What the heck is a green tag?

The whalebone-like blades of Stateline Wind Farm’s turbines form a giant fencerow in the dry rangelands of the eastern border between Oregon and Washington. With each sweep of the massive blades, power flows through long transmission lines, humming across the landscape. The power lines also carry electrons from the region’s other power sources: hydroelectric dams, natural gas plants, coal-burning plants, solar arrays and other wind farms. Once in the lines, the electrons are indistinguishable, nothing more than tiny points of energy. However, along with each electron, renewable energy sources such as Stateline produce something called a renewable energy credit (REC) or “green tag.”

Green tags represent the “environmental benefits” of producing renewable energy. Each megawatt-hour of power produced by a wind turbine or solar array turns out a single green tag. It’s often difficult to pinpoint specific benefits of the renewable power produced from one project to the next, but a growing number of retail and commercial customers are purchasing green tags, eager to claim the benefits for themselves.

Avista Corp. (NYSE: AVA) in eastern Washington is one such customer. When Avista tried to purchase wind power from the Stateline Wind Farm, they found they couldn’t. Sure, they could buy electricity the wind farm produced, but they couldn’t have it all as wind power.

To do that, Avista had to buy the electricity and the green tags from Stateline’s turbines. Because many of the tags had already been sold to the Bonneville Environmental Foundation and other green power marketers, Avista received green tags from other wind farms to deliver wind power to customers enrolled in its “Buck-a-Block” green power program.

Avista’s experience illustrates what many green power marketers are quick to point out: green tags are being snapped up as fast as renewable energy projects can turn them out.

But some think the green tag market may be white hot thanks to government regulation — not green power programs. Evidence suggests utilities are investing in the green tags market as a way to meet or beat state-mandated minimums for renewable energy generation.