energy generation are purchased and retired on their behalf.
The first part of that sounds pretty good. Allows my monthly energy to be sourced by renewable energy. Well, that’s a good thing, right? Five bucks a month and it’s like, Global Warming? Problem solved! Who wouldn’t jump on that.
But I’ve been around the block enough to know that this isn’t anywhere near as good as that sounds. After all, this is still Virginia Power. That’s the company that fought strenuously in the past to avoid having to offer any such clean energy options. And who, in fact, cancelled the last such program of theirs that I participated in, one that allowed customers to, in theory, buy electricity generated by wind power. If you could find out about it. And if you could jump through all the hoops to sign up for it. Until they abruptly cancelled it. After lobbying the State Corporation Commission for the right to cancel that program for years.
Sometimes it’s hard to keep your head screwed on straight when trying to determine what’s truly “green”, environmentally sound behavior. Versus mere wishful thinking, or outright greenwashing.
This particular enviro-offer, though, is over-the-top. It comes very close to being an outright scam. If you look at the details, I’ve been offered the opportunity to pay Dominion Energy more money. Which they will then (largely) put into their own pocket. End of story. They will produce no more green energy than they do right now.
The right buzzword here is that this lacks “additionality”. It doesn’t result in any additional green energy being produced. The fact that my power company is going to use that money to pay itself is just icing on the cake.
Now that you know the punchline, let me explain the joke.
Key question first: Additionality.
There’s really just one question that you need to ask about any such spending decision: How much more clean power will be produced, if I pay? That’s the gist of the term “additionality”.
Because, when you get down to it, if I pay more, but there’s no additional green energy produced, then the money is wasted, from an environmental standpoint.
And this is the question that almost all offers of this sort will do their damnedest to avoid answering. You will learn that you have purchased the full rights to the greeness of that electricity. That you have ownership of the green aspects of that power. That your money will go to green energy providers.
Anything but a straight answer to a straight question.
Let’s say I use 1000 KWH per month. If I convert to this program, does that mean that (all other things equal), energy producers in Virginia will produce 1000 additional KWH of clean energy, and this will replace 1000 KWH of fossil-fueled energy?
The answer to that is almost certainly no. But you’ll never get the offerer to say that in simple language. My decision to enroll in the Dominion Energy 100% renewable option will almost certainly have zero impact on the amount of clean electricity generated in Virginia.
What is this, exactly?
In a nutshell, I’d pay an extra 0.4 cents per KWH, and Virginia Power would pass that along to selected renewable energy providers in Virginia and North Carolina. The idea is to “support renewable energy” in this area.
The actual mechanism for the flow of money flows is the purchase of Renewable Energy Certificates (RECs). RECs are a fairly opaque topic, so let me defer the full explanation to the next section. For the time being, it’s enough to say that Dominion Energy would transfer that additional 0.4 cents per KWH into the pockets of local clean-energy suppliers. And when they did that, I’d “own” the greenness of that electricity.
Yay me.
But who are those green energy suppliers? And what will that payment do for the environment?
The biggest of those renewable energy providers in Virginia is — wait for it — Dominion Energy. So, for example, they list the Whitehouse solar facility as one of the providers from which “my” renewable energy will be sourced. That is, one of the suppliers who will be paid that extra 0.4 cents per KWH. Whitehouse is a solar generating plant built by, owned by, and operated by Dominion Energy (reference). That plant went on-line almost six years ago, and has been providing energy to the grid all this time.
So, wait? Dominion Energy just gave me the opportunity to pay Dominion Energy extra, for electricity from a plant that they built six years ago? Electricity that they are going to put onto the grid, whether I pay them that bonus or not? And the cost of which is already factored into the rates I currently pay?
Yep. Yep to all of that. There’s a little more to it than that. There are a handful of suppliers who aren’t owned and operated by Dominion Energy. But that’s the gist of it.
You need to know a little more to be certain that this has zero (or near-zero) additionality.
- A large part of this will consist of Dominion Energy those funds, and paying them to Dominion Energy.
- For power plants that Dominion Energy owns.
