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Cost of Going Green Surges as Companies Seek Renewable-Energy Shift
Growing demand for clean electricity combined with a higher outlay to develop wind and solar has sent prices soaring in the U.S.
By Phred Dvorak and Katherine Blunt, WSJ
July 5, 2022 10:42 am ET
As more companies pledge to neutralize their carbon emissions in response to climate change, securing green power in the U.S. is getting much more expensive.
Surging demand has pushed up the U.S. price of renewable energy certificates, a financial instrument that lets companies say they bought clean electricity from the grid. The price of RECs more than quadrupled at one point last year and is still around triple its level for most of the past decade, data trackers say.
Meanwhile, inflation and supply-chain bottlenecks are driving up costs for another way U.S. companies get their green electricity: by funding solar or wind projects directly in return for their power. Those costs have seen double- or even triple-digit percentage increases, green-energy experts say.
“The market now is tough,” said Misti Groves, vice president of market and policy innovation at the Clean Energy Buyers Association, a Washington, D.C.-based group for green-power buyers.
Companies and governments the world over are increasingly focused on shifting to renewable energy as a way of reducing carbon emissions to help curb global warming. More than 5,000 companies have signed up with the United Nations’ Race to Zero campaign, pledging to purchase clean energy and take other measures to help eliminate or offset the greenhouse gases they generate. Some 370 companies including General Motors Co. and Airbnb Inc. have joined a group, RE100, whose members pledge to be 100% powered by renewable energy by midcentury.
In the U.S., renewable energy certificates have long been the cheapest and most common way of procuring green power. The certificates represent the “greenness” of each unit of electricity generated by sources such as solar or wind, and can be bought separately from the power itself. Under current carbon-accounting rules, RECs let companies say they are buying clean energy—and thus have zero emissions—even though technically they are using electricity from a grid that can contain green as well as carbon-emitting sources of power.
For most of the past decade, the price for stand-alone RECs was less than $1 per megawatt hour, data trackers say. But last year, as more companies sought RECs to satisfy renewable energy targets, the benchmark price rose from around $1.60 per megawatt hour to more than $7 in August, before falling to around $3 recently, according to data from Karbone Inc., a financial services firm that specializes in renewable energy.
“We have definitely seen companies shocked at price increases,” said Maya Kelty, director of regulatory affairs at 3Degrees Group Inc., a company that helps corporations with climate-change measures.
Some companies are fleeing stand-alone RECs in favor of buying clean electricity through long-term contracts with wind or solar developers, in hopes of getting lower, more stable prices. But the cost of such power-purchase agreements has been soaring, too, pushed by increasing demand as well as supply chain issues, inflation and long wait times to receive necessary approvals to connect new projects to the electric grid.
A report by LevelTen Energy, a renewable energy marketplace, found that in competitive power markets, prices for long-term contracts for wind and solar-power purchases, which are used to finance new projects, jumped by 15.8% for solar and 41.5% for wind during the first quarter of 2022, compared with the previous year.
Cybersecurity and network-services provider Akamai Technologies Inc., which relies on long-term contracts for its green-power purchases, has seen the cost of buying solar power through those agreements more than double this year versus last, said Mike Mattera, Akamai’s director of corporate sustainability.
But Akamai and other companies, including Alphabet Inc. unit Google and Microsoft Corp., are increasingly asking just how green the power they are securing now really is—a question that could further complicate the cost and pursuit of clean electricity.
Buying RECs doesn’t lessen the overall carbon emissions of the power grid, unless companies fund new wind and solar to replace dirtier sources such as coal, some companies say. Grid emissions vary with weather and time of day as sources such as wind and solar go on and offline. Currently, RECs don’t reflect that, they say.
Akamai is now trying to measure how much its green-power purchases are lowering emissions on the grid each hour and to use that data to calculate its carbon footprint. Buying stand-alone RECs would be cheaper but wouldn’t be as helpful for the environment, said Mr. Mattera.
“We don’t want to greenwash,” he said.
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