RENEWABLES: Businesses and government agencies take the lead in buying 'green' electricity  (Tuesday, November 25, 2008)

Debra Kahn, ClimateWire reporter

In the absence of a national carbon cap, the sky's the limit for the voluntary renewable energy industry, thanks to businesses wanting to present themselves as emissions-friendly.

According to a report released last month by the Energy Department's National Renewable Energy Laboratory, the voluntary retail market for renewable electricity increased by more than half last year -- to 18 billion kilowatt-hours, or 0.5 percent of total U.S. electricity sales.

The face of the market has changed since its inception about 10 years ago: While early programs were aimed at the residential customer, growth in that area has stagnated. But a much larger market has become apparent in the corporate world. Nonresidential customers drove the bulk of the growth in 2007, purchasing 75 percent of all voluntary renewable energy on a kilowatt-per-hour basis.

Within the nonresidential market, the growth is being driven by a very small number of customers making very large purchases. Intel, PepsiCo and the U.S. Air Force were the top buyers of green power this year, accounting for 3.3 billion kWh of voluntary purchases, according to U.S. EPA data from July. Wells Fargo and Whole Foods added another billion kWh to round out the top five.

Their purchases mostly came in the form of renewable energy credits, or certificates that represent the environmental attributes of renewable energy but not necessarily the energy itself. Sales of RECs last year increased 60 percent over 2006 levels, according to a report released last week by the Center for Resource Solutions, a nonprofit that certifies the majority of RECs sold in the United States.

Voluntary buyers still prevail, despite growth of mandatory standards

The huge increases in sales indicate that the voluntary market is weathering the spread of renewable portfolio standards across the country. Even with the proliferation of renewable portfolio standards -- 27 states plus the District of Columbia currently have them -- the voluntary market is still outpacing mandatory demand, at least for now. State policies mandated the purchase of about 16 billion kWh last year, compared to 18 billion kWh sold into the voluntary market.

"By 2010, RPS policies collectively call for utilities to obtain more than 60 billion kWh of new renewables, rising to 91 billion kWh in 2012; it is unclear whether the voluntary market will continue to outpace this compliance demand," the NREL report says.

In fact, analysts have seen an increase in the voluntary market in some states with renewables standards. "So far, we have not seen it chill the voluntary market when states enact them," report co-author Barry Friedman said, citing California, Wisconsin and New York as prime examples. "Consumers and the electorate are the same population base," he added. The same people who support renewable mandates tend to take voluntary actions, as well.

On the "$64,000 question" of whether a national carbon cap would affect the voluntary market, Friedman drew a distinction between an RPS and a cap-and-trade program. "Based on state experience, it doesn't seem the voluntary market would be hurt by a federal RPS," he said. "But a federal RPS is different, so it's not yet clear."

"I do think the voluntary renewable energy market would be affected by how it's treated in cap and trade," he said. Factors influencing the role of the voluntary market include whether voluntary purchases are given credit and whether companies will receive "early action" credit for actions taken before the policy is put into place, he said.

The rate of participation in utility programs by residential consumers has remained low, at an average of 2 percent in 2007, up from 1.3 percent in 2001. The NREL report chalks it up to a number of factors: lack of customer awareness, unwillingness to pay a premium, customer uncertainty about actual benefits, and some utilities' lack of interest in promoting their programs.

But the rapid adoption of renewable energy credits by private industry has compensated for a lower adoption rate in the public sector.

Another high point: The average premium for green energy has dropped steadily since 2000, by an average rate of 9 percent per year. Of surveyed utilities, the average premium for residential customers in 2007 was 1.85 cents per kWh, down from 3.48 cents in 2000. This reflects the increasing price of conventional fuels like natural gas, as well as an actual decrease in the cost of renewable energy, such as wind-generated power.

According to Friedman, it's too early to tell if the weakened economy or fluctuating energy prices have affected demand. "We know clean energy stock prices have gone down. As far as consumer participation, it's too soon to say," he said.