- And already operates.
- And that I already pay for via my current electricity rates.
Surprisingly, the on-line description of this program made none of that clear. They didn’t lie about it. But I had to dig it out of the details to get all that straight.
Renewable Energy Certificates (RECs) and binding constraints.
Below you see a partial listing of renewable energy mandates for state-regulated electric utilities. As of the dates shown, renewable (or, alternatively, clean) energy has to account for that fraction of each utilities generating portfolio. Exactly what counts varies state-by-state (e.g., nuclear is clean, but is it renewable). But the gist of it is more-or-less anything but fossil-fuel-fired electricity production..
Source: National Conference of State Legislatures.
How they are going to achieve that, or can they achieve that, are both legitimate questions. But fact is, this is what state-regulated electricity suppliers have been asked to accomplish, within the stated timeframes. Clean electricity is a big part of doing our part to slow global warming. And that’s currently embodied in these state mandates.
Which brings me to Renewable Energy Certificates (RECs).
RECs are more-or-less an audited bookkeeping system for keeping track of the production and use of “green” electricity. RECs are created by private (and, hopefully, trusted) accounting entities. In principal, each REC certifies that that a megawatt-hour of electricity was produced by such-and-such green provider, and supplied to the grid.
From the standpoint of economics, RECs greatly enhance the efficiency of those “clean power” mandates by creating a tradeable market in the rights/owernship of green power production, separate from the physical production of that power.
The key thing about RECs is that most states will allow their utilities to meet these clean energy targets by building and operating clean power plants, by buying electricity from private clean power plant operators connected to their local grid, or by purchasing RECs from clean power plants elsewhere.
In other words, areas that can produce a lot of cheap, clean power — more than is required by their local clean power mandate — can use that power on their local grid, but sell the credit for producing clean power to somebody else.
That’s a lot easier to understand with an Alaska-Arizona example. In Alaska, solar power is an expensive way to generate carbon-free electricity. By contrast, solar gives far more bang for the buck in Arizona. Suppose the Alaska electric utility were mandated to build one gigawatt-hour of clean electrical generating capacity. They could spend a ton of money building an inefficient solar farm in Alaska. Or they could spend vastly less building an efficient one in Arizona.
In the end, we all breathe the same air, and that additional clean energy will have (roughly) the same impact on global warming whether it was created directly in Alaska or built somewhere else on the U.S. grid. And so it makes more sense to allow Alaska to site that new solar plant where it is most efficient to do so. You get more environmental benefit for the same amount of investment.
That’s more-or-less what RECs do. The Alaskan utility doesn’t, itself, have to build that new solar farm in Alaska. It doesn’t even directly have to build it in Arizona. They just have to pay for it. In particular, they have to pay to claim the “greenness” of that solar energy, under their (theoretical) state clean-power mandate. They do that by buying and retiring the RECs that are created as that solar energy is pumped onto the grid. Meanwhile, the Arizona utility doesn’t get to count that as local green energy under its own clean energy mandate. That’s because the accounting system behind the RECs ensures that the “greenness” of the energy only gets counted once. Arizona will use the power, sure. But Alaska bought the rights to the “greenness” of that power.
And here’s the kicker. If Arizona is shy of its own clean-power goals, they’ll have to go out and build or buy additional green power. In that circumstance, Alaska’s demand for green power results in the construction of additional green generation. But that construction occurs where green power can be produced efficiently.
Actual policies regarding RECs will vary across states. For example, a state might allow REC purchases to satisfy the mandate, but only for plants directly connected to their portion of the grid, or within their wholesale power market area.
Source: US EPA
But the gist of it is the same. To whatever degree is allowed, RECs not only form the accounting backbone of state green-power mandates, the market in RECs allows new green power to be funded from those states, but built in the most efficient locations possibly (within the limits of each state’s rules).
The additionality of those state mandates — whether or not they result in displacing fossil-fuel generation with new green power generation — depends on whether or not the mandate is binding.
