More Proof that it is possible to Save Money and Go Green at the same time!
WAMC Northeast Public Radio reported that the city of Hudson, New York has chosen a new electric supplier. Feel free to follow this link to read more of the details about this story – http://www.wamc.org/post/city-electricity-goes-green-june. My intent is not to rehash the details, but to provide a little more insight into what the city of Hudson has done.
First of all, let me give the city of Hudson a hearty “good job” and a pat on the back. The city was able to secure an electricity plan that will provide them savings over the current National Grid rates. Additionally, the city has chosen a plan that will provide them with electricity from wind.
Choosing an Electricity Services Company (ESCO)
In the state of New York, every electricity customer, from the smallest residence to the largest manufacturing plant, is eligible to choose a new electricity supplier. Choosing a new electricity supplier is just like choosing a new telephone company was back in the 1980s. Different companies offer different rates and plans for your electricity service, but they all still use the electric wires, poles, and other infrastructure built and maintained by your local electric utility. You’re still connected to the same electric grid, but you get your electricity from a different company.
Think of it this way – picture a water hose. The hose itself is like the electrical grid – the physical equipment that is used to deliver the electricity. The water that flows through the hose is the electricity that powers your lights. Choosing a new electric supplier is akin to choosing a new source from which to draw your water. You’re still using the same hose to get the water; it’s just that it’s coming from a different source.
This points to how electricity suppliers can provide you different rates than the ones from your local electric utility. In New York, electric utilities purchase electricity for your house on the NYISO wholesale electric market. (The state requires that they do it this way.) The price for electricity on the wholesale market changes on an hourly basis, and can be very volatile, with rates going from very low or negative overnight to the low teens in the middle of the day. On the other hand, electric suppliers can purchase electricity in a number of different ways. They typically use long term contracts, hedges, and options to make certain that they protect themselves (and you) from most of wild fluctuations that occur in the wholesale market.
If you stay with your local electric utility, you are exposed to the price swings of the wholesale electric market. Unfortunately, the highest prices on the wholesale markets tend to accompany months when more electricity is used. By choosing an electric supplier, you can fix the price you pay for electricity over time.
This is precisely what the city of Hudson did for itself. They chose a plan that would save them money, and that would eliminate their exposure to the wholesale electricity market. It’s a choice that every utility customer in New York can make.
(And, don’t feel too bad for your local utility. They’re still making plenty of money maintain the hose that gets the water to your house.)
Electricity from Wind (or other renewables)
The city of Hudson also chose to purchase their electricity from a wind farm. Does this mean that the city of Hudson’s lights will go out if the wind isn’t blowing? This isn’t the case, but how exactly the city of Hudson gets the electricity from the wind farm requires a little more of an explanation.
To provide you a better understanding of how a “green” plan operates, let me extend our water and hose metaphor. Think of the electrical grid as not just one hose, but a bunch of hoses all connected together. This grid of hoses provides water to your house, your neighbor’s house, and the city of Hudson’s city hall. And, the water for all of those buildings comes from a number of different locations. Some comes from the local pond, some comes from a lake hundreds of miles away, and some comes from the Hudson River. But, once the water has been put into the grid of hoses, it’s impossible to tell where it comes from. This is the same problem that happens with the electrical grid, once the electricity is in the grid, you can’t tell if it comes from a wind farm, a nuclear plant, or a coal plant.
So, how can the city of Hudson claim to have purchased wind power if it doesn’t know where the electricity it uses was generated?
Well, the trick is in the fact that a wind farm, or any other renewable energy plant, produces two things. The first is electricity, which is fundamentally no different than the electricity from any other power plant. The second is a certificate that represents the “greenness” of the electricity that was produced by the wind farm. These certificates are known as RECs (renewable energy certificates) and people are willing to buy them in order to claim the greenness of the electricity that was produced by the wind farm for their own electricity use. (Technically, coal-fired power plants could also produce “coal certificates”, but I don’t see many people lining up to buy these.)
The question often arises at this point, that if the city of Hudson isn’t directing getting electricity from the wind farm, how does the purchase of RECs help the spread of renewable energy? Let’s take a quick look at the power markets to understand how this works. All power plants, whether wind, nuclear, or coal, compete on the open markets to sell their electricity. They also all compete for investors to finance the building of these plants. Since wind farms and other renewable energy plants get revenue from the sale of electricity (just like the other power plants they’re competing again) and from the sale of RECs, building a renewable energy plant will make money the price of RECs is high. The price for RECs is determined based on the supply and demand of RECs. If more people like the city of Hudson are willing to pay for RECs, then the price of RECs will go up, and it will incentivize investors to build more renewable energy plans (instead of other types of power plants). This will in turn reduce the price for RECs, which will make it more attractive to others to purchase RECs to claim the “greenness” for their own electricity.
It’s a little bit of a long winded answer (pun intended), but I hope this provides some clarity into how this market works.
One Gust Wrap-Up
The city of Hudson made a choice. They weighed the options, and they decided to save money, purchase green electricity, and to lock in their electricity price for a long time. I encourage all of you to consider your options when it comes to electricity supply and choose what’s going to work for you.
(As for me, I’m saving a little money and I’m going green. I’m also only on a 1 year contract because I believe that the price for green electricity plans will continue to decrease. I’m betting that next year I’ll be able to get a green plan for less than what I’m paying for green electricity today. Shameless plug alert! I entered my zip code on the right, I compared all the rates available in my area, and I made my choice. You should too!)
Weigh your options, and exercise your right to choose.