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Green Pricing: The Bigger Picture
It's not just for residential consumers. Research suggests a
substantial niche market
and industrial customers that are favorably disposed to green electricity.Seven utilities across the country have launched "green pricing" programs for residential electric customers. At these utilities, up to 3 percent of residential customers pay rate premiums to underwrite the construction and use of renewable electric generation. Research results from a number of studies suggest that an equal proportion of commercial and industrial (C/I) customers will also participate in green pricing programs. Although these C/I customers are fewer in number, they appear willing to pay dramatically more to support environmentally friendly electricity.
Historically, most programs and market research have targeted only residential customers. However, with the interest of C/I customers added to that of residential consumers, the niche market for green pricing doubles in size.
Some of the green pricing programs currently in place sell renewable electricity to residential customers as a product. The utility charges a premium price to customers who wish to purchase some or all of their electricity from renewable sources. In other
programs, customers contribute a premium earmarked to benefit a particular environmental or resource conservation program involving renewable electric generation. A third option "rounds up" customers' bills to the nearest dollar, with the added amount going to fund renewable energy.
The most popular residential programs to date are those in which customers pay the lowest premiums (see Figures 1 and 2). Public Service Co. of Colorado's Renewable Energy Trust collects the most revenue. This contribution-based program asks residential customers either to pay an additional amount each month on their electric bills (PSCo1) or to round their bills up (PSCo2) to fund construction of renewable electric generation (see Figure 3).
Utilities that offer green pricing believe the programs themselves will appeal to a wide base of customers who don't participate: Up to 80 percent of customers surveyed approved of these programs (see Figure 4). These utilities conclude that green pricing increases customer satisfaction and brand loyalty, both important goals in a competitive market.
Commercial customer participation in renewable energy programs has often been overlooked. Our research reveals a substantial niche market of C/I customers that are favorably disposed to green pricing programs. Some utilities have already begun to tap into this niche.
In Traverse City, MI, for example, commercial customers buy 30 percent of the electricity generated by the utility's green pricing program. More than 1 percent of the commercial customer base participates. According to Steve Smiley, president of Bay Energy Services and manager of the Green Rate Wind Project, "With the proper program and marketing, I'd expect [C/I interest in] about the same proportion as residential customers."
The one difference: Commercial customers in Traverse City are willing to pay much more than residential customers. While the average residential customer pays $6.00 per month to buy electricity generated from wind power, the average commercial customer pays $19.00 (em a difference of more than 300 percent.
In Portland, OR, the city has agreed to pay a premium for renewable electricity to its