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NOVEMBER 2003 VIEW OF GREEN POWER MARKET:
According to Swezey, Moskowitz’s hypothesis in that article was that although utilities had a public responsibility to develop cost-effective renewables as part of their rate-based electricity supply, to jump-start the market for renewables, utilities could offer to develop any above-market renewable project and charge the difference to a voluntary core of program subscribers. Ten years down the road, Swezey reports, more than 350 utilities in 33 states have announced or implemented green pricing programs [Green Power Marketing in the United Status: A Status Report, Sixth Edition, Lori Bird and Blair Swezey, published by the National Renewable Energy Laboratory, October, 2003]. The top programs are achieving 3%-6% customer demand, but average participation is around 1%. Products vary widely in terms of marketing commitments and product quality, which means the resource and the age of the facility used in the underlying generation. But green pricing has begun to raise customer interest and educate consumers about the impact of their electricity usage. The top 10 utility suppliers of green power were responsible for 84.5% of all green power sales in 2002. The utility that sold by far the most green power was Austin Energy, which was responsible for 28.1% of green power sales itself. There are a number of reasons for Austin Energy’s success, such as a supply of low-cost wind power and a commitment on behalf of the utility to work with large industrial power users to find efficiency savings that can be used for the green power premium and to conduct extensive promotional campaigns on behalf of their green power customers. Most agree, however, that the most important factor in Austin Energy’s success was its decision to price its green power product based on the fixed rate that it was getting from the wholesale wind power supplier. Companies can lock in a 10-year fixed rate for electricity by signing on the green power program. Currently the green power rate for the generation charge is 2.85 cents/kWh and the conventional rate for residential customers will be 2.80 cents/kWh by January 1, 2004, only a .05 cent/kWh difference. Yet, there are still significant barriers to greater market penetration. On the one hand, there is little awareness and/or understanding of the products that do exist. Many consumers still lack even an elementary understanding of how electricity is generated and how destructive it can be to the environment. Some analysts theorize that since green power programs are an entirely new concept and customers are not used to shopping for their power supply, it will take a high and sustained level of marketing commitment on the part of the utilities or their marketing partners to see higher penetration numbers. Some also fear that the message from a utility’s standpoint is mixed because making the case for renewable energy necessarily means unfavorable comparisons to the rest of the utility’s fuel mix. Therefore, the marketing message may remain vague and understated. On the other hand, the companies that set up the programs are reluctant to raise the level of marketing because that would raise the overhead, and the high price of most programs remains a barrier even to interested customers. Yet a close examination of some green pricing programs shows that the utilities have often chosen sub-optimal projects for reasons other than efficiency, such as the desire to have the wind turbine located closer to town or because the utility did not want to develop a larger project which would allow them to take advantage of economies of scale. In addition, there are a number of utility pricing programs that are fully subscribed, yet the program manager is reluctant or unable to acquire additional supply to expand the program. There are number of green power marketers operating both in restructured and monopoly markets that are also having a great deal of success marketing green power. The market for renewable energy credits (RECs) is becoming increasingly active. A REC—sometimes also called a "green tag"—is a certificate that a specified amount of electricity has been generated from renewable resources. Appropriately verified, it represent the environmental (and renewable) attributes created by generating renewable electricity, and can be bought and sold either together with or separately from the electricity itself. Community Energy, Inc., has made the model of selling RECs to universities a very successful one that has driven development of a number of new wind projects in the Mid-Atlantic and elsewhere. A large part of the success of their product is based on the fact that they market new wind energy from local wind farms, which customers say they like because the difference they are making is tangible. Bonneville Environmental Foundation is also having success selling RECs to large businesses, such as White Wave, a soy milk manufacturer that has committed to purchase 20 million kWh of wind tags in 2004, equivalent to 100% of the electricity needed for its supply chain. Some other companies, such as Green Mountain Energy and Sterling Planet, are expanding the number of green power products on the market by partnering with utilities to supply and market a green power program. Green Mountain partnered with Portland General Electric in the Northwest and grew enrollments 400% in eighteen months, to 3.5% penetration. Although the impact of the voluntary green power market is still small relative to the impact of certain policy tools such as state Renewable Portfolio Standards and the federal wind energy Production Tax Credit, in some regions it is the main driver, and in others, it has worked hand-in-hand with public policy tools. Most observers believe that the voluntary market has the potential to drive substantial new wind development in the future. And, perhaps more importantly, those who are marketing green power are reaching out directly to consumers, which is going a long way toward educating the public about the need to facilitate wind power projects for the sake of a clean environment and a secure energy future. According to Swezey, 913 MW of wind power is currently in place to serve the green power market, and another 302 MW is planned. Platts Research and Consulting predicts that the voluntary market will drive the development of over 10,000 MW of new renewable capacity by 2015 in the low scenario and 18,000 MW in the high scenario [Platts Research and Consulting Renewable Power Outlook 2003]. The next challenge is reaching the mass market, but with the experience market participants have built in the previous 10 years, the green power market will be an interesting one to watch. For More Information: AWEA's GreenPower Factsheets |
©
2003 by the American Wind Energy Association. |
hen
experts and market participants gathered in Chicago at the beginning of
November, it marked the 10-year anniversary of the green power market,
according to Blair Swezey of the National Renewable Energy Laboratory. The
article in the Electricity Journal that he credited with kicking it
off was entitled “Green Pricing: Why Not Customer Choice?” by David
Moskowitz and it appeared in the October, 1993, issue of the Electricity
Journal.