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NREL/TP.620.25939LBNL-42286February 1999

Green Power Marketing in Retail Competition:An Early Assessment

Ryan Wiser, Ernest Orlando Lawrence Berkeley National LaboratoryJeff Fang, Kevin Porter, and Ashley Houston, National Renewable

Energy Laboratory

National Renewable Energy LaboratoryA national laboratory of the U.S. Department of Energy

The Topical Issues Brief series is sponsored byDOE=s Office of Energy Efficiency and Renewable EnergyOffice of Power Technologies

NOTICEThis report was prepared as an account of work sponsored by an agency of the United States government. Neither the United Statesgovernment nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legalliability or responsibility for the accuracy, completeness, or usefulness of any information, apparatus, product, or process disclosed,or represents that its use would not infringe privately owned rights. Reference herein to any specific commercial product, process, orservice by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply its endorsement,recommendation, or favoring by the United States government or any agency thereof. The views and opinions of authors expressedherein do not necessarily state or reflect those of the United States government or any agency thereof.

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Green Power Marketing in Retail Competition i

Contents

Abstract ................................................................................................................................................... iiAcknowledgments .................................................................................................................................... iiiI. Introduction ..................................................................................................................................... 1II. Retail Competition Pilot Programs ................................................................................................... 1

New Hampshire ...............................................................................................................................2Massachusetts ..................................................................................................................................2Oregon..............................................................................................................................................3Other Pilots ............................................................................................................................... 4

III. Full Retail Competition ................................................................................................................... 4California .........................................................................................................................................4Massachusetts and Rhode Island.....................................................................................................6Pennsylvania ....................................................................................................................................7

IV. Critical Issues for Green Power Marketing....................................................................................... 9The Importance of Market Rules and Public Policies ....................................................................9Disclosure and Certification..........................................................................................................10Supply Issues..................................................................................................................................11

V. Demand for Green Power ............................................................................................................. 13VI. Observations and Conclusions ...................................................................................................... 13Appendix A. Green Power Products ...................................................................................................... 17End Notes ................................................................................................................................................ 19

Tables

Table 1. Environmental Characteristics of Products Offered in Pilots and Full Competition ...............12Table A-1. Green Power Products Offered Under Retail Competition to Residential Consumers ....... 16

Green Power Marketing in Retail Competition ii

Abstract

Green power marketing—the business of sellingelectricity products or services based in part ontheir environmental values—is still in an early stageof development. This Topical Issues Brief presentsa summary of early results with green powermarketing under retail competition, covering bothfully competitive markets and relevant direct accesspilot programs. The brief provides an overview ofgreen products that are or were offered, anddiscusses consumers’ interest in these products.Critical issues that will impact the availability andsuccess of green power products under retailcompetition are highlighted. Some of the keyobservations and conclusions of the work include:

• Experience from pilot programs in NewHampshire, Massachusetts, and Oregon—while insightful in many respects—should notbe broadly generalized. The direct access pilotprograms in these three states all includedgreen marketing. Yet only a fraction of thegreen products were differentiated based ontheir renewables content, and theenvironmental quality of many of the productshas been questioned. Because of the nature ofpilot programs, however, there are limits towhat can be learned from these experiences.

• Green power markets have developed in all

four states currently open to full competition.Experiences in the more fully competitivemarkets of California, Massachusetts, RhodeIsland, and Pennsylvania provide a morerealistic test of green marketing. These marketshave only been open for a short time, and eachdiffers substantially. Green power marketing isoccurring in each market, however, and a totalof 20 green power products have beenlaunched. All of these products have beendifferentiated based on their renewablescontent, and 60% of the products includecommitments to incorporate some newrenewables over time. While concerns remainover the environmental and resource content of

some products, overall product quality issuperior to that seen in the pilot programs.

