This is the transcript of Episode 11: How Green is Green Electricity? (Mini) of the How to Make a Difference podcast. Go to the episode page to listen to this episode and for the show notes. Furthermore, we encourage you to read our blog post on green electricity.
Elisabeth Ignasiak: Hey everyone!
Chinmai Gupta: Hey everyone!
Elisabeth Ignasiak: In our previous episode, episode 10, we discussed green electricity. If you haven’t listened to it yet – the best thing is to hit pause and listen to episode 10 first. But just to make sure you have a bit more context we’re gonna give you a quick Summary
Chinmai Gupta: The most important concept we learned was that electricity is delivered to us through a common pool. Everything produced (renewable or not) gets mixed together and we consumers draw from this mixed-up pool of electricity.
Since electricity can’t be stored, it has to be produced in real time. So there is a complex mechanism behind the scenes to ensure this. Suppliers forecast to the minute what the expected demand will be and schedule generation accordingly.
Renewables come with added complications, because of complications…
Elisabeth Ignasiak: Complications, because of complications… very good!
Chinmai Gupta: Now, renewables come with some added complications and fluctuations, because the sun doesn’t always shine, for example, and the wind is not always blowing.
And so the grid has to be balanced with some predictable generation from coal and gas.
In the future, as storage technology comes of age, we will be able to eliminate fossil fuels altogether.
Elisabeth Ignasiak: And we also learned what I as an end consumer can do: for example that turning on my dishwasher at night, can actually help to make the grid greener. Because at peak times, like in the early evening or at lunch when people start cooking: those electricity peaks are currently filled with electricity from coal or gas or similar. So if I can avoid switching my appliances on at those peak times – I automatically avoid that dirty electricity.
The one thing we haven’t covered much in episode 10 is the question: Which green electricity contracts can I actually trust?
Chinmai Gupta: Here is what Janet Wood, editor of new power magazine, who you also heard in the main episode, had to say:
Interview with Janet Wood: 2:53
Elisabeth Ignasiak: We were wondering to what degree we can trust a green electricity provider? In particular considering that most electricity goes through that common grid.
Janet Wood: Well, that is a little bit of a moving target. The electrons, once it’s in the wires, the electrons are electrons. The supply… On an accounting for the electricity that you use basis, you might find that all of the kilowatt hours could be ticked off against green kilowatt hours that the supplier has bought from generators. So it might have bought a lot of wind power, and it might have supplied you with that same amount.
Unless you have a tariff that tells you that every half an hour is providing you with green power it might not all be green. So the company will have to call on other types of power plants to do this balancing to manage peak times. So you really need to interrogate your tarif and ask on what basis it’s being supplied.
Also, some power companies are able to make it even more an accounting sort of fiction, if you like. One of the ways that renewables have been promoted is to require electricity suppliers to supply certain amounts of green electricity. And that is accounted for by giving each bit of generation of green power a certificate. Now, that gives those generators some extra income, which has been needed because initially at the start of the industry, it was more expensive.
Now, those certificates can be sold separately to the power. What that means for you is that your electricity supplier could have bought certificates to say that it’s bought green power, but not the green power itself. So it could do those two things separately.
Elisabeth Ignasiak: We thought what Janet mentioned about the certificates was really interesting. So let’s zoom in a bit more:
Chinmai Gupta: EU law states that suppliers can only claim to be a green electricity supplier if they have bought and cancelled guarantees of origin for the delivered amount of energy.
Elisabeth Ignasiak: Basically, these guarantees of origin are a sort of certificate proving that a certain amount of green electricity has been produced. And so far – so good. Now what’s funky about this – and Janet alluded to this earlier – Electricity producers are allowed to sell the electricity and the certificate separately.
Chinmai Gupta: It took us a while to wrap our heads around this.
Elisabeth Ignasiak: Yeah.
Chinmai Gupta: To make it easier maybe we can make an analogy with chocolate.
Elisabeth Ignasiak: Yay! I love chocolate!
Chinmai Gupta: Exactly why we’re making this analogy. Imagine a fair trade cocoa farmer who sells the fair trade label and the cocoa beans separately. Imagine then that the chocolate manufacturer who bought the label uses non-fair trade beans but sells it with the fairtrade label that they paid for separately. I think this would not go down very well in the food or chocolate industry.
