My post earlier today had an off-hand comment about GreenPower that upset some folks in the comments. I mistook gas-powered generators as part of the mix which they clearly are not. Anyhow, I have a clear hypothesis about what is concerning me and having read some more details on greenpower.gov.au, I remain worried. So let me proceed in steps and I am sure concerned commentators will correct me if I am wrong.
What does Green Power do? First, you don’t buy power or electrons; although if you have ever been sold on these by your power company you could easily be fooled. Instead, you buy a service whereby your retailer agrees to purchase power from Green sources which include hydro, solar, wind and some others. But they do not purchase that power in the spot market — that market doesn’t discriminate. Instead, they have to contract directly with green generators for forward contracts that are enough to cover your demand. In return, you pay more for electricity and more than the current cap. So this does not directly generate more green sourced power but it does provide a payment to those sources that end up funding investment. Second, just to make sure that occurs, 80 percent of contracts have to come from designated ‘new’ sources.
1. There is no guarantee that your purchase of Green Power (the service) will result in your electricity demand adding to actual production of green sourced power. Why is this? Because in what is actually dispatched in generation green sources compete with other sources which may be cheaper at the margin. In this case, it may only be in the very peak periods that green plants are dispatched but that would be the case with or without your particular purchase. However, what your purchase helps is to subsidise the entry of such generation so it is there just in case.
2. Will your electricity demand actually result in a net change to green contracts by your retailer? Again, I ask this because while in theory it should, in practice, even with audits, it is not clear what benchmark contracting your retailer would otherwise choose. For instance, retailers always have hydro contracts and presumably if wind is on-line that is easy to contract with too. They may well hold those contracts anyway. This means that your purchase of GreenPower (the service) may not cause there to be more contracts to green sourced providers than would otherwise be the case. Now the new generation requirement helps but the audits do not capture this as a benchmark.
Indeed, to drive this home, if you look at the most recent Compliance Audit (2005, p.43) you can look at AGLs’s Green Energy as an example. You will find there that GreenPower sales decreased from 37,785MWh in 2004 to 29,403MWh in 2005. But their purchases of GreenPower increased from 233,590MWh to 428,818MWh in the same period. (By the way, of their purchases, only 56.6% were from GreenPower but that exactly 80 percent of their sales were allocated to new sources). So they are outstripping their required GreenPower purchases by more than a factor of 10. Good for them but on the other side, how can it be said that their GreenPower customers are causing that additional purchase. In all likelihood this is what they are doing anyway. It seems to me that it is mere accounting that is allowing them to comply but not customer demand.
Now I am happy for those more knowledgeable than me to correct my assessment of these concerns here. But you can see why I have cause for worry. The key issue is that if I pay a higher price for GreenPower then I expect that to really cause that premium to flow to the investors going the green investing not simply as a bonus to retailers for whom GreenPower is already cost effective. It is the marginal impact that matters.
What I want in a Green product that will justify spending more is a guarantee that my choice to do so, will DEFINITELY flow to stimulating investment in green sources. So there is a part of me that can live with Concern No.1 but Concern No.2 is a deal breaker.
Now, one easy way to deal with that concern would be to purchase electricity from a retailer that ONLY purchased GreenPower. In that case, I wouldn’t be worried about portfolio balance issues and tracking of contracts and reverse contracts and swaps and own generation, etc. There are such providers about.
(Oh and by the way, if it could build reliability into the mix, that would make me even happier. And if you are worried about my environmental leanings then read some previous posts like this one or this one).