Benchmarks

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Some benefits slow to come, but the future still looks profitable.

Currently in the United States, many utilities are offering renewable energy to their customers at a premium rate, usually from two to four cents/kWh above regular rates. At the inception of the first of these green pricing programs (GPPs) in the mid-1990s, proponents put forward a number of ways in which utilities could benefit from making such offerings. These benefits included improving relations with local stakeholders, gaining an education about renewable technologies, diversifying generation portfolios, and just plain making money. The four promised benefits of GPPs that have not yet met managers' expectations are improved customer satisfaction with their utility, educating utilities for deregulation, learning more about utility customers and segmentation, and delivering a profitable product to the utility.

From the experience of these green energy managers, we formed the following recommendations for those seeking both to improve sales of renewable energy in the United States, and to reap other important benefits for their utilities:

• Focus resources on improving awareness among those nonparticipants who most nearly match the characteristics of green energy program participants.
• Improve database marketing efforts by developing better target mailing lists.
• Charge higher premiums and increase marketing budgets to work toward gaining critical momentum.

Of the areas discussed with these green energy program managers, one in particular seemed particularly pivotal for the future of renewables in North America-their ability to turn a profit. Others cited the benefits of delivering a healthy profit, with margins that can be even higher than the normal utility margins.

Those making substantial investments in marketing their green energy product are seeing dramatic growth. Higher premiums and higher marketing budgets likely will increase profitability and market penetration. Moreover, as more programs reach a critical mass, the size of the overall green energy pie is likely to increase. More than 23 percent of the U.S. population shares a common segmentation profile with current green energy participants.

While some environmental groups and PUCs have lobbied against higher premiums, this is based on the misconception that higher premiums will reduce participation. GPPs should vigorously make the case, both internally and externally, that this is not so. Three of the top five GPPs, in terms of residential market penetration, have premiums of 3 cents/kWh or higher, 20 percent higher than the median premium in the United States of 2.5 cents/kWh.

Based on numerous studies of the green energy marketplace, including interviews with some 1,900 actual green energy customers in the United States and Canada over the past two years, E Source has calculated the market size for green energy to be at least four times its current size, or about 8 percent of households. By targeting their marketing dollars wisely and keeping themselves economically viable, GPPs can achieve these kinds of numbers, up the level of overall awareness of green energy, and reap numerous benefits for their utilities, all at the same time.

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