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What Are You Getting If You Buy Clean Electricity?

Many Community Choice Aggregators are marketing clean energy by simply rearranging where existing low-carbon electricity goes. 

Change is potentially afoot for me this November, and I’m not talking about the midterm elections. In November, if I do nothing, I will become an electricity customer of East Bay Community Energy. What does that mean? As their handy schematic points out, my local utility, PG&E, will still own and operate the wires and deliver power to me, but East Bay Community Energy will be in charge of buying electricity from the wholesale market for its customers to consume.

Source: ebce.org

East Bay Community Energy is my local Community Choice Aggregator (CCA). CCAs are taking cities and counties around California by storm. According to one projection, they could serve almost 2/3 of load in the California investor owned utilities’ service territories by 2020. They are essentially competitive retail providers with a twist: they aren’t for-profit companies but entities set up by the local governments. (See Severin’s overview of the pros and cons of CCAs.)

The newfound appeal of CCAs in California appears to hinge at least partly on the environmental characteristics of the electricity they’re buying for us. Many of the CCAs have “clean” in their name: Sonoma Clean Power, Valley Clean Energy, CleanPowerSF, Silicon Valley Clean Energy. East Bay Community Energy’s graphic highlights that they, “buy and build cleaner energy,” reinforced by the wind turbine and solar panels.

But, what does it really mean to buy clean electricity from an entity like East Bay Community Energy?

I can imagine a CCA enthusiast, I’ll call her Ms. Virtuous, driving past wind turbines, like the ones in northern California’s Altamont Pass, basking in her green glow, thinking, “Yes! Those wind turbines were built to provide me power. If everyone bought electricity this way, the dirty coal plants would rot in power plant hell, we’d have tons of wind turbines, fields full of solar panels and we’d solve climate change.” (I know what you’re thinking: nobody besides me and my friends thinks about where their electricity comes from no matter where they’re driving, but indulge me for a minute.)

The CCA embracers are probably not like Ms. Doubter, who drives by large hydroelectric dams in the Pacific Northwest thinking, “Hmm, these dams have been around for decades supplying electricity to Oregonians. But, since I decided I wanted clean energy, the dam’s electricity is being re-designated as mine and the electricity that I used to buy from the coal plant in Utah is now on paper being sold to Oregon. So, on net, nothing is really changing.”

At a recent California Public Utility Commission hearing, the CCAs reported details on their current and planned power purchases. The situation appears a lot closer to the musings of Ms. Doubter driving by the dam than Ms. Virtuous driving by the wind turbines.

For example, the figure below reports East Bay Community Energy’s existing and planned energy purchases. About half of its current energy procurement (2018-19) comes from large hydro. Keep in mind that the last large hydro plant built in the Western US went into service in 1966.

Source: ebce.org

The chart below suggests that East Bay Community Energy is not alone. The figure breaks down the planned capacity purchases from GHG-free sources for a large group of CCAs. Over half of the greenhouse gas-free electricity is currently coming from large hydro (the grey bars). Also, this figure reflects capacity, not energy. Since hydro resources have a higher load factor than wind or solar, the share of GHG-free energy accounted for by large-scale hydro is likely even higher. (The figure on this page reflects energy, but it’s a little hard to parse given all the “unspecified” power.)

Source: California Community Choice Association. CPUC

I’m more comfortable labeling something clean if it’s truly additional, meaning that it didn’t previously exist and isn’t being used to satisfy another zero-carbon mandate.

Calling large hydro clean is an example of a phenomenon called reshuffling. Jim Bushnell, Carla Peterman (then an ace graduate student at the Energy Institute) and I wrote a paper about this in 2008, before CCAs were a big thing. We analyzed several of the early ideas for achieving California’s greenhouse gas emissions goals to see whether they could be met by simply buying more from existing out-of-state zero and low GHG resources, like large hydro.

The basic idea hinges on the economics of consumer boycotts. The crucial thing about a boycott is that it’s ineffective if it’s small relative to the entire market, or, more specifically, if the boycotting customers account for a smaller share of the market than the items that are not subject to the boycott.

For example, in the figure below, with only 4 of the 10 customers boycotting, and 7 of the 10 items not subject to the boycott, the potential for reshuffling exists. There are enough items outside of the boycott to supply the needs of the boycotting customers and the boycotted goods can still find buyers among those who don’t care.

