Green power: a new market for renewables
by B Swezey and L Bird, National Renewable Energy Laboratory, USA

Some consumers in the USA can now choose which company supplies their electricity and where that power comes from. As the introduction of competition into the electricity industry proceeds, consumer choice may have a positive effect on the renewable electricity industry.

PV system at a high school in Winsconsin

 

Background

Green power - power generated from renewable energy sources - is available today in the USA in both regulated and competitive electricity markets, and more than a quarter of consumers can choose to purchase it. There is evidence that the ability of consumers to exercise their preference on energy purchases will be important for the future deployment of renewable energy technologies in the USA. From surveys, 56-80% say they would pay a premium for renewable electricity.

Consumer choice could, therefore, have an important effect on the environment because the electricity industry is a leading contributor to air pollution. Electricity generation is responsible for 66% of US sulphur dioxide air emissions, 29% of nitrogen oxide emissions, 36% of man-made carbon dioxide emissions, and 21% of mercury emissions, according to the US Environmental Protection Agency. On the other hand, renewable energy sources generally emit few or no pollutants.

Green power markets

More than 50 traditional electricity utilities have either implemented programmes or announced plans to offer a green pricing option to their customers. Green pricing allows customers to support a greater level of utility investment in renewable electricity generation technologies. Participating customers typically pay a premium on their electricity bill to cover the cost of adding renewable energy to the utility's existing generation mix. Most programmes offer power from newly-constructed wind turbines or PV installations.

As a forerunner to full competition in the electricity industry, 20 states have either passed restructuring legislation or issued regulatory orders that will eventually provide retail choice for all customers; four of these states are now open to competition. Several companies in these states are now offering green power products and services, which generally contain a mix of renewable energy sources.

Colorado wind farm

Policy approach

Whether green power marketing will add substantially to existing renewable capacity levels in the absence of policy actions remains uncertain. A number of new policy approaches are being proposed to continue support for the development of renewable energy sources.

One vital public policy involves fuel source and emission disclosure requirements. Since most customers do not know where their energy comes from, formal rules that require suppliers to disclose this information, for example in advertising or on customer bills, can greatly facilitate the education process. A number of states have adopted information disclosure provisions.

Public policies that make renewable resources more economically viable will also remain important. The use of fiscal policy measures, such as production tax incentives, can help ensure renewables compete on an equal footing with traditional energy sources that create substantial environmental costs not reflected in market prices.

Because of the public nature of electricity generation and environmental quality, many supporters of renewable energy believe that all customers should pay to support a minimum generation from cleaner energy sources. Policy measures being considered include a requirement for electricity suppliers to provide a fixed percentage of supply from renewable sources, and a system benefits charge - a fee customers pay to fund programmes that are in the public interest. Most states have adopted one or both of these policies in their electricity industry restructuring laws.

Key success factors

Although the green power market is in the very early stages of development, consumer response has been much lower than expected. On average, only about 1-2% of customers have selected a green power option. Several factors seem to contribute to green power's success or failure:

Credibility - Utilities with a history of investments in fossil fuel and/or nuclear power generation may lack credibility as clean energy providers. Some utilities are working to overcome this weakness by forming partnerships with environmental organisations which can lend credibility to their green power programmes.

Marketing - For many utilities, green power has been an experiment, and marketing efforts have not been at the level necessary to maximise sales. However, competitive markets have fostered the emergence of companies whose sole business is selling green power.

Market rules - The new rules and mechanisms being established for restructured electricity markets are critical to both the development of competition and the success of green power markets. For example, in some states, the default electricity price has been set too low to encourage alternative suppliers to enter the market. This largely explains why, more than a year after the start of competition in California, only just over 1% of customers have chosen to switch suppliers, while in Pennsylvania nearly 8% chose to switch at the outset of competition.

Consumer education - Although large numbers of consumers express preferences for clean energy, market research shows that most do not know where their power comes from and think that the electricity generation mix is cleaner than it actually is. Surveys have shown that willingness to pay more for renewable energy is directly related to understanding the adverse environmental impacts of energy production and consumption.

Certification - Customers need to be assured that the products and their suppliers are credible. In the USA, a collaborative effort among green power marketers and consumer and environmental stakeholders led to the development of a voluntary certification and verification programme. The "Green-e" logo and product labelling (see example opposite) helps consumers easily identify products that contain at least 50% renewable electricity.

Perception of reliability - Consumers must be assured that the reliability of their power supply will be unaffected if they switch suppliers or choose to receive their power from different energy sources. Most customers do not understand that their power will still be delivered and maintained by the same regulated distribution company and that they will be provided with the same level of distribution service as before.

For more information contact the CADDET US National Team in Colorado (or visit the Green Power Network web site ( http://www.eren.doe.gov/greenpower).

The CADDET Renewable Energy Newsletter is a quarterly magazine published by the CADDET Centre for Renewable Energy at ETSU, UK.

The articles published in the Newsletter reflect the opinions of the authors. They do not necessarily reflect the official view of CADDET.

Enquiries concerning the Newsletter should be addressed to Pauline Toole, Editor, CADDET Centre for Renewable Energy, ETSU, Harwell, Oxfordshire OX11 0RA, United Kingdom. Tel: +44 1235 432968, Fax: +44 1235 433595.