Are Energy Service Companies (ESCOs) A Scam?

A women looking through a spy scope.

The short answer:

No, Energy Service Companies (ESCOs) like Green Mountain Energy are not scams. Yes, they are those people at farmer's markets. The way ESCOs work is confusing! So it's easy to misunderstand what they are actually doing.

The long answer:

An ESCO is basically the middle person between your utility company and a renewable energy source. They buy and sell "RECs" or Renewable Energy Certificates. What the heck is an REC? An REC is produced when a renewable energy source (like a solar or wind farm) generates 1 megawatt-hour of electricity and delivers it to the grid.

Here are 4 things you should know about ESCOs:

1: The clean energy does not technically come to your home.

  • This is the #1 misconception about ESCOs!
  • Example: Let's say you live in Brooklyn, NY and you sign up for clean energy through an ESCO. The ESCO buys RECs on your behalf. These RECs can be generated by a solar or wind farm anywhere - in California, Kansas, you name it.
  • While you are not directly consuming that clean energy, you are generating more DEMAND for clean energy in the grid. That's a great thing.

2: It typically costs a little more.

  • Subscribing to an ESCO will add a small increase to your electricity bill (typically less than 10%). If you think about it, you are technically buying something (RECs).
  • This is different than owning solar panels (where you save money over time) or sign up for community solar (where you get a discount on your bill).

3: Anyone can sign up.

  • ESCOs are probably the most accessible way to support clean energy because anyone with an electric bill can sign up.
  • You don't need to own a home, you don't need money for solar panels, & you don't have to be near a community solar project.
  • After you sign up, you continue to get billed from your utility company.

4: Some ESCOs are better than others.

  • Example: Green Mountain Energy is owned by NRG, a national utility company that owns coal, nuclear, & natural gas power plants.
  • Look for ESCOs that are certified B-corps, independently owned, or have a similar mission-driven business model.
  • Some ESCOs make a point of only buying RECs that are local to your area. Kudos to them!

We hope you survived all those acronyms.

Got a question or topic you want us to cover? Contact us.

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