Green pricing opens new markets for renewables
by Kevin Eber
September 1995 — Renewable energy is now expanding into new markets across the country. Reduced costs for wind power have led to new projects in Texas, Minnesota, and New England, and utilities continually find new applications for photovoltaics (PV), including small systems for telecommunications and larger systems for T&D support. But despite these strides, the cost of renewables is restricting their growth in regions with low power costs.
"Green pricing" is a relatively recent scheme to find new markets for renewables and to accelerate the existing markets. Now in place at a handful of utilities nationwide, the green pricing concept offers customers the chance to pay extra on their utility bills to fund renewable energy projects. In some cases, the customers simply donate to a fund; in others, the customers pay a premium for power produced from renewable energy sources.
"Green pricing is one very interesting option for increasing the deployment of renewable energy," says Karl Rábago, who heads the Department of Energy's renewable energy efforts for the utility sector. "It combines the extremely strong public support of renewables with financing and market mechanisms to overcome existing barriers to deployment."
"Green pricing is sort of a bridge—a bridge to broader-scale implementation of renewables," says Steven Smiley of Bay Energy Services.
Smiley is project manager for a green pricing program at Traverse City Light and Power (TCL&P) in Michigan. The project uses 200 "subscribers," who will pay a 1.58¢ per kWh premium to fund a 500kW wind turbine. The utility estimates that the wind turbine will supply the annual power requirements for those 200 households.
"Any voluntary subscriber would be able to say, on an annual basis, that they got all their electricity from the renewable energy project," says Smiley.
With the premium, plus a production tax credit of 1.5¢ per kWh, the project pays for itself.
"Wind power at this scale and in Michigan, is going to be somewhere between five and six cents a kilowatt hour based on municipal kinds of financing assumptions," says Smiley. "So between the premium and the production incentive, the cost of our power is going to be around 3 cents a kilowatt hour-and that's about what we pay when we buy energy from our power pool."
A different approach is being taken by the Sacramento Municipal Utility District (SMUD), which has a program to install 4-kW PV systems on customer's roofs. Called "PV Pioneers," the program requires customers to offer the use of their roofs and to pay an extra $4-$6 fee each month. That fee does not cover the extra cost of the PV system, but it demonstrates the customers' commitment to green power. SMUD sees the approach as sharing the cost between the PV Pioneers and the ratepayers as a whole.
"Our customers in general want us to be aggressively pursuing energy efficiency and renewable resources," says Don Osborn, supervisor of solar programs at SMUD. "PV currently is somewhere in the neighborhood of two times too expensive for these applications. The green fee only covers a very small part of that—the rest of it is covered by our ratepayers in general."
The PV Pioneers program was started in 1993 and now is up to 250 homes, for a total of 1 MW capacity. The program will continue through 1998, at a rate of more than 100 new homes each year.
Strong customer interest
Utilities are finding that green pricing is popular if it is marketed well. SMUD has used news releases and billing inserts through the course of its program, and has continually drawn more response than it can meet. A recent mailing elicited 600 responses from customers who wanted to join the program.
TCL&P also found that customer response was strong, once the program was marketed well. After initial advertisements failed, a direct mailing to all their customers yielded 263 potential subscribers, leaving 63 customers on a waiting list. The experiences of SMUD, TCL&P, and other utilities indicate a strong consumer interest in clean energy.
"Support for environmentally sound energy has been strong and consistent for well over 20 years in this country," says DOE's Karl Rábago, "so it is not at all surprising that when asked, 'Do you support it?' people do.
"I think the big surprise is for the energy service companies, who will find just how real that support is in terms of dollars people are willing to pay. The bottom line is that all this change in the electric utility industry bodes well for renewables, because it will increase customer choice and it will increase customer access to options."
According to Smiley, "Renewable energy will be competitive, just as recycled paper is competitive. I think there is real demand for clean energy, and there is real understanding on the part of the public that it's worth it to pay a little bit more to do the right thing."
One caution from Rábago is that green pricing should not be applied to every renewable energy project.
"If it makes sense for a utility to acquire renewables, purely on a cost-effective basis-for example as a way of offsetting T&D costs, or to build fuel diversity into their portfolio-then utilities should acquire those renewables for those reasons, without attaching a premium charge to them," says Rábago. "Utilities should be getting renewable energy for the value that it has."
Given that caveat, Rábago sees the success of green pricing as indicative of the future for renewable energy markets.
"We haven't begun imagining the ways in which we will be able to deploy renewables in a more competitive market," says Rábago. "Taken creatively, green pricing is a good start for beginning to understand how renewables work and what their real benefits are. It's limited only by our imagination, which has been rather constrained by regulatory and 'we are regulated' thinking. It's the next generation of utility leaders and public policy people who will really be showing us what you can do with these mechanisms."
Kevin Eber is a science writer at the National Renewable Energy Laboratory in Golden, Colorado.
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