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Benchmarks

Fortnightly Magazine - July 15 1998

BY 2010, SOME $21.8 BILLION WORTH OF EMISSION control technologies will have to be installed at steam-generating plants to reduce emissions of sulfur dioxide and nitrogen oxide.

Increased costs at these plants will boost power prices. These higher costs and higher revenues will increase profits of the five least competitive companies will lose $1 billion.

Power companies must increasingly incorporate environmental factors into strategic planning.

A key component of any environmental strategy begins with a core green marketing program--the ability to sell power with a lower environmental impact than the competition at a competitive cost. This definition is a departure from most existing green marketing programs, which offer renewable generation at a premium. Consumer research into green power finds a small segment of residential consumers are willing to pay a 5 to 20 percent premium for renewable electricity. This segment is a small as 1 percent or as high as 7 percent, depending on the local market and the premium.

A much larger segment, however, is willing to pay up to a 5 percent premium for green power. This segment is as large as 23 to 45 percent of the residential sector. The key to this segment, the "light green market," is the willingness to pay somewhat more for a green product that can be something less than renewable.

While Detroit Edison's green power program has garnered only a 0.01 percent share of its customer base by offering solar photovoltaics at a $10 to $12 per month premium, power marketers in the Massachusetts pilot program garnered a 30-percent market share by offering small amounts of biomass (an unclear renewable in consumers' minds), hydro, and nuclear-free power at prices at or below the non-green competition. If anything, the Massachusetts pilot demonstrated the power of "light green" marketing.

Marketers haven't packaged power based on emissions or environmental impacts per megawatt-hur. Most green products provide a portion of the power from renewables, while the remainder is derived from the overall system. Emissions per MWh cold be higher than from a non-green fossil fuel source using modern emission controls. Alternatively, a utility with a fleet of controlled steam plants could market itself as cleaner than a competitor with uncontrolled steam plants. The point is this: A differentiated green market will allow packaging alon any number of lines--nuclear-free, hydro-free, emission-free, emission-light, or renewable.

A solid green marketing program can prove a powerful tool for dealing with environmental exposure. Public Service Company of Colorado, for example, fought unsussfully to avoid installing scrubbers at its Hayden coal-fired plant. partly in response, the company developed a wind power program that bolstered its public image. This new image supported the company's lobbying efforts for a state bill in which the utility would install emission control technologies at all of its coal plants, in exchange for cost recovery through the ratebase and an exemption from further environmental regulation for 15 years. In this way, PSC of Colorado successfully parlayed environmental risk into competitive advantage.

Todd A. Myers is a senior consultant with RDI.

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