| Second National
Green Pricing and Green Power Marketing Conference
Final Report, October 1997
T. M. Peterson
Department of Energy
EPRI Project Manager
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National Renewable Energy Laboratory
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Copyright 1997 Electric Power Research Institute, Inc. Permission granted to copy for non-commercial purposes.
Green pricing is an evolving utility service that responds to customer preferences for electricity derived from renewable energy sources such as solar, wind, or biomass. In April 1996, the U.S. Department of Energy (DOE) and the Electric Power Research Institute (EPRI), in association with the Edison Electric Institute (EEI) and Public Service Company of Colorado, organized a first-of-a-kind national workshop on utility green-pricing programs in Golden, CO. At that workshop, representatives from nine U.S. utilities presented information on their green-pricing efforts.
In the year since the first workshop, the number of utility green-pricing programs launched or under development has more than doubled. In addition, electric industry restructuring activities have accelerated in the states, with retail access pilot programs providing opportunities for power marketers and customer aggregators to test green power offerings in competitive markets.
On May 13-14, 1997, DOE, EPRI, and EEI, in association with Central & South West Services, Inc., organized and conducted a second national green power conference in Corpus Christi, TX. The conference was to: (1) provide an update and overview of existing and new green-pricing programs, (2) discuss lessons learned from selling green power in retail-access pilot programs, and (3) hear perspectives on market-facilitating issues such as green-power certification and information disclosure.
The number of utility green-pricing programs continues to grow. Utilities reporting on established programs noted high customer retention rates, indicating high rates of customer satisfaction. Utility representatives also stressed the importance of engaging customers directly in program design and implementation to maximize customer participation and program success.
Several of the new green-pricing programs build on successful early program models. However, some utilities are beginning to design programs to better reflect the types of services that might be offered to customers in a competitive market. For example, some utilities are designing grid-based or project-specific programs that allow customers to purchase up to 100% of their power from renewable sources. And one utility reported on a grid-based program for larger commercial and industrial customers.
Early indications from retail-access pilot programs are that the potential demand for green power products and services in a more competitive electric marketplace could be significant. Thus, as utility restructuring unfolds, the market for green power services should expand. However, while utility green-pricing programs have almost universally offered 100% renewables-based electricity, retail access pilot programs have highlighted a number of important issues related to selling green power in competitive markets, such as verifying "green" product claims, including renewables content, and educating and informing customers about competitive market choices.
Although there is general agreement on the need to address these emerging market issues, no consensus has developed on the best approaches. Among the possibilities are: requiring uniform information disclosure on all electricity products and services, establishing protocols for tracking green electricity sales, establishing verification mechanisms for environmental marketing claims, and certifying green power marketers. Some supplier representatives suggested that customers should be given as much latitude as possible to determine what products and services best meet their own "green" criteria.
From a policy perspective, there was a general feeling that total reliance on market forces to foster greater renewables deployment is not desirable, particularly in the short term as the rules of the competitive market are being developed. Policies that establish a minimum public obligation to fund renewables, such as universal system benefits charges and a renewables portfolio standard, should still be considered.
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Ed Smeloff, a Board Director of the Sacramento Municipal Utility District (SMUD) provided a perspective on the changing nature of the electric power industry. Mr. Smeloff noted that there are several aspects of electric industry restructuring that will prove detrimental for renewables, such as lower prices and shorter-term commitments for power supplies. On the other hand, consumers will, for the first time, be given a choice of electricity suppliers and competition will lead to the development of new products and services, including a bundling of the electricity commodity with other household services.
Although electric utility restructuring is being sold largely on the basis of lowering rates, customer choice offers the potential for environmental improvement by allowing consumers an option to purchase their power from more environmentally benign generation sources. Mr. Smeloff also noted that the insurance industry is becoming increasingly concerned about climate change and the increased potential for natural disasters; these disasters represented 85% of insured losses in 1995.
Mr. Smeloff challenged the conference attendees to work on how to tap into the potential consumer demand for clean power, including implementing public education campaigns around the benefits of using different resources. He also stressed the need to organize residential and small commercial customers into effective power buying blocks.
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Perspectives on Green Power Marketing
The Keynote Address was followed by presentations from electric utility and renewable-energy industry representatives who provided different perspectives on green power marketing.
