Green Power Marketing - today and tomorrow

Dr. Thyge Weller

Less than 4 years ago the first "green pricing" concepts were realised in the US, and within the last two years, dozens of such projects were started in Europe - primarily in Switzerland, Germany and the Netherlands. About 50 Green Power offerings by utilities exist world-wide, and all trends indicate that the future of Green Power marketing has just started. At the same time this concept is heavily challenged by environmentalists. A deeper analysis of what Green Power marketing really is and where it will go may help to get a clearer understanding of its role and its impact on the future of renewable energies.

1. Green Power Marketing Today

Today three categories of Green Power products can be distinguished:
The targets utilities want to achieve by their Green Power programs are as diverse as the implementation approaches. Generally environmental aspects are the most heavily publicised goal. Green Power projects are used to promote usage of renewable energies and to reduce CO2 emissions.

Of stronger importance, but less heavily promoted are the business aspects. Utilities move from product supplier to service companies, and Green Power programs fit perfectly into that change process. They are set up to strengthen customer relations, to build brand loyalty, to increase customer satisfaction and to improve the environmental image. In short: to improve the utilities market position in a competitive environment.

And there is certainly a third reason which is openly addressed e.g. by Erwin Münch of Germany's power giant RWE Energie AG: "With our green tariff we share the burden of renewable energy generation between our customers and us. This is how we create awareness for the fact that production of eco-power is not economically feasible".

Today, Green Power projects target only small market niches. Whereas in noncommittal marketing surveys up to 70% of interviewed persons show interest in Green Power, only 0,5% to 1% do really sign up for a Green Power contract. Generally smaller utilities with their closer customer relationship achieve higher participation rates than larger power generators. The absolute amount of yearly contributions seems to be less important. The project of the municipal utility Traverse City Light and Power in Michigan, USA, is one example of a program with very high uplifts and over-average participation rates.

Ed Holt works in Maine, USA, and is one of the most experienced observers of Green Power projects. He summarises the critical success factors of Green Power projects as follows: "Successful projects have to meet four requirements: the sponsor must be credible, the product has to be simple, tangible and visible, the sponsor has to demonstrate a long term strategy, combined with quite some tenacity, and the project has to be marketed professionally. One crucial point is to create new, additional energy sources and not to re-label the output of existing power stations".

Most of today's Green Power projects are deliberately designed as niche solutions, to test this new market segment. There are either technical or financial limitations built in, the marketing budget is kept low, or the price lift is prohibitively high. The average penetration of 1% or lower is therefore in most cases consciously accepted and does not represent the maximum achievable value.

On the other side there are also Green Power projects which are set up as volume solutions. Those projects can start small, but they don't have built-in limitations. The larger the number of participants the more attractive is such an approach for the sponsoring utility. One example is the Dutch EDON, where already 10% of customers have joined the "Groene Stroom" project. Experts even assume that penetration rates of 20% and more are achievable.

It is typical for such volume solutions that the sponsor does not generate the renewable energy itself but acts as broker which buys clean energy from third parties and sells it to its customers. One example is the "solar current stock exchange" which was implemented by the municipal utility of Zurich (EWZ) in Switzerland. EWZ buys photovoltaic electricity from private owners, based on long-term fixed price contracts. The PV owners build, operate and maintain their systems at their own expenses. Their solar current is sold by EWZ at the average price of all EWZ-contracts. If customer numbers outgrow the supply, EWZ makes a tender for the additional capacity needed and will accept the lowest bid. Gianni Operto, EWZ's manager, states: "Our market-oriented approach 'better offer - increased demand' works quite well. We were already able to lower our prices from 1,50 sFr/kWh to 1,20 sFr/kWh".

The attitude of environmentalists and renewable energy associations towards Green Power projects is mostly negative. Ralf Bischof, Eurosolar Germany, argues for example: "Environmental problems have to be resolved by the government and by all citizens. It is not acceptable that just some few carry voluntarily all the burden. We strongly oppose to utilities which introduce Green Power projects and at the same time try to undermine our electricity feed law." Alexi Clarke adds another aspect in the April issue of Wind Directions: "The individual's supposed freedom to "go green" can be used to mask the majority's freedom to carry on polluting".

2. The Future of Green Power Marketing

It may well be that some utilities design their Green Power projects to fail, or try to position them as a "free market" alternative to governmental renewable energy support. And it is completely understandable, that environmentalists and many others who care about climate change and limited resources are horrified by the thought that those approaches may succeed and eventually replace today's renewable support structures.

There is quite some evidence, however, that this will not happen, and there is therefore little reason for environmentalists to engage in a crusade against Green Power Marketing.

Green Power projects are not invented by a malevolent anti-renewable lobby. They are a natural consequence of world-wide trends which shape all industries, e.g.:
If we apply just those five trends to today's utility industry, Green Power marketing is apparently one of the very few approaches to match those requirements. With increasing competitive pressure on the energy market suppliers will therefore learn to develop attractive products and to appeal to the variety of motivations that consumers have. More and more versions of Green Power programs will be created. Most of them are targeted as niche solutions. There will be a market price for green generation, not an uplift on monopoly-prices. As Ed Holt points out:" Today there is a cost premium; tomorrow there is just a price. Cellular services do not advertise how much they cost over standard telephone service. They emphasise value and features". Several green markets will exist. For most utilities Green Power will be just one supply option out of many. But some utilities will exploit the fact that volume solutions have the potential to grow from an incidental marketing tool into a decisive company uniqueness, and will concentrate exclusively on the production of green energy.

But even that will be just an intermediary step. In a deregulated and heavily competitive market "electricity" as such will be no longer a separately marketed good. New players will debundle today's standard offerings and repackage them in many customer-oriented ways. We will see service providers which supply a plethora of target-group-packages, containing security-, health-, safety-, information-, mobility- and energy-services. At that time Green Power marketing will have become an integrated part of customer-focused supply marketing.

3. Conclusions

As utilities and other electricity suppliers offer Green Power out of pure business reasons, it becomes very clear, that such an market-driven approach can never replace environmental support programs -at least as long as there is no level playing field for renewables. Market forces will lead to a growth in Green Power options. But at the same time public pressure has to be maintained to lead to continued generic support for renewables. Both aspects can complement each other.

Environmental associations should think twice before they refuse green power projects in total. They would need a lot of energy (which is better spend otherwise) to explain to the public why they don't accept the erection of a wind turbine just because it is part of a green pricing project. There are much better ways to influence Green Power programs. One way would be to strive for Green Power certification rules - a set of guidelines to avoid misuse of Green Power projects and to strengthen their positive environmental impact.

Let me also mention a - hopefully not too pessimistic - side-remark. We are all looking forward to an increased use of renewable energies and there are good reasons to be optimistic. But it is always wise to care for a fall-back solution in case of unexpected economical downturns. In such a case governmental support for renewables may suddenly stop and the Green Power projects of a deregulated energy industry may remain one of the few segments where renewables are still actively supported.

To summarise: Green Power programs are a market-oriented answer of a deregulating industry. As such, their number and importance will grow in the next years and they will constitute a sizeable complement to environmentally-driven public climate-protection programs. As always in business life, there is a danger of misuse, and therefore reasonable care has to be taken to monitor the industry. In a later phase, the notion of Green Power projects will gradually disappear, as green aspects will become an integrated part of a customer-oriented service supply industry.