Imagine, for example, the same market with half of the items subject to the boycott and 6 out of the 10 customers boycotting. Then, the boycott would start to bite.

What that means in the electricity case is that as long as consumers in other parts of the West do not care about the provenance of their electricity, the clean energy that CCAs are buying from large hydro and other existing resources is doing absolutely nothing to address climate change.

I know, there’s more to it. CCAs don’t just buy clean energy. Some offer free smart chargers, they’re promoting heat pumps, they advertise better net energy metering deals than the utilities for customers with rooftop solar. And, some of them offer the option to upgrade to 100% “local” renewables that don’t include large hydro, for a premium. Beyond the environmental angle, CCAs have been able to offer slightly lower rates than the utilities in part given the structure of the exit fees. In addition, CCAs tout the benefits of local control and the ability to direct investment to the communities that they serve.

Also, the last part of Ms. Virtuous’s musings is true – if more people were buying 100% clean energy the boycott would start to bite and we would need to build additional GHG-free resources.

Finally, some CCAs strive to be a bit greener than the utilities. For example, East Bay Community Energy targets being 7% cleaner than what is required of them by the state Renewable Portfolio Standard. But, 7% cleaner doesn’t sound as catchy as just clean.

So, will I switch to East Bay Community Energy? We’ll see. In a true legislative victory for CCAs, they are the default provider, so I have to take an active step to stick with PG&E. Even if I intend to do it, the power of the default is strong (as I’ve dug into in other research), particularly for procrastinators. I’ve got the opt-out page bookmarked. I’ll work on it tomorrow….

Keep up with Energy Institute blogs, research, and events on Twitter @energyathaas

Catherine Wolfram View All

Catherine Wolfram is the Cora Jane Flood Professor of Business Administration at the Haas School of Business, University of California, Berkeley. ​During Academic year 2018-19, she will serve as the Acting Associate Dean for Academic Affairs at Berkeley Haas. She is the Program Director of the National Bureau of Economic Research's Environment and Energy Economics Program, Faculty Director of The E2e Project, a research organization focused on energy efficiency and a research affiliate at the Energy Institute at Haas. She is also an affiliated faculty member of in the Agriculture and Resource Economics department and the Energy and Resources Group at Berkeley.

Wolfram has published extensively on the economics of energy markets. Her work has analyzed rural electrification programs in the developing world, energy efficiency programs in the US, the effects of environmental regulation on energy markets and the impact of privatization and restructuring in the US and UK. She is currently implementing several randomized controlled trials to evaluate energy programs in the U.S., Ghana, and Kenya.

She received a PhD in Economics from MIT in 1996 and an AB from Harvard in 1989. Before joining the faculty at UC Berkeley, she was an Assistant Professor of Economics at Harvard.

20 thoughts on “What Are You Getting If You Buy Clean Electricity? Leave a comment

  1. The CCAs generally do not claim large hydro as “green”–they stick with the state’s definition of RPS power, just as the IOUs such as PG&E and SCE do. They do claim the large hydro as GHG-free power. But I’m surprised that as an economist you do not recognize that these purchases increase the demand, and therefore the price, for low-GHG resources. This is turn incents construction of more low GHG power, and also reduces demand for electricity. If you believe that the CAISO hourly market represents the marginal energy source, then you have to agree that the lower demand leads to lower GHG emissions. (I don’t think that the CAISO market represents the marginal energy source–it’s now just a balancing mechanism, but I’m not the one defending the notion that CCAs are just shuffling resources.) So regardless over time GHG emissions are reduced on net.

    Use of production cost models to try to sort out “shuffling” fails to uncover the real outcomes because the models do not capture resource investment decisions. Those models generally treat generation assets and demand forecasts as fixed and focus instead on the precision of operating the current electricity network. They aren’t useful for analyses with large system changes, at least in the configuration in which they are commonly used. I don’t put much stock into these studies. Unfortunately, a certain CPUC commissioner may not recognize the shortcomings of this methodology.

  2. You may have a bit more time to evaluate the opt out option.

    My in-laws were required to try out the CCA that went live in Placer country (Auburn area) earlier this year. They were told they can go back to PG&E after some period of time, the length of which I forgot- sorry.