Chuck Linderman of EEI began the session by suggesting that the domestic market will become friendlier to renewables in the future. For example, new regulations will drive up the cost of fossil generation to the benefit of renewables and green power sales. Mr. Linderman stressed the importance, over the shorter term, of tapping export markets to help build production infrastructure and achieve cost improvements to further develop the U.S. market.
Kathy Jones, representing Central & South West Services, Inc. (CSW), noted how the traditional utility focus has been on providing lowest-cost power and that investments in renewables have been regulatory-driven, particularly through integrated resource planning (IRP). However, recent CSW polls have revealed widespread customer support for renewables, primarily for the portfolio benefits in reducing the risks of over reliance on traditional fossil fuel sources and their overall concern for the future. These polls also indicate a willingness of customers to pay more for renewables. In response, CSW has established an IRP-targeted renewables purchase goal of 40 MW to 50 MW, which will cost all customers only 25¢ more on their monthly bills. The company also plans to implement a green-pricing program that will allow customers to support the procurement of additional renewables.
Bob Grace of ReGenSM Technologies, a newly formed green-power marketer, described several challenges in marketing green power in competitive markets. Among these challenges are developing green power into a core business, defining and differentiating "green" products, setting a price for the service, and establishing the credibility of the green product and the company. Mr. Grace noted that the limited retail pilot programs in New England have not really prepared companies for the challenges of marketing green power. Important actions still need to be taken, such as educating customers, adopting policies that support the development of the green power market, and pursuing credibility-enhancing activities such as green power certification and uniform information disclosure.
Mac Moore presented the green marketing perspective of the Solar Energy Industries Association. Mr. Moore emphasized the need to "sell" consumers on the value of green power rather than the price, what he termed a "premium brand strategy." A premium brand strategy would focus on convincing consumers that green power is better than standard power offerings, that even though it might cost more, green power is worth the extra expense. Mr. Moore provided examples of other markets in which companies have followed a premium brand strategy to differentiate a particular commodity product or service, such as with coffee, mail delivery, telephone, and drinking water.
Nancy Rader, representing the American Wind Energy Association (AWEA), noted that electric industry restructuring is moving ahead faster than our ability to address important issues for the green power market, including market entry barriers and consumer education and information needs. Ms. Rader also warned that because of classic market failures, such as environmental externalities and inadequate provision of public goods, it is unreasonable to expect the green power market to replace the need for public-policy approaches. Public policies are essential to provide for a minimum amount of renewables to meet societal goals. For this reason, AWEA supports the development of a national renewable portfolio standard. Finally, Ms. Rader laid out some green marketing "dos and don'ts" and addressed some of the complexities of creating guidelines.
The Honorable Brent Alderfer, Commissioner with the Colorado Public Utilities Commission, noted that market forces are now having a greater impact on utility company actions than regulatory forces. He stressed that customer choice is speeding the process of change in the electric industry, including green power offerings. Mr. Alderfer identified four important issues that will need to be addressed by market players, including regulators:
Finally, Mr. Alderfer noted that no one has all the answers to making the green power market work and stressed the importance of collaborative approaches to addressing these important issues.
Doug Ogden of The Energy Foundation closed the morning session by noting that environmental advocates are looking at many policies that will help move renewables into the market. Among these are: (1) backstop policies, such as uniform environmental standards, renewables portfolio standards and system benefits charges that establish a minimum level of public support for renewables; (2) policies to support distributed generation; and (3) demand-pull mechanisms, such as customer choice, mandatory disclosure, and emissions labeling that will allow market demands for cleaner energy to be actualized. Mr. Ogden cautioned, however, that although green pricing and green marketing are needed, they are not sufficient because the market cannot be expected, by itself, to provide for public benefits.
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Cathy Zoi of the Sustainable Energy Development Authority (SEDA), a state government entity in New South Wales (NSW), Australia, discussed the development of a Green Power accreditation program as a component of SEDA's mission to reduce greenhouse gas emissions. The purpose of the program is to facilitate the installation of new "green" electricity generators by enhancing the credibility of and thereby maximizing consumer confidence in green power offerings. Qualifying green power sources include solar, wind, hydro, biomass (generally excluding mass burn incineration), geothermal, and wave and tidal power systems. Accredited companies may use the SEDA Green Power logo in their marketing. SEDA also is implementing a statewide green power public information and education campaign on behalf of participating suppliers. To date, SEDA has accredited the green power products of eight power retailers. Ms. Zoi said, "Each of NSW 2.3 million households can subscribe to a green power scheme making it perhaps the largest green power offering in the world."