• The availability and success of green power

products will hinge on several factors,including the regulatory rules and publicpolicies established at the onset ofrestructuring. Differences among the marketsdiscussed here can largely be traced to thedesign of specific market rules and publicpolicies, particularly the default generationprice offered by incumbent utilities. For thegreen market to succeed, regulators andpolicymakers will have to develop marketstructures, rules and policies in ways that are atleast neutral to, and perhaps even support, thisemerging new market. Surprisingly, marketrules that promote vigorous price competitionand overall customer switching appearespecially important.

• Environmental disclosure requirements and

certification programs may also play animportant role in the success of green powermarkets. Given ongoing concerns about thecredibility and environmental value of some ofthe green power products, customerinformation requirements and credibility-enhancing programs may be critical.

• Evidence to date shows that green products

have had some success in markets newlyopened to competition. Niche markets clearlyexist for green power. Residential demand hasbeen most prominent, though nonresidentialdemand has been more significant than manyexpected. Nonetheless, it will clearly take timefor the green market to mature, and thereremain legitimate concerns about the ability ofcustomer-driven markets to support significantamounts of renewable energy. Unfortunately,there is currently insufficient data with whichto predict the long-term prospects for greenpower sales with any accuracy.

Green Power Marketing in Retail Competition iii

Acknowledgments Green Power Marketing in Retail Competition: AnEarly Assessment was prepared by Ryan Wiser,Lawrence Berkeley National Laboratory (LBNL),and Jeffrey M. Fang, Kevin Porter, and AshleyHouston, National Renewable Energy Laboratory(NREL), for the Office of Power Technologies ofthe U.S. Department of Energy (DOE). The authorswould like to acknowledge Joe Galdo, DOE, for theguidance and personal support he provided to this project. They also wish to thank the following

reviewers for their comments and suggestions:Larry Goldstein (NREL), Joe Eto (LBNL), BlairSwezey (NREL), Liz Robinson (EnergyCoordinating Agency of Philadelphia), MichaelTennis (AllEnergy), Alan Nogee (Union ofConcerned Scientists), Kathy Phillips-Israel(Portland General Electric), Ed Holt (Ed Holt &Associates), Bob Grace (consultant), Nils Bolgen(Massachusetts Division of Energy Resources), andMary Kilmarx (Rhode Island Public UtilitiesCommission).

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Green Power Marketing in Retail Competition: An Early Assessment

I. Introduction Under retail competition, electricityconsumers can choose among multiple suppliers,service options, and products. Their purchasepreferences and decisions can influence the types ofservice options offered and the resources fromwhich electricity will be generated. Consumerdemand for “environmentally preferable” sourcesof electricity may therefore increase the deploymentof renewable energy in the marketplace, namelybiomass, geothermal, solar, wind, and hydropowerresources. In this respect, green power marketing—the business of selling electricity products orservices based on their environmental values—mayplay a role in renewable power development. Some states and utilities have conductedpilot programs to gain experience with retailcompetition. Other states have proceeded directly tofull retail competition. By early 1999, nearly 20states had acted to restructure their electricindustries and to develop retail competition overtime.1 Though price-based competition is expectedto be fierce, green power marketing has alsoemerged as one way of attracting customers inmany of the states and pilot programs where retailcompetition has begun. Residential consumers havebeen the primary targets of these green suppliers,but larger customers have also expressed someinterest in green purchases. Whether or not green power marketing willprovide significant support to renewable resourceshas been debated extensively2. The purpose of thisTopical Issues Brief is to present an earlyassessment of green power marketing under retailcompetition. Section II covers retail competitionpilot programs. Section III describes earlyexperience in four competitive markets, includingCalifornia, Massachusetts, Rhode Island, andPennsylvania. Section IV discusses critical issuesthat have emerged from experiences to date and thatwill affect the success of green power marketing.Section V provides insight into consumer interest in

and demand for green power products. The briefends with conclusions and observations. II. Retail Competition Pilot Programs Either on their own initiative or bylegislative or regulatory orders, utilities in 10 stateshave started retail competition pilot programs.3

