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April 11-12, 1996
Golden, Colorado
Prepared by
Blair G. Swezey, National Renewable Energy Laboratory
Terry M. Peterson, Electric Power Research Institute
I. Overview
Green pricing is an evolving utility service that responds to utility customers'
preferences for electricity derived from renewable energy sources such as
solar, wind, or biomass. Under green pricing, utilities offer customers a
voluntary program or service to support electricity generated from renewable
energy systems. Customers are asked to pay a rate premium, which is meant
to cover the costs that the utility incurs above those paid today for electricity
from conventional fuels. Utilities are considering green pricing as a way
to build customer loyalty, deploy popular renewable technologies, expand
business lines and expertise, and improve understanding of customer response
to unbundled pricing and services.
On April 11-12, 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 (the host utility), organized a
first-of-a-kind workshop on green pricing to (1) provide information on existing
green-pricing programs, (2) identify lessons learned, and (3) explore new
marketing strategies to enhance success.
Knowledge of and experience with green-pricing programs is only just developing.
The workshop brought together more than 80 participants to learn about the
status of existing programs. Representatives from eight U.S. utilities presented
information on their green-pricing and green-marketing efforts. These programs
tend to fall into one of three categories: (1) a renewable energy contribution
fund, which offers customers an opportunity to contribute to a fund to
be used in the future to pay for as-yet-specified renewable electricity projects;
(2) tailored renewable energy projects, in which customers pay a premium
price for power generated from a specific renewable electric project; and
(3) a renewable electric grid service, for which the utility may bundle
power from a number of renewable projects with other power sources for sale
to customers.
From the utility perspective, many of the green-pricing programs undertaken
to date have been successful because they have met the utility's initial
goals of marketing a green power product to a limited number of customers.
Nevertheless, these programs have been small and experimental in nature,
involving little financial commitment, and uncertainty was expressed as to
whether larger, commercial-scale programs could be successful. Utility
representatives expressed management concern about the risks of making large,
long-term capital investments in renewables when both the future customer
base and the longevity of customer commitment are unknown, as well as the
high cost of marketing these programs given that they have been targeted
primarily at residential customers.
During the course of the workshop, some general themes emerged regarding
successful green-pricing programs:
- Developing a Competitive Product Customers will generally be skeptical of utility attempts to collect more money for any type of differentiated service. Utilities should strive to offer the most competitive green service possible. Opportunities may exist to reduce costs by bundling renewables with existing lower cost generation options, taking advantage of existing federal and state subsidies and incentives, collaborating with other entities, or pursuing other innovative approaches.
- Providing Value to Customers Customers are more apt to accept some additional cost for renewables as long as they perceive some gain in personal value. Otherwise, customers may wonder why they are being singled out to pay for something, i.e., cleaner energy, that clearly benefits all customers. Examples of providing value include: decoupling the green rate from fossil fuel price adjustments, pursuing residential or community-based systems from which customers perceive a direct benefit, or formulating contribution programs to offer tax advantages to customers.
- Educating Customers Beyond the first wave of "early adopter" customers, utilities must find ways to educate their customers about the virtues of their green product. An obvious risk for the utility is that by differentiating a "green" product, it may call into question the virtues of the rest of the utility's (somewhat less than green) resource mix. Nevertheless, an untapped market exists to sell green power and utilities have a window of opportunity to build "brand loyalty" in this market before retail competition arrives.
- Implementation The utility as a company must make and sell a corporate commitment to the green product. Customers must be made to feel that, in addition to their personal values, they are contributing to the "greening" of the utility company. This is helps build long-term brand loyalty. Once a green product or service is initiated, the utility must commit the resources to effectively market the program to its customers.
The participants agreed that a continuing need exists to disseminate information
and experiences on the various elements of green-pricing program design and
implementation so that other utilities can learn from these experiences.
II. Keynote Address
Karl Rábago, former DOE Deputy Assistant Secretary for Utility
Technologies, underscored in his keynote address the timeliness of the workshop
given cutbacks in utility renewable energy projects and forthcoming changes
in the electric utility industry. He stressed that green marketing is not
just special pricing for renewables but is also about providing services
of special value to customers who prize environmental quality. Effective
green marketing requires market-segment identification, technology integration,
service packaging, and value delivery. Special expertise already exists in
the electric utility business to do this work.
Noting that many initial green-pricing efforts have failed to build or even
capture momentum, Mr. Rábago emphasized a number of shortcomings in
the types of green-pricing programs that utilities have offered, to date,
including poor publicity and education, confusing or unexciting program design,
and an insufficient recruitment base focused only on residential customers.
