 | ||
 |
Summary of the First DOE/EPRI Green Pricing WorkshopApril 11-12, 1996Golden, Colorado Prepared by Blair G. Swezey, National Renewable Energy Laboratory Terry M. Peterson, Electric Power Research Institute
I. Overview
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:
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.
[an error occurred while processing this directive] DOE | EERE | NREL |
|
|
||