Under these controlled tests, a selected number ofcustomers are given the option to buy power fromalternative suppliers. Pilot programs are oftenimplemented with the objectives of gainingexperience with retail competition, ironing-outoperational, administrative and logistical issues, and exploring the impact of retail competition onproduct offers, electricity prices, and consumerpurchasing decisions.4 Of the 10 pilot programs,significant green power marketing activity hasoccurred only in those located in New Hampshire,Massachusetts, and Oregon. Before results from these three pilots arediscussed, it should be emphasized that there areclearly limits to what can be learned from pilotprograms.5 First, pilots are typically small, oflimited duration, and are sometimes restricted tocertain customer classes. Each of these factors haveand will affect the green product offerings. Second,participation in pilot programs by green powermarketers has often been driven by a desire to testdifferent marketing concepts, not by short-termprofit motives. After all, within the context of apilot program, it can be extremely difficult andcostly to target marketing messages to just thoseconsumers eligible to participate. Under a morefully competitive market where profit motives arelikely to be stronger, marketer participation, product design and pricing, and customerparticipation can all be expected to differsubstantially. Third, many of the pilots have notbeen designed to mimic full retail competition, andtherefore offer an artificial environment in which totest market response. For example, by disallowingelectric utilities full stranded cost recovery for thosecustomers who switched suppliers, many of the

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pilot programs guaranteed price savings to thosecustomers. As a result of these three factors, thegreen marketing experience from the three pilotsdiscussed below, while insightful in many respects,should probably not be broadly generalized. New Hampshire6

The New Hampshire retail competitionpilot program was the first in the nation to offerdirect access to a limited number of customers in allcustomer classes. With ground rules established bythe New Hampshire Public Utilities Commission(NHPUC), the 2-year, statewide pilot programbegan in May 1996. The pilot has since beencontinued indefinitely, though marketing to smallerconsumers slowed considerably after the firstseveral months. The pilot encompasses 3% of thestate’s electric load, prorated across customerclasses, including 14,765 residential, 1,728commercial, and 16 industrial customers. More than 30 companies registered aselectric suppliers in the pilot program, and a widevariety of marketing claims and value-addedproducts and services have been offered. Of thedozen suppliers that marketed to residentialconsumers, at least six were engaged in some formof green marketing. Several of the “green” productsoffered by these companies were differentiated notby the source of their power supply, however, butby the environmental record of the company or bythe non-energy products and services that wereoffered. Of the three products that weredifferentiated based in part on their power supply,to the extent there was a renewable energycomponent, it was derived primarily from existinghydroelectric facilities (see Appendix A). Neithernon-hydro nor new renewables were included in themix of these products to any large extent. • Green Mountain Energy Partners offered a 97%

hydroelectric product from a partnership withHydro-Quebec.

• Northfield Mountain Energy marketed pumped-hydro, neglecting to mention the sources ofelectricity required to pump the water uphill.

• Working Assets listed the resources it wouldnot use: nuclear power, coal, and Hydro-Quebec.

Other suppliers, including Granite StateEnergy, Central Maine Power, and PSNH Energyused image advertising and/or offers of ancillaryenvironmental goods and services to position theirproducts as green. These included energy efficiencyinformation, products and services, donations toenvironmental and community groups, and free birdfeeders. Though these actions may help reducepollution, improve energy-efficiency, and enhanceenvironmental awareness, they do not supportrenewable energy. The pilot was designed so that nearly allresidential participants (even those purchasing fromgreen providers) would save at least 10% on theirelectric bills when compared to existing utilityrates. Of the non-utility electricity suppliers,however, the green suppliers did charge up to1¢/kWh more for their services than did their non-green counterparts. No public data are available on actualconsumer responses to the product choices.However, a consumer survey conducted for theNHPUC provides some insight into what influencedparticipants’ choices. In this survey, 20% said thatthe environmental message strongly influencedtheir supplier and product choices (17% indicatedthat the environmental message had a moderateinfluence). The appeal of renewable energy had astrong influence for 17% and a moderate influencefor 13% of those surveyed.7 Despite thesepromising survey results, it is important torecognize that very few residents actually switchedsuppliers in the pilot program. In fact, even of thosewho elected to participate in the pilot, 40%ultimately decided not to switch suppliers at all,perhaps suggesting that these consumers wereeither unhappy with their product choices orunwilling to go through the hassle of sifting throughthe barrage of marketing material. Massachusetts8

