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How Green Tariffs Work and Their Benefits

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Green tariffs have become a popular option for large-scale renewable energy procurements in recent years. Though this type of renewable energy contract is not offered in all markets, it has led to over 5,700 megawatts of clean energy added to the grid in the United States to date.

Green tariffs can be a smart addition to a large organization’s energy portfolio as their localized nature complements the scalable broader impact of other renewable energy solutions.

What is a green tariff?

Large energy buyers can purchase renewable energy directly from their utility with a green tariff. Under a typical green tariff agreement, the buyer pays a fixed rate to the utility for electricity generated by a renewable energy project in its service area and the associated renewable energy credits (RECs). The utility also provides a credit on the buyer’s monthly retail bill.

The program cost and credit are additional line items on the buyer’s electricity bill and do not directly replace any existing components. The program cost is intended to reflect the actual cost of generating and delivering renewable energy while the bill credit is intended to reflect the incremental value renewable energy provides to the grid.

Pros and cons of green tariffs

Green tariff programs provide the following benefits to large energy buyers:

  • They provide (limited) cost protection. Generated bill credits potentially reduce electricity bills while acting as a hedge on brown power costs, minimizing the impact of fluctuating power prices.
  • They simplify the management of contracts since the renewable energy components appear on a buyer’s existing invoice from its utility.
  • They help local communities. Green tariffs help finance clean, renewable energy projects in the energy buyer’s service area. These projects generate green jobs and reduce the use of carbon-intensive resources.
  • They boost buyers’ reputations. The aforementioned local benefits are a powerful way to show good corporate citizenship among community stakeholders.

Green tariff programs pose the following limitations:

  • They may not be as cost effective as other types of renewable energy contracts. Buyers must shoulder the full cost burden of the renewable energy project, but they cannot shop around because they are limited to what is being offered by their utility under local market conditions.
  • They are subject to regulatory approval. The regulatory process could repeal the program, meaningfully alter key mechanics, or delay buyer enrollment.
  • They are inconsistently designed. Green tariffs are designed differently across utility service territories, which means each green tariff needs a fresh assessment of benefits and risks.

Who should consider a green tariff?

As of February 2022, green tariffs are available in approximately 20 states. Refer to the Clean Energy Buyers’ Alliance for a full list.

Green tariff requirements are program-specific, so if a utility offers a green tariff program, the buyer must verify that it meets the specific program’s participant requirements. Said requirements may pertain to energy consumption, load factor, rate class, number of facilities, or credit rating.

Companies often pursue a green tariff to engage their local utility in driving regional social, economic, and environmental impact. They are a good option for companies that are looking to have impact closer to where their actual facilities are located.