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Many companies are surprised to discover
that they have cost effective renewable energy options today. Clean
energy is the fastest growing segment of the power industry, which
is good news because electricity production is frequently an organization’s
largest pollution source. From coal mines to power lines, electricity
generation has a high environmental price tag at every step, including
being our largest industrial source of air pollution, according
to the U.S. Environmental Protection Agency (EPA). The good news
is that leading companies have found innovative ways to use renewable
energy to make sound business sense as well as significantly reduce
their environmental footprint. Unfortunately the promise of green
power can be overshadowed by the challenge of unfamiliar details,
complex options, competing claims and difficult price comparisons
leading to a head-scratching condition called “the Green Power
Blues.”
To beat the blues, managers should step past the oversimplified
price per kilowatt view and consider the full value equation. A
good way to unwrap the sometimes confusing combination of benefits
and trade-offs is to break them into three parts: the generation
source, the purchasing mechanism and the package.
Generation Sources
Ecological impacts exist at each step of the electricity generation
and delivery process such as mining for coal, transporting natural
gas, burning the fuel or disposing of nuclear waste. Environmentally
preferred generation options reduce or eliminate the negatives at
one or more of these steps. “How green is green” depends
on priorities.
Generation without combustion using renewable sources with no by-products
and no emissions has been called “deep green.” This includes
solar photovoltaic (PV) and wind power. Other renewables that skip
the burning step include geothermal and hydro, but since they generally
require significant physical infrastructure the impact varies based
on their design, size and location. For example, “low impact
hydro” refers to installations that have minimum effect on
waterways or fish habitat. Other environmentally preferred sources
such as biogas and biomass are derived from renewable fuel sources,
such as agricultural waste or landfill gas, but score slightly lower
green points because they create some combustion products. On the
other hand, reducing a solid waste stream that would otherwise go
into a landfill or capturing a greenhouse gas that would have been
released are winning whole system solutions. Ultimately, any of
these sources are better for the environment than traditional generation.
By considering the source, the buyer can assign degrees of value
to different solutions based on its green power goals.
Purchasing (Delivery) Mechanisms
Independent of the generation source, there are four ways commercial
customers can buy green power. Each has its own benefits and each
can fit a different set of circumstances. Frequently, a combination
of tactics makes up the best overall strategy.
1. Utility and Third Party Power Contracts
Over 300 utilities and third party providers now offer green power
contracts. The details vary greatly, but generally the supplier
agrees to deliver “green” electricity, usually for a price
premium. With different companies offering many different contracts,
the devil is in the details. Some of these programs are not much
more than blind contributions, while others offer significant value
and concrete benefits.
The first question regards content. Is the power from wind, landfill
gas or some mix of sources? Sometimes renewable energy is combined
with non-renewable to create a blended product. How does the content
match the buyer’s needs and expectations? The power “content
label” and an independent certification are important. One
well-known body is the Center for Resource Solutions, whose Green-e™
label has become widely recognized. Certification does not necessarily
mean that the power is perfect. It simply means that it meets a
minimum standard and that the supplier’s records are checked.
It gives confidence that you got what you paid for, but it does
not replace doing the homework.
Beyond the green, direct power contracts can offer significant additional
value. For example, some contracts exempt green power customers
from fuel price surcharges, added emissions costs or special fossil
fuel taxes. Within months of signing contracts in 2002, some Texas
customers found their fixed price “premium” wind power
less expensive than standard electricity due to a spike in natural
gas markets. This “hedge” effect is one example of additional
value.
2. Tradable Renewable Certificates (TRC): “Green Tags”
Tradable certificates are perhaps the most innovative new product
in the utility industry, creating a wide market for green power
by uniquely connecting renewable energy producers and buyers. Anyone
can buy green tags and claim the environmental benefits of off-setting
their electricity usage without involving their utility, making
green tags the most flexible, quick-to-implement renewable energy
option available.
A TRC is created when suppliers generate green energy (from a wind
turbine or other clean source) and sell it to the local power grid
at prevailing energy rates. The supply of clean power to the pool
reduces the demand for “brown” power, thereby creating
an environmental benefit. However, the supplier probably sold the
clean power at less than cost, because the prevailing rate was set
by the lowest-priced traditional generator. In order to encourage
suppliers to produce clean power, the green tag customer buys the
environmental benefit as a certificate. This extra revenue makes
the clean energy financially viable. The certificate provides an
audit trail for the power and allows the buyer to claim the environmental
benefits. A clear content label and third party certification differentiate
quality suppliers.
3. On-site Generation
Producing green power on-site delivers significant environmental
benefits and can result in the most compelling commercial advantages.
Benefits including improved power reliability, quality and future
cost control are launching a revolution in the power industry called
“Distributed Generation.”
There is already a wide selection of existing and emerging products
and technologies. Solar photovoltaic (PV) systems can be added to
a roof or built into a structure as beautiful, functional design
features. Some estimates put commercial PV growth at over 50 percent
per year as a combination of price reductions, system availability,
on-site benefits and incentive programs create financially compelling
solutions.
An excellent on-site solution is to generate power by converting
waste streams into solid or gaseous fuel such as methane rich biogas
produced from animal waste. This approach has combustion emissions
and by-products but can be environmentally preferred due to the
renewable source and the other whole system benefits. Co-generation
is a technique for capturing waste heat from electricity production
for space heating or hot water and can drive system efficiencies
as high as 90 percent. When such a combined heat and power installation
uses environmentally preferred fuels the result can have significant
financial as well as environmental benefits. A new generation of
small-scale, commercially available micro-turbines and soon fuel
cells using this principle may soon change the way we produce and
distribute electricity.
4. Off-site Options
There are cases where owning the power generation assets is the
right business decision, but the user isn’t located where the
power source is. An “off-site” solution can be a creative
answer. For example, a leading carpet manufacturer worked with its
local municipality to construct a landfill gas generation plant
at the community landfill. The company received 100 percent of its
electricity needs at a lower long-term cost plus captured a double
environmental benefit by off-setting its fossil fuel use plus capturing
leaking landfill gases. Moreover, the landfill received additional
revenue by selling excess power. Off-site solutions can be a creative
way to use the company’s capital investment to achieve multiple
financial, environmental and social benefits.
Other Features: The “Package”
After the generation source and the purchasing strategy, consider
the package. Just as with any product, the green electricity supplier
has a value proposition to offer. Buyers should evaluate the product
and the supplier with the same criteria as any other vendor decision;
for instance, consider the service and support. What is the brand
value? Does the supplier practice what it preaches? Is local sourcing
important to you? What additional features or perks is it willing
to include? While your utility company may offer green power, make
sure that the total value of its offering is competitive with other
suppliers, green tags or owning your own generation source.
There are real financial and environmental rewards for making a
choice for green power. Dividing competing options into generation
source, delivery mechanism and the package can simplify the process
and help make a selection that meets your value goals. The impressive
results achieved by so many green power users are clear evidence
that a little homework can beat the Green Power Blues.
Kevin Hagen is principal of Shuksan Energy Consulting (www.shuk
sanenergy.com), specializing in green power solutions for sustainable
business. He has been an innovator in the renewable energy industry
both as a buyer and as a supplier, holding senior positions at leading
manufacturing firms such as Trace Engineering and Xantrex Technology
and serving on the board of the Solar Energy Industry Association
(SEIA). |