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Experience and Insights from Retail Access Experiments
Ed Holt of Ed Holt & Associates and Steven Rothstein of Environmental Futures presented information on the New Hampshire and Massachusetts Electric retail pilot programs, respectively. In New Hampshire, approximately 3% of each electric utility's peak load, or a total of about 50 MW statewide, was made available to competition for which more than 30 power suppliers registered, and about 16 competed actively. Several of these suppliers are differentiating their power product as "cleaner" than their competitors. In four Massachusetts cities, Massachusetts Electric Company opened up to 100-million kWh to competition; four companies were selected to provide "environmentally sensitive" or "green" service options.
The pilot programs revealed significant customer interest in "green" service offerings; for example, in New Hampshire, 20% of customer participants polled were "strongly influenced" by the environmental message or image of their supplier, and nearly a third of the residential participants in the Massachusetts Electric pilot chose an environmental provider. They also highlighted a number of important marketing issues. Mr. Holt reported that perhaps the greatest marketing lesson from New Hampshire was the inability of customers to compare service offerings accurately because of differing marketing approaches and pricing schedules. Mr. Rothstein emphasized the importance of consumer information and "grassroots" marketing to help customers make their market decisions. And particularly in the New Hampshire pilot, the "green" attributes of the power supplies proved difficult to substantiate.
Tom Rawls of Green Mountain Power (GMP) spoke of the marketing approach used by Green Mountain Energy Partners (GMEP) in the New Hampshire pilot program, stressing the importance of creating a brand through which customers can "self actualize" their environmental commitment. GMEP's marketing strategy was to get the customer personally involved with the environmental attributes of the service. To this end, the company sent a spruce seedling to all of their customers. Mr. Rawls said that GMEP is looking forward to the competitive market because it means that customers will be making the purchase decisions and will be able to exercise their environmental preferences. He addressed the "green" definition issue by suggesting that as long as suppliers provide clarity in their marketing claims and activities, the customer can decide which services best meet its own needs.
Lew Milford of the Conservation Law Foundation cautioned against over-interpreting the retail pilot-program experiences because of their limited size and duration; the pilots are essentially snapshots of the electric industry in transition. Mr. Milford noted that we are now moving beyond the pilot programs to real competitive markets and need to understand and address the environmental implications of electric industry restructuring. The key environmental issue in the electric industry is the stock of older fossil fuel plants that do not meet today's environmental standards. Electric industry restructuring may offer several opportunities to address environmental issues, including pursuing mechanisms to commercialize clean energy sources. Although he believes that the green market represents a real business opportunity, he stressed the continuing need for policy mechanisms for renewablesin particular, new financing mechanisms to commercialize these new technologiesbecause there will be a lag in new investments as the competitive market develops.
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Panel Discussion on Green Power Certification and Disclosure
Ensuring that all market players have adequate information to make rational decisions is fundamental to market effectiveness. Therefore, an important challenge for green-power marketers is to present adequate information to differentiate their products and services based on their environmental attributes. Customers will also need assurances that the green services they are paying for do indeed represent some improvement in the environmental footprint of electricity generation.
To meet these marketplace needs, one concept under consideration is uniform information disclosure, which represents an objective statement of fact regarding the price, environmental, and other important attributes of an electricity service, similar to food product labeling. Another idea is certification, whereby green power products would be "branded" or otherwise certified as environmentally preferable, based on some predetermined qualification criteria. The conference brought together a panel of representatives from across the electric industry spectrum to discuss potential certification and disclosure needs and approaches.
Steve Dayney of Public Service Company of Colorado (PSCo) stressed the value of a green brand and that customer perception of a green product or service is as important as objective determination of product values and attributes. However, he also stressed the importance of assuring that environmental marketing claims can be substantiated. He asked whether a national green power definition might benefit consumers.
Karl Rábago of the Environmental Defense Fund (EDF) defined disclosure simply as providing information to consumers to make market-based decisions. He cautioned, however, that information is not the same as education. Disclosure, by itself, doesn't teach consumers about the importance of the information or how to use it. Noting that disclosure and education are two independent needs, Mr. Rábago warned against burdening information requirements with education programs. He also noted that all of the information required to provide for disclosure already exists, collected in various forms and formats. What is most critical is to assemble the information into the appropriate format for disclosure.