Elisabeth Ignasiak: Or with chocolate lovers like me.
Chinmai Gupta: Exactly. But I think it’s a bit more complicated with electricity, isn’t it?
Elisabeth Ignasiak: Well, actually, when it comes to electricity it’s not THAT crazy, because electricity is physically always the same – electrons are just electrons. And since electricity – no matter if green or brown – goes into the same grid and is being mixed anyways what matters really IS how much green electricity is being produced and goes into that common grid. And the goal is to increase that percentage.
Chinmai Gupta: Exactly. However, this is a very contentious topic. There are multiple ways in how this is handled:
So some companies have power purchase agreements, or PPAs with renewable plants and they also buy the GOs, or Guarantees of Origins from them.
Elisabeth Ignasiak: basically that means they buy the certificate and the electricity together.
Chinmai Gupta: Others may only buy the GOs but procure the actual electricity from the market which comes from that mixed-up pool, that Elisabeth mentioned. So there seems to an ongoing debate as to what exactly should constitute truly green energy.
Elisabeth Ignasiak: One position is: if you buy the label but not the electricity that’s just greenwashing. The other position is: electrons are just electrons, and what matters is that green electricity is really being generated.
Chinmai Gupta: Exactly. And so we did more digging around. And Elisabeth, you found something helpful, isn’t it?
Elisabeth Ignasiak: Yeah, actually I read a lot of stuff about this, and funny enough the most helpful sentence I found on … Wikipedia.
Chinmai Gupta: Of course… the holy grail… just joking
Elisabeth Ignasiak: And… Yeah, so this is from the Wikipedia article on power purchase agreements – it sais:
“The PPA is often regarded as the central document in the development of independent electricity generating assets (power plants). Because it defines the revenue terms for the project and credit quality, it is key to obtaining non-recourse project financing.”
So, I know that sounded very technical, but here is what that means:
In both cases – so the certificate-only and certificate plus the power purchase agreement – green electricity is produced, put into the “pool” and that generic mixed electricity from the grid is then supplied to the customer, because that’s just how the grid works.
The difference is: in the certificate-only case, the electricity producer is paid the market price for their electricity and in the case of the certificate plus a power purchase agreement: The electricity producer knows he can sell a certain amount of electricity at an agreed upon price.
Chinmai Gupta: Or in other words: If a supplier is only buying the GOs, they’re only giving a small extra incentive to the renewable producer, since the price of a GO is just a small fraction of the electricity price. However, for the electricity itself, the producer is at mercy of the market price – which changes every minute.
The other option is for a supplier to buy the GO but also enter into a longer term Power Purchase Agreement, or PPA, with the producer. Since PPAs are usually for a fixed price, this saves the producer from the constant fluctuating market price and gives them better certainty in planning and investing. This would be strongest if the PPA was very long term, say 15-20 years, and is a key element to making the renewable project commercially viable, preferably without taxpayer funded subsidies.
Elisabeth Ignasiak: Just for completeness, the two green electricity models we just compared, so buying the certificates together with the electricity, or buying only the certificates, these are just two of many models that are actually out there. One thing that we see is that companies buy the electricity certificates, they don’t buy the corresponding green energy, however they then commit to investing a certain amount of money to build new renewable energy infrastructure.
Then of course, there is big energy companies that produce both renewable and non renewable electricity and they also have green electricity plans and they can sell that to you directly without the middleman. So basically, every company handles this a little bit differently.
We’re sure everyone’s brains are fried by now – surely mine is – so let’s stop here for today. In the next two Mini Episodes we will dive into those models in a bit more detail and present you some concrete examples for electricity providers with a variety of models.
Chinmai Gupta: Did you like the level of complexity in this episode and the last one? Or would you prefer us to dive in deeper? Or was it already too much detail for you? If you, our listeners, have a view on this, we would love to hear from you! Our e-mail is hey at hey-impact.com
Elisabeth Ignasiak: And that’s it for today. See you next time! Bye-bye!
Chinmai Gupta: Bye-bye!