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Renewable Energy Pricing
July 13, 2020
There are a lot of factors that go into traditional energy pricing for suppliers and utilities, from fluctuating markets to dramatic weather and unusual highs or lows in supply and demand. Renewable or “green” energy adds yet another layer to the pricing mix, which can be confusing when you’re weighing the benefits of “going green” by enrolling in a renewable energy plan. In this blog, we will explain the factors that affect pricing for renewable energy.
Renewable energy pricing factors
- Product type – examples include Renewable Energy Certificates (RECs), utility green power products, competitive green power products, power purchase agreements (PPA), self-supply such as self-owned solar.
- Volume of purchase – the amount of estimated energy which must be secured.
- Supply and demand variability – fluid market prices change daily based on the rise and fall of supply and demand.
- Enrollment term – the commitment for months or years.
- Resource type – the renewable energy might be solar, wind or other resources such as biomass, all with different costs to generate electricity.
- Location – the renewable resource may be a local plant such as an adjacent wind farm versus using national resources such as a larger solar array several states away. Nationally sourced energy is typically the most cost efficient compared to a smaller local renewable plant.
- Renewable Portfolio Standards (RPS) – RPS require utilities and suppliers to either generate renewable power themselves or purchase RECs for a specified percentage of their total energy load and are mandated by some states in an effort to increase the production of renewable energy. If the load percentage requirement is not met, the utility or supplier is subject to an Alternative Compliance Payment (ACP).
Procuring renewable energy
There are different ways to procure renewable energy, often based upon the need of the consumer. For example, residential and some small business customers often enroll in a REC-based plan. Larger consumers, such as commercial and industrial businesses, may take part in a PPA or even invest in their own renewable supply, such as a solar array. Consumers who live in an area where the local utility offers renewable resources may elect that option.
- REC-based plans
- Renewable Energy Certificates are the market-based and legally accepted instrument that represent the environmental attributes of renewable electricity generation. RECs are issued when electricity is generated from a renewable source and delivered to the grid. So, an energy supplier, like AEP Energy, can purchase RECs that match your energy supply to 100% renewable sources. RECs make it possible for you to support electricity generation from renewable sources even if you don’t live near them or have access to them. AEP Energy’s ECO-Advantage® renewable product matches up to 100% of electricity usage with Green-e® certified wind RECs. You can learn more about Green-e at www.green-e.org.
- Power Purchase Agreement
- PPAs are typically used by large commercial customers that want to directly engage with green power projects. PPAs come in many different forms, for example physical vs. financial, and may or may not include the physical delivery of electricity and the associated RECs from specific green power projects. Because there are so many variables, PPA pricing is highly dependent on the structure of the deal. AEP Energy offers a variety of solutions for Commercial and Industrial consumers, such as our new plan, Integrated Renewable Energy (IRE), with the benefit of flexibility in product structure. Learn more about our PPAs by reading our Customer Insights.
- Self-owned resources
- Some residential and business customers elect to supply their own green energy by purchasing and maintaining their own renewable energy source such as a solar array. The cost incurred is quite variable based upon the size of need and type of business.
AEP Energy is committed to supporting renewable energy and making it easy for our customers to go green. Take a look at our library of resources that explain what renewable energy is, why it’s important and how you can commit to a cleaner future.
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