Programs have succeeded where customers see the green marketing effort as
a logical extension of a real corporate commitment to sustainable energy
development; as a carefully, logically, and realistically structured program;
and as delivering tangible visible proof of the customer's own personal
commitment.
III. International Perspective
Two speakers presented an international perspective on green-pricing programs.
Catherine Mitchell of the University of Sussex reported
on European renewable energy support mechanisms, noting that most European
countries provide some level of support to green power technologies, generally
paid by ratepayers or a general tax. The driving factors include: European
Community policy toward renewable energy and environmental regulations in
general; specific national policies; international directives; restructuring
of the national electric industries; and historical and cultural attitudes
toward environmental quality.
There are few actual green-pricing mechanisms in place in Europe. In the
Netherlands, three utilities offer green tariffs, but although utilities
in several other European countries are considering green pricing, no others
have yet formalized green-pricing programs. However, interest in green pricing
is increasing because (1) green pricing is viewed as a relatively cheap option
for utilities to increase deployment of renewables, and (2) green pricing
is seen as a positive public relations exercise in a market where a good
public image is extremely important.
Ian Nichols of EnergyAustralia, one of six state-owned power
corporations in New South Wales, reported on green-pricing efforts in Australia,
and described a national "GreenEnergy" scheme that is being proposed. Customers
would be given three options for participation: (1) through a "GreenBank"
investment, (2) by paying for electricity in advance, or (3) by paying premiums
on electricity tariffs. The funds would be collected through distribution
companies. EnergyAustralia, itself, is introducing a "GreenPower" market
trial, which offers customers a choice of purchasing 25%, 50% or 100% of
their electricity from green sources at a 25% tariff premium. The portfolio
of renewables would include landfill gas, wind energy, small hydro, and
photovoltaics (PV).
IV. Utility Green-Pricing Programs
Representatives from Insight Research, Inc., began this
portion of the workshop by summarizing market research for utility green
pricing. The speakers noted that green pricing can be an important tool for
building brand loyalty and increasing customer satisfaction. Early indications
from opinion polls projected that 40% to 60% of utility residential customers
would be willing to pay up to 10% more for a renewables-based service, but
subsequent market research and program introductions found participation
rates of 10% or less at smaller premiums. Research also suggests that a similar
proportion of commercial and industrial customers can be expected to participate
in utility green programs. Insight Research also noted that the limited evidence
from utility programs shows an inverse relationship between the level of
the green-pricing premium and customer participation rates, suggesting that
green power services must be priced competitively in order to maximize customer
participation. However, this trend was questioned by other participants.
For example, in Traverse City Light & Power's program, both customer
monthly premium and participation are among the highest for utility programs
to date. Insight Research agrees that many factors, such as the ten cited
(below) by Ed Holt, can affect success of a program.
In this session, eight electric utilities or utility organizations provided
information and commentary on their green-pricing efforts. These programs
are briefly described below:
Niagara Mohawk reported that it developed a
GreenChoice program, through which residential customers could elect
to pay a $6.00 fixed monthly premium to fund the development of renewables
and a tree planting program. However, initial customer response was very
low. Possible reasons for the low response include a limited marketing effort
on the part of the utility and customer backlash over already high electricity
rates and pending rate increases. Because of a corporate emphasis on utility
restructuring, the program has been placed on hold, although it might be
reintroduced in the future.
The Kansas Electric Utility Research Program (KEURP) reported
on market research performed on behalf of its seven Kansas-based member
utilities. Phone surveys conducted by KEURP indicate that 4% to 7% of customers
are "very likely" to participate in a green power program at a contribution
level of $1.00 per month. The organization sees a need to develop a specific,
tangible renewables-based product and believes that an acceptable level of
customer participation will only be achieved with additional customer education
and aggressive product promotion by the utility. A green-pricing pilot program,
which would be product and region-specific, may be proposed sometime in 1996.
As one element of its corporate mission to be a leader in sustainable energy
development, Ontario Hydro has proposed a Green$hare
pilot program that will allow customers to purchase shares of green power
for a fixed amount per share. The Green$hare monies will be placed
in a fund that will be used to develop renewable energy projects. An advisory
board will be established to oversee the fund and the program will be tested
with one or more pilot programs that are being developed. Ontario Hydro intends
for the program to test brand loyalty and market demand for premium retail
products. From its market research, the utility has determined that the green
service must be credible, tangible and transparent; that incentives for
participation are important; and that aggressive marketing, communication
and education are key to success.