In Massachusetts, the MassachusettsElectric Company (MECo) established a residentialand small-business customer pilot programbeginning on January 2, 1997. The pilot ran for ayear until full retail competition became available.Whereas New Hampshire set few restrictions forsupplier participation, the MECo pilot took a more

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controlled approach, selecting six companies tooffer a number of different products in just fourcities and preparing a booklet for customerparticipants describing their options. Approxi-mately 4,750 residential and 550 businessconsumers subscribed to the pilot and switchedsuppliers. Although the pilot's primary purpose was totest billing and metering logistics, MECo was alsointerested in ensuring participation in the pilot byoffering both cost savings and other value-addedservices. For this reason, of the products selected bythe program administrator to be offered toconsumers, four were green power productsmarketed to residential consumers (see AppendixA) and three were green products offered tocommercial accounts.9

Of the four green products offered toresidential consumers, two were differentiatedbased on their power supply. The renewable energycomponent was again derived primarily fromexisting hydroelectric facilities. Other, non-hydrorenewable resources were used sparingly. • Northfield Mountain Energy marketed a 100%

hydro product.• Working Assets again listed the resources it

would not use: nuclear power, coal, and Hydro-Quebec.

Two additional green products, thoseoffered by AllEnergy and Enova Energy, reliedprimarily on the provision of ancillary products andservices to obtain a green position in themarketplace. For example, Enova provided avariety of environmental literature, a raffle for anelectric vehicle, and matched donations to localenvironmental projects. AllEnergy offered theretirement of sulfur dioxide emission allowancesand the construction of small photovoltaic (PV)facilities on community buildings. As in New Hampshire, all products offeredin the pilot provided cost savings to the averageconsumer when compared to existing MECo rates(to do this, MECo was required to forego fullstranded cost recovery). Relative to other non-utility suppliers, however, some of the residentialgreen power products were more expensive (by

1.1¢/kWh at most). Two of the green suppliersoffered prices that were competitive with their non-green counterparts. Though the majority of consumers thatswitched providers opted for one of the lower-priced products, 31% of the residential and 3% ofthe business accounts signed up with providers thatoffered green options. In a survey of participants,16% of the residential participants citedenvironmental and social concerns as the primaryreason for selecting their supplier, whereas 2% ofcommercial participants cited this reason.Interestingly, one of the most expensive residentialgreen products, that offered by Working Assets,actually received the most market share among thegreen options. These results should be viewed withcaution, however, because only 3.5% of thoseresidential customers that could have switched didso. The vast majority of residential customerselected to stay with their existing utility supplier,and the residential portion of the pilot was thereforenot fully subscribed. As a result, consumers that didswitch may have had a higher-than-averagepropensity to choose green power (i.e., a largenumber of “green” individuals may have opted toparticipate in the pilot because of the opportunity topick green power). If a higher number of consumershad switched, the fraction of total consumersselecting a green option might decrease. Oregon10

Portland General Electric (PGE) filed aplan for a direct-access pilot program in August1997. The “Customer Choice Pilot Program” ranfrom December 1, 1997 through December 31,1998, and allowed 50,000 retail consumers in fourOregon towns to choose their electric supplier. Inaddition, beginning in October 1997, all of PGE’slarge industrial accounts were eligible to participate. Fourteen marketers were certified toprovide electricity services under this program.Eight of these marketers were active in the pilot,but only Enron Energy Services (EES) and ElectricLite opted to serve residential households. Thesetwo companies offered a total of three products to

