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Risking a Green-Power Outage

Will eco-power survive the next five years?

Fortnightly Magazine - October 2005

in a mid-course correction, and do it soon, many of the green power offerings in the United States eventually will be eliminated.

Green power can be a profit center—a sizable one—that also supports renewable energy power-plant construction. Therefore, we suggest six areas to focus on to make utility-based green-power programs flourish (or at least stop the bleeding and make a profit).

1. Vision

Throw out any current conception about renewable energy and customers, and create a new vision. Think about what might make the green-power program thrive. If a utility wants to have a successful product, it must keep the customer in mind. The customer is not the environmental activist or the government program liaison. The customer is, instead, the average person at home or at a large company or university. Envision what this customer might want: cleaner air, lower costs, price stability—to be a leader, to be cool, to be smart. Then consider the utility. What does it want from green power? Profit, PR, community relations, environmental protection or diversification of generation. Now start to collect those thoughts into a plan.

2. Customer Type

Sales and marketing must be targeted. Even if a company has huge sums to spend, it must choose a sector of customers to pursue. This could be hospitals, which have a health-related mission that clearly links to renewable energy, or socially responsible corporations, many of which are concerned with creating jobs, cleaning the environment, and maintaining an edge on their competition. Or it could be colleges and universities, where students are driving a groundswell of demand for renewable energy. Once a target sector is chosen, build a program around that type of customer.

3. Product Structure

Identify the attractiveness of the green-power product structure to the customer. Some customers are willing to support a clean energy economy no matter what the price, but these customers are few and far between, and very unlikely to consume large amounts of energy. Most customers want financial value. Without an intelligent product structure that offers a financial incentive to customers, sales will be minimal.

Utilities need to understand that green power can offer financial value to both customers and utilities. Currently, two simple methods provide financial value to customers. The first of these is to create a new tariff indexed to the cost of the renewable energy and fixed over time.

For example, Austin Energy offers renewable energy and is able to set a customer's "fuel charge" for up to 10 years. The tariff is fixed, guaranteeing customers a set price. As electricity costs go up over time, those that locked in their rates likely will pay less than those who did not choose the renewable energy option. This is the most successful program in the country, but to date it has not been fully replicated.

A second option is to provide a variable rate based on the cost of the renewable energy relative to the wholesale power market. The customer and the renewable-energy vendor negotiate a "strike price"—the amount the customer is willing to pay and that the vendor needs