If there’s a shortage of clean power within the allowed REC trading area, you can trade those RECs all day long, but somebody is going to have to build new clean power to satisfy all those mandates. By contrast, if there’s already enough to more-than-satisfy the mandate, bumping the mandate up a bit doesn’t result in the creation of new green power. Those with a surplus can simply sell their RECs to those without.
So, does the Dominion Energy 100% Renewable Energy plan have additionality, or not?
It’s worth looking at the exact wording of the renewable energy mandate for Dominion Energy, the principal electricity supplier in Virginia (emphasis mine).
Under the mandatory RPS Program, Dominion Energy Virginia and American Electric Power are required to produce their electricity from 100 percent renewable sources by 2045 and 2050, respectively. A utility that does not meet its targets is required to pay a specific deficiency payment or purchase renewable energy certificates.
Source: LIS.virginia.gov
The gist of that is that by 2045, Virginia power either has to generate all of its electricity from renewables, or buy up enough RECs (or pay enough in penalties) to make up the difference.
But what do we count as renewables? If you then track that back to the actual legislation, you find that:
"Renewable energy" ... does not include energy derived from coal, oil, natural gas, or nuclear power."
That said, if you look down into the details, what Virginia actually requires is 100% renewable or carbon-free electricity. So, in fact, nuclear will count as part of 2045 100% mandate.
Even so, if you look at the current Virginia grid, it’s pretty clear that’s going to be quite a trick. As of 2020, just 35 percent of electrical generation in Virginia would count as renewable or carbon-free energy. Over the next 25 years, Dominion Energy is going to have to replace two-thirds of the energy sources used to generate electricity in Virginia. Or buy the RECs to make up for the shortfall.
Source: Underlying data from the U.S. Energy Information Administration.
As highlighted above, Virginia’s grid has gotten cleaner and less carbon-intensive over the past two decades almost exclusively by substituting natural gas for coal. But this next phase is a different beast entirely. Over the next 25 years, Virginia is more-or-less going to have to eliminate the use of natural gas as a fuel for making electricity.
That’s a pretty tightly binding constraint, I’d say. In other words, they’re likely to be building or buying renewable energy about as fast as they can, to be able to retire that much gas generating capacity.
But does my purchase under the 100% Renewable Energy plan add to that constraint? Does my purchase force Dominion Energy to go out a build even more green power?
No. As far as I can tell, the law simply does not mention voluntary consumer programs such as the new 100% Renewable Power plan. (Although, to be clear, this is a long and complex bill, and I may have missed something.) Near as I can tell, the mandate is that the generating sources connected to the Virginia grid have to be 100% renewable or carbon-free by 2045. If I chip in another 0.4 cents, and in theory gain ownership of the RECs for some of that — near as I can tell, I don’t think that matters. It won’t require Virginia to go out and replace those RECs with new ones. Contrary to the basic idea of RECs, I’ll own the greennness, but the state will count that greenness toward Dominion Energy’s 100% clean-or-carbon-free mandate.
The Upshot
Zip. Near as I can tell, that’s what my additional $5 per month on the utility bill will do. It will largely go into Dominion Energy’s pocket, for operating some power plants that they are already operating, and would continue to operate in any case.
Looking forward, the state has put a lot of pressure on Dominion Energy to replace natural gas (and the vestigial coal) with some other non-carbon-emitting power source. And as far as I can tell, if I buy up those clean-power RECs via this 100% Renewable Energy plan, Dominion Energy gets to count them toward its 2045 100% mandate anyway.
Maybe I’d participate if I somehow felt the need to feel better about my electricity use. Or if I was uninformed. But once I’ve tracked down the details, I don’t see the need to participate in the Dominion Energy 100% Renewable Energy plan.
This does, however, explain Dominion Energy’s complete U-turn regarding voluntary green energy programs. They did their damnedest to kill those in the past, presumably because it required them to make or purchase green power. But now that they are mandated to produce or purchase nothing but green power, they are once again promoting those consumer-driven voluntary programs. Why not? If you can get your customers to volunteer to pay your costs for you, while producing nothing extra? From a business standpoint, what’s not to like?