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residential consumers, including one green poweroption marketed by Electric Lite. The resource mixfor this product consisted of 26% geothermal, 25%landfill gas, 25% hydro, and 24% natural gas, oil,coal, and nuclear resources. The cost premium forthe product was 1¢/kWh compared to ElectricLite’s price-based offering, which was itself pricedbelow the standard service offered by PGE. As ofmid-1998, however, both EES and Electric Lite hadended their marketing efforts in Oregon. By the end of the pilot in December 1998,36% of residential consumers in the pilot area wereaware that they were eligible to switch. Overallswitching was rather high, with 14% of eligibleresidential consumers, 69% of eligible largeindustrial and commercial consumers, and 31% ofeligible small to medium commercial customersswitching providers (therefore, a relatively largefraction of “aware” customers actually switched). Electric Lite garnered approximately 3,200of the 6,400 residential consumers that switchedproviders, and 4,600 total customers. According toa PGE representative, however, just 1.7% ofElectric Lite’s residential customers and 0.4% oftheir commercial customers chose the green poweroption, with the majority selecting Electric Lite’slow-cost product.11 In aggregate then, (includingEnron’s residential customers), only 0.85% of theresidential consumers that switched providers in thepilot appear to have selected a green option. This isa much lower response to green power than thatwitnessed in the New Hampshire and Massachusetts pilots. One possible explanation isthat Electric Lite began marketing its green optiononly after the pilot program had been operating forseveral months. It is quite possible that residentialcustomers with a predilection to switch had alreadydone so by the time the green product was available. Other Pilots Beyond these three programs, a number ofadditional pilots have been established throughoutthe country. In each of these, green marketing hasplayed a minimal role at best. Some of the possiblereasons for this lack of green marketing activityinclude:

• Participation Restrictions: Many pilots haverestricted participation, explicitly or implicitly,to large customers, whereas green power isoften best targeted to smaller residential andbusiness customers.

• Competing Market Opportunities: Marketerparticipation in the New Hampshire,Massachusetts, and Oregon pilots was largelydriven by a desire to test different marketingconcepts, not by the prospect of garneringsignificant profit. Given the opportunity to nowparticipate in larger markets, interest in pilotprograms has diminished.

• Green Power Supply: In some pilots, greenpower supply may simply not be available.

III. Full Retail Competition Given the unavoidably artificialenvironment of a pilot program, a morecomprehensive assessment of the viability of greenpower marketing will come from those states thatare more fully restructuring their electric industries.Here we highlight early results from California,Massachusetts, Rhode Island, and Pennsylvania. Inthis discussion, an “eligible renewable” resource isdefined consistently with California law and theGreen-e certification program, and includesbiomass, solar, wind, geothermal, and small hydroless than or equal to 30 megawatts. For a tabularcomparison of the green products offered in thesemarkets, see Appendix A. California12

California’s $20 billion power marketopened on March 31, 1998, and all consumerslocated within the service territories of the threelarge, investor-owned utilities were given theopportunity to select a new electric provider(representing 75% of all load). California’s markethas attracted more interest by competitive suppliersthan Rhode Island and Massachusetts (discussedlater). Yet these suppliers have been particularlyinterested in the largest electricity customers.According to the California Public UtilitiesCommission (CPUC), nearly 30 marketers areregistered to offer products to residentialhouseholds, but only eight companies currentlyhave products on the market for these customers.

