Author: U.S. Gain
U.S. Gain

What are Green Tariffs and Why Should You Care?

Electricity has become a standard in powering our homes, businesses, industrial operations, and now, charging our vehicles. In 2020, the United States utility market generated ~4,007 billion kilowatt-hours (kWh) of electricity to meet consumer demand. Of this, roughly 61% was sourced from fossil fuels – coal, natural gas, and petroleum – 20% from nuclear energy, and an additional 20% from renewables. However, amidst the energy transition, residential and industrial stakeholders are calling for grid electricity to be sourced from even more renewable energy—a vision green tariffs are helping support.

What are Green Tariffs?

In its simplest form, green tariffs are an electricity rate that allow customers to purchase renewable energy from utilities in regulated electricity markets. Once price structures and conditions are set and approved by the state’s Public Utility Commission (PUC), eligible customers can use renewable electricity to source up to 100% of their demand sustainably. As of December 2020, 39 utilities approved or had pending green tariff projects spanning 21 states.

To determine if your organization is eligible to participate in green tariff programs, contact your local utility—terms do vary based on region. The other factor that differs between utilities is how they procure renewable energy, either from a project they own or from an independent producer in the area. The source will determine whether utilities provide market-based rates, manage power procurement on your behalf through a power purchase agreement (PPA), or enable your company to work directly with a renewable project developer.

While 20% of electricity generated in 2020 was renewable, it originated from various feedstocks: 8.4% from wind, 7.4% from hydropower, 2.3% from solar, 1.4% from biomass, and 0.5% from geothermal. Every energy feedstock comes with a unique carbon footprint (varying when you consider lifecycle emissions), but in order to see widespread benefit, additional development projects are needed from each subsect.

What Policies are Driving Adoption of Green Power?

In the United States, utilities and organizations are sourcing or using renewable energy for one of two reasons: to comply with established or forthcoming policies or to expedite their sustainability commitments. As of February 2022, 20 states and the District of Columbia had adopted a renewable portfolio standard (RPS), nine states adopted a clean energy standard (CES), and eight states set voluntary electricity goals. But, what’s the difference?

  • Renewable Portfolio Standards: These policies require that utilities obtain a certain percentage of electricity from qualifying renewable energy sources—including wind, solar, biomass, geothermal, and select hydroelectricity projects. Currently, no federal RPS exists. Rather, states have adopted this on their own, featuring varying program structures, requirements, and regulated entities.
  • Clean Energy Standards: Unlike the RPS, these standards require that utilities obtain a set percentage of their electricity from low to zero-carbon energy sources. This allows for additional energy feedstocks such as nuclear energy or natural gas with carbon capture and sequestration (CCS) to qualify.  
  • Voluntary Green Power: In those states that have yet to adopt a CES or RPS, organizations can still elect to use renewable energy through voluntary green power purchases. However, these agreements lack official enforcement and are non-binding from a state perspective. In other words, state officials or utility providers cannot force ratepayers to pay a premium for renewable energy.

Benefits of Green Tariffs

Fossil-based electricity is subject to price volatility; however, with green tariffs, that’s not the case. Rather, users benefit from price predictability and potential cost savings since these are typically long-term deals—ranging from 10-20 years. There’s also the obvious benefit of meeting stated sustainability goals, specific to Scope 2 emissions: those indirect emissions resulting from the purchase of electricity.

Within many corporations’ sustainability roadmaps, there’s a focus on environmental, social, and governance (ESG) criteria. This makes supporting projects in one’s backyard or a specific region an important consideration. With green tariffs, that’s possible. Organizations often have a say in where their renewable generator project is located as well as what type of project it is—wind, solar, biomass, or beyond. Also, organizations receive bundled renewable energy credits (RECs), meaning not only do they own the environmental attributes to the electricity produced, but the renewable energy supply itself. 

Alternative Option: Green Pricing Programs

Another renewable utility structure is that of green pricing programs. Unlike green tariffs, these are often short-term commitments—typically renewed on a month-to-month basis. Utilities make the decision on what type of renewable energy sources are used and what region they are located in, leaving customers out of the decision making process.

With green pricing, customers receive unbundled RECs, or simply the claim to the environmental attributes of the electricity produced. This means the customer will not actually use the electricity that is associated with their RECs. For that reason, green pricing programs often come at a price premium since they are subject to the volatility of fossil-fuel-based electricity.

While various options, structures, and considerations exist when transitioning to renewable energy, it doesn’t have to be difficult. From offsetting emissions from purchased electricity to targeting and reducing your thermal emissions, our team is here to help. Get started today!

Sign up for Our Bi-Monthly Newsletter for More Insights Like This