Bob Grace of ReGenSM Technologies offered the analogy of the mutual fund industry for addressing green power verification issues. The mutual fund industry uses standard accounting principles that include settlement and audit procedures. Of particular concern is that marketers may not be able to specify a green power fuel mix in advance because it will always be subject to change. Mutual fund companies provide information disclosure but also warn, "past performance is no guarantee of future results."
Tom Rawls of GMP suggested that future sales is the appropriate measure for disclosure because, when making overtures to new customers, a company's disclosure should tell the customers what it plans to sell them (as is the case in every other commercial transaction). He also stated that disclosure will be a challenge because of the difficulty of tracking complex electricity transactions in the future. Mr. Rawls stressed the subjectivity of terms like "clean," "green," and "renewable," which may pose problems for the industry. For this reason, GMP supports a "claims-based" approach to disclosure under which companies would be required to substantiate their marketing claims.
David Moskovitz of the Regulatory Assistance Project reinforced the notion that disclosure provides uniform factual information with which customers can comparison shop among different electricity product offerings and that it is both in the consumer's interest and the public interest to have a national system of information disclosure. Mr. Moskovitz reported that consumer focus groups have found that consumers are interested in fuel mix and emissions information. He noted that there is a considerable amount of education that will be necessary to maximize the use of disclosure information.
Finally, Chuck Linderman of EEI stressed the importance of voluntary standards for disclosure and certification. He also suggested that making renewables the focus of green power would greatly simplify the validation process.
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Utility Green Pricing Programs: One Year Later
Five utility companies that participated in the first national workshop provided updates on their green-pricing programs. Among the most important findings over the last year are that many programs continue to be oversubscribed and that the participant retention rate has been high. The speakers also stressed the importance of customer involvement and recognition as elements of successful programs.
Steve Smiley, representing Traverse City Power & Light, reported that community support for their 600-kW wind project remains strong, with no drop-out customers. Program subscribers pay a 20% premium, on average, and represent a broad spectrum of the customer base, both residential and commercial. Overall, 171 customers (145 residential and 26 business, 3.1% of total customers) are participating and another 79 are on a waiting list; on an energy basis, the program is 40% oversubscribed. Mr. Smiley emphasized that a utility company's intention is a primary determinant of the quality and scope of the program and its ultimate success.
Ed Smeloff, representing SMUD, recounted the utility's success with its PV Pioneers green-pricing program, through which 420 residential and 20 commercial rooftop systems have been installed. By implementing a program of "sustained orderly development" of photovoltaics, SMUD has seen PV system prices fall from an average of $8.79/watt in 1993 to $5.50/watt in 1997. With retail competition coming to California in 1998, SMUD will offer two additional green power services: (1) a neighborhood PV program utilizing customer donations and (2) a green rate, by which customers can receive 100% of their power from renewables (initially geothermal and small hydro). Mr. Smeloff emphasized that customer involvement in the utility planning process helps build customer loyalty.
Chip Bircher of Wisconsin Public Service (WPS) reported on the status of the utility's SolarWiseTM for Schools contribution program, through which the utility has installed 12-kW PV systems at three high school sites. Customer participation has grown to 2,600 out of 368,000 total customers; the average customer contribution is $1.70/month. Mr. Bircher noted that the education tie-in has been an important selling point for the program. Providing some type of recognition for participating customers is also important. Corporately, WPS has adopted a "green portfolio approach" based on a belief that different products are necessary for different segments of the green market. To this end, WPS will soon launch a green rate for new renewables (initially solar) to be developed within the utility's territory.
Norm Stevens of Detroit Edison reported on the status of the utility's SolarCurrents® program, through which the utility developed a 28.4-kW, centrally located PV demonstration facility. A unique aspect of the program is that customers pay for 100-watt blocks of solar capacity plus a delivery charge for each kWh of solar energy credited to their accounts, rather than a single charge for the electricity generated. The project is fully subscribed with 195 participants and a waiting list of over 70 customers. On average, participants have increased their monthly bills by $10.75 (17.2%) with an average subscription of 145 watts of PV capacity. The retention rate was 97.4% after the first year. Mr. Stevens noted that the majority of customer inquiries received focused on the billing and payment changes. Given continued customer interest, the utility is planning to site three additional projects and also to develop a schools-based program, called SolarSchoolsSM, for commercial customer sponsors.