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Because of the way the market is structuredin California, it is virtually impossible to earn aprofit by offering smaller consumers price savings.The resultant lack of price competition is typicallyattributed to two primary factors. First, due to highcustomer acquisition costs, signing up an averageresidential consumer in the early years ofrestructuring may cost well over $100 (Enronreportedly spent $10 million to attract 30,000customers, a $300 per customer cost). With razor-thin profit margins, such acquisition costs can easily swamp any savings that might be available on the commodity cost of power. Second, thedefault generation price offered by incumbentutilities to consumers that choose not to switchsuppliers is low. If a residential consumer switchessuppliers, only the commodity power-exchangeclearing price is subtracted from their overall utilityrate. Because the power exchange is a large,wholesale exchange without a retail markup,competitive suppliers are therefore forced tocompete, at retail, with a low default price, leavinglittle or no margin for entry. One result of this market structure, and theconsequent lack of price competition, is that one ofthe only avenues into California’s residentialmarket is to offer premium-priced, value-addedproducts and services, the most prominent of whichare turning out to be green power products. As aresult, six of the eight marketers currently selling toresidents offer green power products, and the larger, well-capitalized companies targetinghouseholds are avoiding the price-based marketaltogether and are focusing their efforts exclusivelyon green power alternatives. Incentives provided by the CaliforniaEnergy Commission (CEC) to renewable generatorsand green power retailers have also helped stimulate the market for green power sales. In fact,in January 1999, the only major supplier offeringprice discounts to residential customers(Commonwealth Energy) switched all of theirresidential and small commercial customers to a100% renewable energy product. Concomitantly,the company began offering the same product tonew customers at a small discount off of utilitytariffs. Commonwealth was able to offer this service because of the 1.5¢/kWh subsidy providedby the CEC to marketers for renewable energy

sales. Though temporary—the incentive level willdecline as overall renewables demand increases—the incentive currently makes it cheaper to supplyresidential customers with renewable energy thanwith any other energy source. As shown in Appendix A, the six greenpower retailers currently offer 13 green powerproducts to residential consumers across the state.These retailers include Edison Source, GreenMountain Energy Resources (GMER), PG&EEnergy Services, Commonwealth EnergyCorporation, cleen ‘n green, and Keystone EnergyServices. The green product offered by EnronEnergy Services before they withdrew from theresidential market is also included because thecompany continues to serve those customers thatsigned up before May 1998. After an initial influx of marketing in early1998, some of these companies have scaled backtheir advertising efforts. At the same time, newcompanies continue to enter the green powermarket, and some of these newer players arebeginning to use less traditional marketingapproaches like agent-based, network, and affinitymarketing. PowerSource, PowerCom Energy,Communications Access, and others, for example,are poised to enter the green power fray. Additionalcompanies are positioning themselves to provideresidential, grid-connected PV products (includingGMER). The Sacramento Municipal Utility Districtalso offers a number of green power products, butonly to consumers within their service territory. Afinal group of suppliers in California’s competitivemarketplace have focused on wholesale greenpower transactions and/or the large-customermarket, including the Automated Power Exchange,Foresight Energy, PacifiCorp, the Bonneville PowerAdministration, the Environmental ResourcesTrust, Enron, New West Energy, and Dynegy. The various residential green productsoffered by retailers differ in many ways, includingresource content, pricing, term of agreement, billingmethod, and the provision of various sign-upbonuses. Including Enron’s product, 13 of the 14products include substantial quantities of “eligible”renewable energy (defined to include wind, solar,geothermal, biomass, and small hydropower). These include one 20% renewables product, four

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50% products, two 75% products, and six 100%products. The one remaining product contains100% hydropower. Most of the supply for these 14products comes from existing resources, but anadditional attribute of some of the products is theinclusion of “new” renewables (i.e., newlyconstructed renewable facilities). In fact, eight ofthe 14 products include commitments to supplysome new renewables (5%-25%) over time. Theprices for the green products range from an0.1¢/kWh discount to a 3.5¢/kWh premium relativeto utility service for the average residentialconsumer. The market in California has only beenopen a short time, and consumer response to theproduct offerings should therefore be consideredpreliminary. Data provided to the CPUC indicatethat 78,800 residential consumers (0.9% of thoseeligible), 23,600 small commercial consumers(2.4% of those eligible), 9,300 large commercialconsumers (4.7% of those eligible), and 880industrial consumers (18.1% of those eligible) hadswitched suppliers by the end of December 1998.These switchers accounted for 11.6% of all loadeligible to switch, but 97% of this was comprised ofthe larger consumers. Residential switching hasbeen relatively low. Yet, while residential switchinghas not taken off as rapidly as some marketers hadhoped, the level of actual switching is not terriblysurprising given the new and emerging market andthe lack of price savings available to smallerconsumers. Given the dearth of other product offers,industry experts and green power marketersestimate that approximately 40%-50%, or 30,000-40,000, of the residential switchers have selected agreen power product. Based on the level of theirmarketing effort, GMER has likely received a goodshare of this market. Yet, because of the incentivesoffered by the CEC to marketers for renewableenergy sales, individuals that signed up for price-based products with Commonwealth and Enronhave been “upgraded” to renewable products at noadditional cost. As a result, virtually everyresidential customer that has switched providers inCalifornia is being served by a renewable energyproduct, making Commonwealth and Enron majorsuppliers of renewable energy to residentialcustomers in the state.

