Some questions about GreenPower

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.

Some concerns:

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).

7 thoughts on “Some questions about GreenPower”

  1. Joshua, I suggest you go back and do some further reading on GreenPower and renewable energy in the National Electricity Market – again you have made a bunch of assumptions (I can only assume they are assumptions as I cannot imagine where you would have read such incorrect information) on how the market works.

    Your claim that purchasing RECs only supports the development of renewables and not the actual deployment of electricity is factually incorrect. In the majority of cases, a Renewable Energy Certificate (REC) is generated ONLY WHEN a megawatt hour (MWh) of electricity is fed into the grid. Eligible generators

    The minority exception is for small generation units and solar hot water systems, where, due to the difficulty of measuring actual output or savings, a process of deeming is used to calculate production or energy saved, based on location, size of the system, etc. However this process is fairly conservative, all generated electricity is automatically dispatched into the grid, and thus there is no reason to believe that these RECs don’t represent 1MWh of electricity generated or displaced. (Visit http://www.orer.gov.au/index.html & https://www.rec-registry.gov.au/ for more information. NOTE: while solar hot water systems can generate RECs, these are not eligible for GreenPower accreditation, further increasing the directly measured (non-deemed) portion of renewable energy sold as green power.)

    Secondly, you are also incorrect on your ‘Some Concerns’ point #1: At present, virtually all certified GreenPower generation does NOT compete on the spot market with other forms of generation. Intermittent generation capacity such as wind and solar are classified as Non-Scheduled, which means that it does not enter the spot market. NEMMCO is obliged to dispatch all that is generated from these sources, and then use the so-called scheduled generators (coal, etc.) to make up the difference. (See http://www.nemmco.com.au/) Thus, your claim that GreenPower generation is only dispatched at peak periods is blatantly inaccurate.

    Finally, as you point out, at present there is an oversupply of renewable energy, much of which is from GreenPower accredited sources. This has a lot to do with the failure of the federal government to increase the Mandatory Renewable Energy Target (MRET) beyond 2% by 2010, and renewable projects which have been commissioned recently outstripping both this demand and the additional demand created by GreenPower. However, what you fail to point out is the reasons for the disparity between the greenpower purchase and sales figures in the GreenPower Compliance Audit Report. For example, whilst RECs from energy sold under GreenPower is not eligible to be included in a retailer’s obligation under MRET, there is nothing prohibiting a retailer from listing all RECs purchased in their GreenPower audit, then utilising un-sold RECs for their obligation under MRET. Thus the apparent disparity between purchased and sold RECs may be far narrower than at first, cursory glance.

    Further, retailers enter into 5-year hedging contacts for the purchase of GreenPower. The recent increase in purchases beyond demand, as outlined in the Audit Report, may well indicate a hedge against future growth in both GreenPower and / or MRET. It is the very growth in the market up until this point that ensures this hedge. Many retailers, such as AGL, install / purchase their own generation capacity, again as future hedging. Obviously this capacity will also appear on their books as purchased GreenPower, however may be a strategic decision for longer-term market positioning.

    It is foolish and naïve to believe that retailers are buying GreenPower out of the kindness of their hearts, or that it is already “cost-effective” (unfortunately only a price on carbon will bring this about in the near-term). It is mandatory obligation, consumer demand and hedging for future scenarios (based on the former two points) which are leading to these purchases, and without an increase in MRET, it is only the growth in GreenPower sales which will drive the market for renewable energy in the medium to long term.

    I suggest you go back and do some further reading before you post any more of these misleading blogs.

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  2. Brad, thanks for your response. But if asking questions is considered misleading, we are in trouble as a society.

    I appreciate your response to my first question. GreenPower is always dispatched and so you are right then that isn’t a worry. But think about what this means is that other energy sources must compete with it to get dispatched themselves. It is as if their capacity is bid in at a zero price. Now this raises another question: what does non-scheduled dispatch earn? Does it have the potential to earn the current spot price or is it off-market? If it earns the current spot price then retailers will want to contract with it just as a hedge (although without a market power premium). If it earns something else then it would provide a hedge for retailers but not sensitive to other factors. So it would be a different instrument altogether.

    In any case, my main point still remains unanswered. Suppose I want to either (a) purchase GreenPower or (b) purchase carbon offsets for the power I consume. I care not about simply making a payment but actually making a difference. Carbon offsets will be used to actually reduce NET carbon omissions. So no problem there.

    However, what you are saying is that if I bought GreenPower from, say, AGL, that would not result in that power being diverted to low emission generation. That has already happened and is part of AGL’s current strategic plan. My choice won’t change a thing there. As you say, “it is foolish and naive to believe that retailers are buying GreenPower out of the kindness of their hearts.” However, if it is the case that it is effectively a zero-marginal cost activity once it is on-line, then it seems cost effective and so it wouldn’t surprise me that retailers want to use it as a hedge.

    Finally, electricity retailer hedging is a complex business. To work out if a particular hedge WOULD NOT HAVE OCCURRED but for a consumer’s action you need to examine the retailer’s entire portfolio. (Enron taught us that the hard way.) So I looked but I couldn’t see where in the Audit Report and analysis of each retailer’s entire portfolio was. Please point me to the right page there.