Steve Dayney of Public Service Company of Colorado (PSCo) reported that participation in the company's Renewable Energy Trust (RET) has grown to about 15,000 customers; 5,500 customers contribute a total of $102,000 annually, and 10,000 customers use a bill "round up" option which provides an additional $53,000 annually. Through the RET program, PSCo has deployed about 15 kW of off-grid PV systems. The RET was set up as a non-profit vehicle to provide tax advantages to participating customers. During 1997, PSCo will unveil two new green-pricing options for its customers. The WindSource program will offer customers the ability to influence generation sources by subscribing for 100 kWh blocks of electricity from a new wind project. And the SolarSource program will offer customer-sited PV systems; initially, 20 systems will be installed.
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New Utility Green Pricing Programs
Several presentations were made on new green-pricing programs indicating the spreading attractiveness of these programs. Although some of these programs build on the models of early utility programs, others are beginning to adopt features to reflect the types of choices that customers might be offered in a competitive market.
John Bigger of EPRI presented material on the Utility PhotoVoltaic Group (UPVG) TEAM-UP (Technology Experience to Accelerate Markets in Utility Photovoltaics) ventures, which involve green pricing. (UPVG's term is PV-Friendly pricing) The TEAM-UP program uses DOE funding to provide technical and financial support for utilities to gain experience with PV technology and applications.
In the three TEAM-UP green-pricing ventures now underway, 17 utilities are siting PV systems on: (1) residential and commercial customers' buildings; (2) community buildings; and (3) utility facilities. Mr. Bigger discussed the advantages and disadvantages of these approaches. Utilities are also using various approaches to fund these programs, including one-time contributions, monthly contributions, and fixed monthly premiums. The importance of market research and the critical information that customers can bring to the program planners was emphasized.
Some utilities are finding that market developmentturning customers who say they support renewables into signed-up program participantsis more difficult than they expected. Mr. Bigger covered the range of approaches and tools they are using to reach out to their customers to encourage participation. One major recommendation was to get experienced market-development people on the team as early as possible. With the wide range of approaches to PV hardware siting, program financing, and market development, the TEAM-UP ventures should provide much valuable information for utilities considering such programs in their service areas.
Donna Danihel of Wisconsin Electric Power Company described the company's grid-based green-pricing program. The program, called Energy for Tomorrow, offers an optional renewable electricity service to customers from sources procured by the utility in the wholesale power market. Customers can choose to receive 25%, 50%, or 100% of their power from renewables at a premium of approximately 2.0¢ on each 'green' kilowatthour. The renewable power provided for the first year of the project came from existing hydro and biomass projects and Wisconsin Electric is working to add landfill gas for the program's second year, which will entail up to 5 MW of renewable supply. As of the conference date, 5,500 customers were participating in the program with a dropout of only 100 customers. Wisconsin Electric believes that their program represents a good test of the forthcoming competitive market for green power services, which the company believes may represent up to 10% of the future electricity market.
Rick Weijo of Portland General Electric (PGE) reported on the company's efforts to develop a green-pricing program for larger commercial and industrial customers (with loads greater than 1 MW). PGE is pursuing this customer segment because the utility has determined that the transaction costs of engaging the residential market make it less attractive than larger-scale customer sales. PGE believes in a "product line" approach to green pricing and that there are niche markets for green power with state and local governments, image-sensitive retailers, and industrial customers interested in repairing a damaged public image. The Earth SmartTM program offers green power (from solar, wind, and geothermal) to these customers at a premium of approximately 1¢/kWh. Discussions are underway with several candidate customers.
Art Seki of Hawaiian Electric Company described the company's Sun Power for Schools pilot program, which has a goal of installing 20 kW of PV on qualifying schools over the next two years. Surveys have indicated that, depending on the island, one third to more than one half of the utility's customers are willing to pay more to use renewable energy sources. Like other schools-based green-pricing programs, an important component of the program is development of an energy curriculum for the students. Ownership of the PV systems will be transferred to the schools. As of the conference date, the overall customer response rate was 0.35%, which is about one-third of the way toward the utility's goal of 1.0% total participation.
Ward Marshall of Central and South West recounted the company's "deliberative polling" results in which a plurality of customers supported greater utility investment in renewables. As a result, CSW is offering 100%, 50% and 25% renewables options for its customers. The CSW Marketing group was skeptical until detailed analysis of the deliberative polling results was performed, showing that a significant number of customers may be willing to spend an extra $5 to $20 per month for 25% to 100% renewable energy. The subsequent involvement of the marketing department has been an important driver of the company's green-pricing efforts.
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