World Resources Institute WRI

Above and Beyond - Green Tariff Design for Traditional Utilities

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Courtesy of World Resources Institute WRI

This paper describes what draws U.S. commercial and industrial customers to renewable energy, and explores how traditional utilities could build on their strengths to deliver affordable renewable energy to customers.

Executive Summary

Challenges, from technological advances to evolving emissions regulation and an aging infrastructure, are driving up costs and increasing the risk of stranded assets for electric utilities. Simultaneously, even vertically integrated utilities in traditional, regulated markets are facing emerging competition from renewable energy choices that cost less than current retail rates.

Customers—from residential to large industrials—are procuring renewable energy because in more and more markets they can reduce their electricity bills and mitigate their exposure to fuel price volatility. They want to go above and beyond the current grid mix to substantially rely on renewable energy, often through third parties. The most popular approaches to purchasing renewable energy also preserve customers’ own capital and maximize their long-term flexibility.

Utilities weighing how to make a competitive offering are exploring green tariffs. Traditional utilities, building on their longstanding capabilities, may be able to offer many of the features customers are seeking in renewable energy, along with greater flexibility and lower transaction costs than third-party approaches.

The utility is uniquely positioned to offer a competitive service by optimizing integration of renewable energy, aggregating customers to reduce capital and other costs, bringing to bear capabilities in reliably delivering least-cost resources, and providing flexibility to assign resources throughout the service territory.

Designing a green tariff within the context of a regulatory compact that requires utilities to deliver least-cost, reliable service to all customers, means avoiding cost shifts to customers content with the current grid mix.The design must consider how to set a price, build a portfolio of resources, maximize both the customers’ long-term commitment and their access to flexibility, mitigate the risk of stranded renewable energy assets, and consider both existing and new loads. A competitively designed green tariff could both quickly increase the deployment of least-cost renewable energy and provide utilities the first step in their evolving business model in a newly competitive landscape.

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Key Findings

Customers from industrial to residential are finding that new renewable energy options, often provided by third parties, can be competitive with retail rates. Utilities, including vertically integrated utilities in traditional electricity markets where competition has historically been extremely limited, are exploring how to effectively compete for those customers and maintain a positive relationship with them.

Green tariffs are one emerging approach. When designed effectively, utilities can use green tariffs to cost-effectively provide renewable energy—a benefit for both their customers and bottom lines.

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