Additionality of Wind Energy Investments in the U.S. Voluntary Green Power Market

Abstract

In the United States, electricity consumers are told that they can “buy” electricity from renewable energy projects, versus fossil fuel-fired facilities, through participation in voluntary green power markets. The marketing messages communicate to consumers that they are causing additional renewable energy generation and reducing emissions through their participation and premium payments for a green label. Using a spatial financial model and a database of registered Green-e wind power facilities, the analysis in this paper shows that the voluntary Renewable Energy Certificate (REC) market has a negligible influence on the economic feasibility of these facilities. Nevertheless, voluntary green power marketers at least implicitly claim that buying their products creates additional renewable energy. This study indicates the contrary. Participants in U.S. voluntary green power markets associated with wind power, therefore, appear to be receiving misleading marketing messages regarding the effect of their participation. In the process of completing this analysis, a potentially relevant factor in explaining investor behavior was identified: the potential for the overlap of voluntary REC markets with compliance REC markets that supply utilities need to meet their obligations of Renewable Energy Portfolio Standard (RPS). The majority of state RPS rules allow for regional or even national sourcing of RECs, meaning that projects are generally eligible to provide compliance RECs to utilities not only in their home states, but in several other states.