In response to customer demand for a program to support renewable sources
of electric generation, the Wisconsin Public Service Company
(WPS) has established a SolarWise for Schools™ program,
funded by voluntary customer contributions, through which PV systems will
be installed on high-school rooftops in communities served by the utility.
The schools will receive the power produced by the array and a student curriculum
on solar energy. The utility offers monthly contribution rates of $1.00,
$2.00, and $4.00; the average monthly contribution to date has been $1.70.
The community and educational aspects of the program are major selling points,
as is the tax-deductible nature of the customer contribution.
Detroit Edison is offering a solar energy service to residential
and small commercial customers. Customer surveys have found that 45% of
respondents believe that the impact on the environment of providing electric
service is an important issue. For an additional $6.59 per month, participating
customers receive 100 watts of service (140 kWh per year) from a planned
28.4 kW photovoltaic (PV) facility. As of January 1996, 248 customers had
signed up to participate in the SolarCurrents™ program, which
was enough to fund an initial project and establish a waiting list for a
second project. Detroit Edison is one of eight utilities participating in
the Utility PhotoVoltaic Group (UPVG) Technology Experience to Accelerate
Markets in Utility Photovoltaics (TEAM-UP) program. The PV project is being
cost-shared by UPVG.
Public Service Company of Colorado (PSCo) offers residential
customers the opportunity to make voluntary contributions to its Renewable
Energy Trust, which is a fund used to accelerate the development of renewable
energy projects. The program also includes funds from Round Up for
Renewables, by which customers can "round-up" their monthly bill to the
nearest dollar, with the additional monies going to the Trust. The
customer contributions are tax deductible and PSCo contributes a matching
amount up to its avoided cost of capacity. In 1995, the Trust spent
$110,000 on 27 small PV projects.
Sacramento Municipal Utility District (SMUD) has established
a PV Pioneers pilot program, which offers grid-connected PV rooftop
systems to 100 residential customers each year. Participating customers pay
a $4 flat monthly fee, amounting to about a 15% rate premium, for a period
of ten years, SMUD subsidizes the rest of the system cost. The utility installs,
operates, maintains, and owns the systems, and as of January 1996, had installed
a total of 1216 kW of PV for 350 customers. SMUD receives approximately 1000
new program applicants each year. The program is one element of an overall
corporate commitment to renewables to which SMUD commits 1% of its annual
revenues.
Traverse City Light & Power (TCL&P) is deploying
a 600-kW wind turbine as a result of its green-pricing program for residential
and small commercial customers. A total of 145 residential and 20 commercial
customers (3.1% of the customer base) are paying a 1.58¢/kWh premium
in support of the green power, representing a 17% to 25% increase in the
average monthly bill. An additional 80 customers are on a waiting list. In
exchange for their participation, customers are protected from future utility
fuel cost adjustments. The Michigan Public Service Commission provided a
$50,000 grant to help defray the initial cost of the system.
Ed Holt, of Ed Holt & Associates, provided a summary
of lessons learned from utility green-pricing efforts to date. Mr. Holt offered
the following "top-10 list" of successful elements for green pricing:
- Quality: utilities must offer competitive and value-enhancing
products that consumers want to buy.
- Credibility: customers must believe in the utility's green
motivation and the soundness of the green product.
- Simplicity: from the customer's viewpoint, green programs
should be easy to understand and to participate in.
- Marketability: utilities should segment markets, use targeted
marketing and repeat promotional exposures.
- Specificity: be specific about the green resources and
technologies being developed.
- Visibility: the closer to the customer, the bigger the project,
or the more sites, the better.
- Tangibility: a utility's green products and services should
provide tangible features that offer customers private value versus public
benefit.
- Community: a community focus can help build awareness and
support for a green product.
- Strategy: utilities should incorporate green products as
an integral component of a corporate strategy to retain customers in a more
competitive market.
- Tenacity: utilities must adopt a long-term perspective and
make a sustained commitment to educating the customer and marketing the product.
V. Customer Research and Effective Marketing
Perry Sioshansi of EPRI opened this session by discussing
some basic marketing principles. He stressed the importance of market
segmentation to identify those customers who are interested in green products
and services and how much they are willing to pay, noting that an important
limiting factor is the research and marketing budget allocated to the effort.
He also noted that EPRI research efforts have been looking at customer
satisfaction, loyalty, and switching behavior, and provided some examples
from the telecommunications industry.
