substantial niche market
of commercial
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.
Residential Programs
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 Programs
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 retail supplier, Portland General Electric (PGE). Recently, PGE asked 400 residential and 366 commercial customers whether they would be willing to pay premiums to develop alternative generation in the utility's system. Richard Weijo, PGE's project manager of new products and services, reports: "The percent of commercial customers interested in green pricing appears to be similar to the percent of residential customers who are interested."
A research study at Ontario Hydro examined 599 municipal utility commercial customers and 320 retail commercial customers. It projected C/I customer participation equivalent to the support shown by the 4,153 residential customers who were surveyed. Commercial customers responded in a manner similar to residential customers when asked, "If you had the option of paying a bit more to contribute to increasing the amount of 'Green Electricity' produced in Ontario, would you definitely choose it, probably choose it, probably not choose it, are you not sure, or would you definitely not choose it?" However, when asked "How much more per month would you be willing to pay to increase the amount of 'Green Electricity' generated in Ontario?," commercial customers proved willing to pay premiums from 300 to 700 percent higher.
At Wisconsin Public Service Corp. (WPS), a study found an equal proportion of commercial and residential customers willing to pay premiums to fund installation of photovoltaic systems on high school roofs. The SolarWise for Schools ProgramTM allows customers to make tax-deductible contributions to a fund that supports installation, operation, and maintenance of these photovoltaic systems. Each system delivers power directly to the school building, reducing electric consumption from the utility grid. The project includes curriculum materials about solar energy and linkups with national renewable agencies and organizations via the Internet (World Wide Web).
For commercial customers, the act of contributing to the program demonstrates their commitment both to the environment and the community. Given these promotional advantages, the niche of WPS commercial customers interested in green pricing reported that they would contribute 1,000 to 5,000 percent more than
residential customers who were surveyed previously.
Finally, a study of executive focus interviews conducted with 130 commercial and industrial customers of Public Service Co. of Colorado suggests a proportion of support for renewable energy similar to that shown by residential consumers. In this study, we offered both residential and commercial customers the opportunity to to buy 100-Kwh blocks of wind-generated electricity at various premiums. To commercial customers, we also offered the option of underwriting portions of the wind system, along with a cooperative public relations effort involving both the utility and the commercial customers. Ron Fish, senior market research analyst, states: "Value-added services like cooperative public relations build relationships and will keep customers from switching to competitors."1
Crafting a Program
To attract customers successfully, green pricing programs must overcome a number of hurdles (em such as limited understanding of renewable technologies and the novelty of paying a premium for environmentally friendly products. Public education about the costs and benefits of renewable energy also plays an important role.
Here is a partial list of elements for program success:2
s Quality. Research the market carefully and bundle services to add value.
s Simplicity. Keep the program easy to understand and easy to get into and out of.
s Specificity. Clarify what renewables the utility intends to build, where they will be built, how much they will cost, how they will be funded, and who will benefit.
s Tenacity. Market the programs through education, outreach, and repeated advertising. Keep expectations for program startup realistic.
s Credibility. Partner with high-profile individuals and businesses to increase awareness and program acceptance. Seek environmental endorsements from well-established environmental advocacy groups.
s Marketability. Target the niche market with a strategy that focuses on the branding and positioning strengths of the program.
s Visibility. Promote and advertise the project to keep it in the forefront of the target market's attention.
s Tangibility. Make renewable electricity real to customers, using language they understand. Or include more tangible elements in the program, like rate stabilization and related product discounts.
s Community. Emphasize partnership between the utility and the community. Community pride in the renewable project can spill over into positive perceptions about utility corporate citizenship.
s Strategy. Provide leadership, vision, and top management support.
Competitive Benefits
Imminent competition finds every utility looking for strategies that will differentiate the company and its products from its rivals. Green pricing offers just such a strategy (em not only for traditional utilities, but also for energy marketers. Green pricing creates a perception that the seller understands its market and varies its products and services accordingly. It solidifies the utility's position in the communities it serves.
Moreover, low cost is not necessarily the prime selling point for customers interested in environmentally friendly electric generation. Green pricing offers this niche market an appealing "value-added" feature. For C/I customers who seek to capitalize commercially on intangible benefits, green pricing offers a way to use their participation to promote their organizations as "environmentally friendly." The green pricing
premium simply becomes a cost
of doing business (em not a disadvantage, but a promotional opportunity. t
Brian Byrnes and Renee de Alba are principals of Insight Research, Inc. in Boulder, Co. Maribeth Rahimzadeh is a marketing research analyst for Wisconsin Public Service Corp., and Keith Baugh is a market research analyst with Hewlett-Packard Co.
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