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Green Tariffs

Identify the Financial Impacts of Shifting to the Green Tariff

For most cities, the financial impact of subscribing to a green tariff plays a major role in the decision of whether to participate and how to implement the program.

The costs related to using a green tariff program and how the green tariff is applied to the city’s electricity consumption varies by program. It may also vary between cities subscribing to the same program depending on the green tariff structure.

To assess the financial impact, it is helpful to first identify your current rate and fees for traditional or default electric service – this is your baseline, or point of comparison. If your city is already participating in a renewable energy program, the costs and benefits of participation in that program should be taken into consideration as well.

Program Components That Influence Price

Although each green tariff differs, there are some common program components that determine the overall financial impact:

  • Cost structure
    • Cost structure generally reflects the contracted, long-term cost of the renewable energy resource, often called the PPA price. Some utility charges vary over time, particularly for customers participating in market-based rate programs (as explored above in the “Review Key Program Terms: Benefits and Risks” section). Most green tariff programs will credit a customer for utilizing renewable energy. To do this, utilities may:
    • Remove, or provide a credit for, the fuel charges associated with the traditional fuel mix used for grid electricity that the customer is avoiding through their renewable energy purchase;
    • Provide a credit based on “avoided costs”, which reflect the costs the utility otherwise would have incurred if it had generated or purchased energy from a non-renewable generation source to meet the customer’s demand;
    • Provide a credit for the capacity value – the ability to reliably meet demand – of the resource. Depending on the credit and cost structure, it is possible for a city to receive a credit that brings the overall cost to a level that is lower than its standard fuel rate.
  • Contract time commitment

    Contract terms can vary substantially and range from month-to-month to more than 10 years. In some cases, charges and credits may vary with different contract time commitments. Longer terms typically receive lower rates.

  • Administrative fees

    Administrative fees vary between programs and sometimes within a program. Although such fees may initially appear small, in some instances these administrative costs can add up and greatly increase the total price of the program. For example, Georgia Power’s REDI program has an initial administrative fee of $0.00005 per kWh plus an ongoing administrative fee of either $0.001 or $0.0005 per kWh depending on the subscription level. Other programs:

    • Include the administrative costs in the fixed price, such as Evergy’s (formerly Westar Energy) Direct Renewable Participation Service program;
    • Require an application fee to sign up for the program, such as Rocky Mountain Power’s Schedule 34 which has a proposed $5000 application fee; or,
    • Assess fees based on the number of electric meters or accounts utilizing the green tariff.
  • REC management fees

    Often a utility will retire the RECs on the customer’s behalf. In some instances, however, the customer will need to be responsible for the management of the RECs and any associated retirement costs.

  • Termination fees

    Many programs have fees associated with early termination. Termination fees vary; they can be based on the net present value of the remaining PPA cost, reflect the customer’s usage and the time remaining in the program agreement, or be based on other factors. In some cases, the customer is responsible for negotiating these fees directly with the utility when contracting for participation in the program.

  • Renewable energy resource
    • Utilization or subscription amount: The amount of renewable energy purchased under the green tariff may be selected by the customer. This may include the option to subscribe to a fixed percentage or a block of kilowatt-hours.
    • Expansion of resources:  Some green tariffs are designed to be pilots or otherwise limit the initial amount of renewable energy that can be acquired through the program. Often, this is to demonstrate to regulators that the program does not harm other ratepayers. Once this is demonstrated, it is common for a utility to expand the program (see “Monitor Progress and Share Your Story” for more information).
  • Changes in consumption

    Participation in a green tariff program is based on electricity consumption, and there may be fees/ adjustments if consumption changes significantly. For example, suppose a customer of Xcel Energy Colorado signs up for Renewable *Connect to cover 100% of their load but later transfers their subscription to a new, more efficient facility. If this customer’s consumption during the first 12 months at the new meter is lower than the prior consumption, their contract will be readjusted to a participation level that matches the 12-month energy usage at the new meter; the customer would then pay a pro-rated portion of the early termination fee.

Program Implementation Choices That Influence Price

Analysis of your specific accounts, alongside your target and priorities, may help inform whether you should switch all accounts/ meters to a green tariff or, alternatively, whether you should proceed selectively, utilizing the green tariff only for specific accounts/ meters. Consider:

  • Energy consumption per account or per meter (utilize this information to inform which city operations are purchasing the most energy)
  • Existing electricity rates or the rate schedule per meter (utilize this information to consider what deals or pricing your city is currently getting)
  • Budgets or special considerations of the various divisions/ departments associated with each account/ meter

Some of these data may be requested from your utility by questions such as, “What are the projected costs of participating in the program?” or “Are there any changes anticipated?” Some cities have also utilized their team’s economic expertise to develop tools that help analyze and assess total costs. A consultant may also be helpful for conducting this analysis.

Given the various interconnected factors that influence costs, it is important to involve key team members and decision-makers throughout this process. You should also equip your team members with the data and talking points necessary to speak to the financial impacts of utilizing the green tariff program. This will be essential in the next phase when it comes time to make the case for approval.

Outcome

  • An analysis of how the local green tariff program could be utilized and structured to optimize benefits and minimize costs

Learn More

In addition to the various considerations that affect costs, when formulating your implementation strategy you may want to explore your utility’s flexibility, contract length or resource type. Depending on the green tariff program, you might be able to more closely align the green tariff with your city’s preferences and goals.

To understand this potential for flexibility, you should ask your utility representative questions about the program’s various components, e.g., “What flexibility is there in terms of contract length?”

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