Barbara Farhar of the National Renewable Energy Laboratory
highlighted results of 700 surveys of national energy and environment perceptions
and preferences from 1979–1995, which show an increase in public
environmental concern and bias toward efficiency and renewables in that time.
Dr. Farhar said that the observed differences between what people say in
polls and what they do when signing up for green-pricing programs, does not
show they are unwilling to pay extra for renewable electricity. She said
that possible explanatory factors include: (1) problems in market research,
(2) programs not meeting customer needs, and (3) customer skepticism about
utility motives.
Steven Rothstein of Environmental Futures, Inc., a management
and communications consulting firm specializing in the energy and environment
sectors, described green-marketing efforts in other industries and offered
a number of "lessons learned" for the electric power industry. Among them
are: (1) Environmental product attributes should be positioned as "added-value"
benefits, supplementing others such as low price and quality service; (2)
The benefits of green product offerings must be substantiated and believable;
(3) Green products are not a corporate-image quick fix-a real corporate
commitment is required; (4) Most of the public expect environmental stewardship
as a normal part of doing business; and (5) Adopting a pro-environment corporate
and brand position produces measurable bottom-line advantages.
VI. Green Marketing
Utility green-pricing programs are a subset of the larger concept of green
power marketing which a number of speakers addressed. Two utilities,
Portland General Electric (PGE) and Bonneville Power
Administration (BPA) are pursuing green power sales to wholesale
customers in the Northwest. PGE has contracted with the City of Portland
to sell 2.25-million kWh of renewables annually for five years, equivalent
to 5% of the city's municipal participating accounts. And BPA recently signed
a contract with Salem Electric Cooperative to provide an average of 7 MW
of wind and geothermal power at a market-blended rate of 35 mills/kWh.
Rick Weijo of PGE stressed a "product-line orientation" for green services,
one that would offer different product options for different market segments.
PGE has test marketed a number of different green product lines, ranging
from affinity credit cards to green pricing. Through these tests, they discovered
the importance of customer education and the economies of customer aggregation.
Alan Ingram of BPA stressed the need to establish value-added features of
green products in order to command above-market prices; that the acceptable
price is a function of perceived product value. Advertising and promotion
are important elements in establishing a perception of value added. For the
time being, BPA has been successful in marketing higher-cost renewables by
blending their costs with lower-cost power from conventional sources.
Larry Kellerman of Citizen's Lehman Power, a power-marketing
company, reinforced the green-power packaging (or bundling) theme, stating
that rather than asking "How can you get people to pay more for green power?,"
utilities and power marketers should be asking "how can you acquire more
green power for less money?"
Finally, Randy Udall of the Community Office for Resource Efficiency
(CORE) described a grassroots activity underway in the Roaring Fork
Valley of Colorado to aggregate customer demand for 2 MW of wind power. The
estimated cost of the program is about $70,000 per year for five years and
would require a 3% participation rate for both residential (@$3.00/month)
and commercial (@$10.00/month) customers. CORE is developing an alliance
among local utilities and governments, and environmental groups to support
development of the program.
VII. Discussion and Wrap-Up
The workshop concluded with a discussion of information and analytic needs.
The following categories encompass many of the needs expressed:
Green Power Information
The participants identified an important need to disseminate information
and experiences on green-pricing programs, and expressed support for the
concept of an internet-based information clearinghouse on green marketing.
Utilities would like to hear more about the green-pricing program experiences,
or "case studies," of other utilities. This type of information can help
utilities avoid past mistakes, as well as to adopt successful approaches
to new programs.
Marketing Assistance
Utilities need assistance in developing and packaging attractive green power
programs and services, and in marketing these services to their customers.
Public Education Materials
The experience of several utilities has been that it is very expensive to
educate customers on the virtues of "green" power, particularly for the small
pilot programs that have been pursued to date. Attendees thought that the
federal government could play an important role in sponsoring the development
and dissemination of educational materials.
Pricing Approaches
Participants expressed a need for different approaches to pricing "green"
power for customers, including better information on the costs of green power
technologies and projects.
Green Power Certification
The need for a more standard and accepted definition of "green power" was
raised several times, as well as the potential need for certification of
green power services and products as these offerings become more prevalent.
This is a key element in building credibility for the green power market
and avoiding "greenwashing." A certification program might also help to build
the market by promoting a special identity for green power.
Requests for the full proceedings, EPRI report number TR-106986, (including presentation materials) should be directed to the EPRI Distribution Center, 207 Coggins Drive, P.O. Box 23205, Pleasant Hill, CA 94523, (800) 313-3774.
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