    The PUC recently published:

    “An Evaluation of Regulatory Framework Options for an Evolving Electrify Market August 2018”

    http://www.cpuc.ca.gov/uploadedFiles/CPUC_Public_Website/Content/Utilities_and_Industries/Energy_-_Electricity_and_Natural_Gas/Cal%20Customer%20Choice%20Report%208-7-18%20rm.pdf

      • m…

        Thanks I’ll let them know that the check is in the mail so to speak. They would of preferred to have SMUD as their service provider, but that option wasn’t available.

        I will be dropping off some well seasoned oak for their use this winter in a few weeks. I’ll follow up in person to see if one of the PCE opt out checks made it to their PO box.

  3. Sounds like the exit fees are on the low side. If this indeed raises the prices paid to renewable generators, that will be another subsidy. All these mandates and subsidies (regressively) increase costs to taxpayers and utility ratepayers. Maybe Bushnell was right to call CCAs “politically-correct retailers.” How else to explain California’s exclusion of hydro from the RPS?

    • Jim
      The exit fees are on the high side when the full market value is considered, and when the portfolio costs are properly sorted. The key issue is whether the CPUC will act to hold shareholders liable for mismanaging their portfolios. PG&E has a price hedge of $33/MWH on its RPS portfolio based on the language in its 2016 RPS Procurement Plan and my calculations from PG&E’s confidential portfolio data. That does not sound like prudent management. PG&E could have sold to the new CCAs from its RPS portfolio to mitigate this cost.

  4. ‘Short term’ renewables? Most of the renewable projects I’m aware of were financed based on long term, 100% output, contracts with utilities. Are the Utilities reselling short term power? Who is selling short term renewables? Is BPA selling hydro to municipals in Ca.? That hydro power is some of the cheapest power in the West. Are Oregonians going to see a rate increase, with all this power flowing to Ca.? As mentioned above, the clearest way is to retire REC.s

  5. I agree with Gilbert. A true test of a CCA’s environmental integrity is whether they retire their surplus RECs. Have looked at some of the CCA websites but have yet to see a definitive statement on this, one way or the other. Anyone?

    • The CCAs are not selling their surplus RECs as that they use those RECs to demonstrate overcompliance with the state’s RPS. That effectively “retires” their excess RECs, but I doubt they are going to make the explicit statement that you’re looking for.

  6. As your new CCA forms it lacks the capital and credit to perfectly pre-build all the new renewable plants you may want on day one. So it prudently goes through a speedy transition like you show in EBCE’s first chart of starting with high fractions of existing renewables and transitioning to substantial amounts of additional renewables. To the extent it creates demand for hydro and other renewables it supports prices in those markets. To the extent that the exporting states have their own RPS (like OR’s 50% by 2040 or WA’s 15% by 2020) that creates demand for additional renewables. To the extent that the CCAs buy some short term renewables, that supports those markets also and makes the financing of new developments a little more secure knowing there are waves of demand for short term purchases coming from CCA growth. However, if you opt out of your CCA that’s trying to meet demand with more renewables, you fall back into PG&E’s portfolio management regime. You may think that’s nearly as clean as the CCA portfolio, but your marginal decision to opt out of CCA and into PG&E’s portfolio is met by 100% fossil fired ( aka unspecified ) energy. How so? Because PG&E already has more than enough renewables to meet its RPS requirements because its portfolio load is falling as CCAs take on more of that volume. So when you opt back into PG&E with a 2 MWh/year load, PG&E doesn’t go procure 1 MWh of more renewables than they had. They already have more than enough renewables to meet the RPS needs of the other customers plus you. They simply end up buying 2 MWh more unspecified power that they had room to buy without violating their RPS requirements. Therefore Opt-Out customers going back to PG&E are 100% fossil fired regardless of their thinking patterns. They are more like Margie Marginal, not like Abby Average.

  7. You forget “baseline” requirements. California ought to get their heads strait and endorse large scale hydro as “renewable” and build dams- for better H20 management (were a “dry” state and wasting melts. Build dams!

    • Along with the water problems created by large dams, there are two other big problems. First, all of the best dam sites are built out, and the large projects proposed to the Water Storage Investment Program would be low-head hydro that produces only a few tens of megawatts. And second, recent studies indicate that the methane emissions from reservoirs are significant.

  8. One way to ensure you are not simply reshuffling is to buy from a clean energy program that buys and retires RECS from Renewable Portfolio Standard (RPS) programs. That would guarantee additional clean energy production (assuming the RPS quota is binding). Does East Bay do this?

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