    And just to be clear, if a retailer ONLY purchases GreenPower, I am not worried. Then it is a product clearly doing its job and there is no auditing issue by definition. But if a retailer is doing more, while they may be operating in a proper manner, the audit process seems to me far from guaranteeing that. It is quite reasonable for me to ask questions and ask for more proof.

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  3. I don’t consider anything misleading about asking questions; however, although the title of this post is “some questions about GreenPower”, your post actually contains only three questions, two of them rhetorical and the third you proceed to answer in the following paragraphs. Your post is less a series of questions about GreenPower than a critique of the scheme, and what I believe to be the inaccuracies contained within are what I take issue with. There is sufficient cloudiness out there surrounding GreenPower and renewable energy as it is.

    My understanding is that non-scheduled load obtains the spot-price at the time of dispatch. Thus it can be purchaced on the wholesale market for the same price as other wholesale electricity. However, to obtain the benefits of it’s renewable energy status, either under MRET or through the GreenPower scheme, retailers must also purchase the RECs (and GreenPower rights in the case of accredited GreenPower, but that is another story… see http://www.greenpower.gov.au). It is this additional payment which ensures an incentive to invest in new renewable energy infrastructure and thus drives the market.

    Entering into the realm of offsets raises a whole other host of questions and possibilities, and is an area I would rather keep out of here. However, I appreciate the point you are trying to make: it’s about making a difference. There is no reason to believe that offset programs are any more effective than electricity retailers in doing this. (Heavens, I never throught I’d see myself sticking upo for electricity retailers!) Indeed, many carbon offset programs actually purchase RECs to account for their offsets (IE: to the value of what you wish to offset) thus removing those certificates from the market and creating incentives for further REC creation / renewable energy investment. Sound familiar? That’s because it is exactly as GreenPower program for retailers operates.

    You claim that AGL and others have already bought GreenPower as part of their strategic plan, and thus your purchase makes no difference. However it is my belief that purchasing accredited GreenPower is exactly what MAKES it part of their strategic plan. It is not a zero-marginal cost activity, as RECs and GreenPower rights need to be purchased IN ADDITION to the electricity. As I say, they wouldn’t be doing it out of the kindness of their hearts…

    Whether you are purchasing accredited GreenPower from a retailer or an offset program is neither here nor there (except for some concerns about carbon offset through non-REC schemes, but that is a story for another day…); either way you are ensuring that your electricity consumption is coming from a new renewable energy source. If the retailer happens to be buying more above that, well and good. I am sure that many of the larger off-set schemes are buying into hedge contracts above and beyond current demand too. My point remains: it is demand that is driving this; THIS is the reason for purchasing GreenPower.

    Finally, I see no problem at all in purchasing electricity from a retailer providing 100% accredited GreenPower – indeed I wholeheartedly agree that this would ensure that your consumption would come from 100% new renewable energy sources. However I am unaware of a retailer offering this at present; I would welcome any information to the contrary. (Remember there is a BIG difference between 100% ‘renewable energy’ products, such as existing hydro, and 100% accredited GreenPower coming from new renewables as specified under the GreenPower program…)

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  4. For those not aware of the fact, Brad Shone is (or was) Energy Policy Manager at the not-for-profit Alternative Technology Association (ATA).

    Personally, I think Joshua is raising interesting points here – ones that the ATA should have anticipated, and to which the ATA should have, in some cases, a more convincing response.

    Beyond that, what is interesting is the tone of Brad’s response. Accusations that Josh is posting “misleading blogs” risk diminishing the ATA. That a not-for-profit adopts exactly the same defensive posture as large corporates when challenged does not surprise me, but it is almost certainly counter-productive.

    Opennness is potentially a distinguishing feature of not-for-profits. Why throw it away?

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  5. I am still employed as the Energy Policy Manager at ATA; however my posts here express my personal views, and have been done in my own time.

    I am sorry if you find the ‘tone’ of my posts not to your liking – I can assure you there is no intended offence in my posts. Perhaps I should have used the word ‘inaccurate’ rather than ‘misleading’, however my contention remains the same: there is a significant quantity of inaccurate information and assumption in Joshua’s initial post. It is these inaccuracies that I have tried to correct.

    I didn’t mean to imply that the post was deliberately inaccurate, just misinformed.

    I welcome a good discussion on all of these issues, and agree that the world of GreenPower is complex and confusing. I am just keen to ensure that the information which gets out there accurately portrays the state of play.

    Have a great day!!! 🙂

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  6. D.W and Joshua,

    I can’t say I am a world expert on this stuff but it looks like Brad has covered off your concerns?

    D.W, what points raised by Joshua do you think warrant a more convincing response?

    Joshua, your remaining stated concern seems to be:

    “Suppose I want to either (a) purchase GreenPower or (b) purchase carbon offsets for the power I consume. I care not about simply making a payment but actually making a difference. Carbon offsets will be used to actually reduce NET carbon omissions. So no problem there.”

    The best way to make a difference is not to make a payment at all, but to reduce your demand. If you can get your emissions below 60% of whatever you consumed in 1990, and don’t have children, you can probably rest easy. You can do this without paying a cent (and prbably saving plenty as well!)

    Offsets will not actually guarantee net reductions. Depends very much on the way caps are set (and subsequent markets for offsets develop) as well as how rules/governes of offsets are managed.

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