The cost of doing green business in Silicon Valley could soon be increasing. The demand for renewable energy credits (RECs) is outpacing the amount of land needed to provide clean energy, and so prices for RECs may be on the rise.

The purchase of a renewable energy credit generally represents one megawatt hour of renewable energy. Although the clean electricity can’t be routed from the wind turbine directly to the business, the investment allows for more renewable energy to built and displace the energy needed from dirty fossil fuels. Many companies and individuals buy RECs in order to make up for, or “offset,” their unavoidable pollution (driving, manufacturing, etc).

In Silicon Valley, the big buyers of RECs include Cisco Systems, Applied Materials, and Yahoo!. The latter just signed up for 1.6 million kilowatt hours of green power costing $24,000 and meeting about 6.5 percent of Yahoo’s Santa Clara energy requirement. The RECs are purchased from Silicon Valley Power, the city-owned utility of Santa Clara.

The increase in REC purchases across the country – the most recent data from the Department of Energy shows sales doubling in 2005 – may affect places like Silicon Valley in the near future. Renewable energy producers will need to get more creative in their search for land for the solar power and wind power systems. Dan Kalafatas, president and Chief Operating Officer of 3 Degrees, the San Francisco-based energy marketing company from which Silicon Valley Power buys its renewable energy credits, noted, “The best sites have been tapped. The long-term fundamental demand will raise prices."

California law says that utilities have to increase their renewable energy use by 2010, so this problem isn’t going away. Efficiency will be key here: while it’s exciting that the demand for green power is increasing, running efficient businesses and households must be the first step, and will help cut the need for energy across the board.

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