Though residential consumers are theprimary market for green power in California, theyare clearly not the only targets of retail marketers.Indeed, in part because of the slow switching rateamong residents, marketers are increasinglyrecognizing the importance of nonresidentialdemand for green power. Larger consumers thathave announced green power purchases orcommitments include Toyota Motor Sales USA,Patagonia, the City of Santa Monica and ChulaVista, the University Students’ CooperativeAssociation at UC Berkeley, and several Episcopalchurches. Based on discussions with marketers andother industry observers, it is apparent that thesenonresidential consumers could easily becontributing 25% or more of total green powerdemand. Using the information on residential andnonresidential demand highlighted above, it can beestimated that about 4%-5% of the total load thathas switched providers in California is being servedby a green power product. Because some ofCommonwealth and Enron’s customers did notactively switch to a green offering, however,approximately 2%-3% of the total load that hasswitched is actually paying more for a greenproduct. Massachusetts and Rhode Island Full competition in Massachusetts beganon March 1 and in Rhode Island on January 1,1998. Because the two markets are similar in manyrespects, they are discussed jointly here. UnlikeCalifornia and Pennsylvania, very little marketingactivity has occurred in either Massachusetts orRhode Island. As of February 1999, 17 suppliersand nine brokers were licensed to do business inMassachusetts and 35 suppliers were registered inRhode Island. Yet only one of these suppliers,AllEnergy Marketing Company, has launched aproduct in these states for residential consumers and actively advertised its services (anothersupplier, Sunshine Energy, has a limited marketingeffort in Rhode Island). Even for the largestconsumers, there has only been modest interest bysuppliers. According to marketers, the market rulesestablished in both of these states make them

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unattractive prospects in the short term. Mostimportantly, to ensure a near-term rate reduction forconsumers in Massachusetts, the incumbent utilitiesinitially offered generation service at2.8¢/kWhCconsumers must also pay for the cost ofother necessary services, including transmission,distribution, stranded costs, and other regulatedcharges. Because the cost of electricity inMassachusetts’ wholesale market runs from 3.5-4¢/kWh, it has been practically impossible for acompetitive supplier to undercut the utility price.Residential consumers would likely have to pay a1¢/kWh premium just to have the privilege ofchoosing a competitive supplier. Rhode Island hascreated a similar market structure, with market ratesfor electricity generation initially exceeding theutility price by over 0.5¢/kWh. Though thesedefault utility generation prices (often called the“standard offer”) have and will continue to rise infuture years, they are stifling competition for thetime being. Other, secondary issues, includinginitially uncertain market rules and environmentaldisclosure regulations in Massachusetts, incompleteunbundling of billing services, and a ballotreferendum to repeal the Massachusettsrestructuring legislation (which has since failed),have also dampened market activity. To overcome the low cost of default utilityservice, AllEnergy created an innovative, greenpower offering called ReGen. This green powerproduct is sold separately from electric supply,allowing consumers to remain with their low-costutility service while still supporting renewableenergy. AllEnergy bills separately for its product,and then supplies the appropriate quantity ofrenewables into the New England grid. Because theproduct is not linked with a consumer’s actualelectricity supply, it can be offered in states not yetopen for retail competition. The product is thereforeoffered throughout New England, though AllEnergy has focused its marketing inMassachusetts and Rhode Island. The product canbe purchased in 2,000 kWh/year blocks at $8/monthfor the first and $6/month for subsequent blocks,where each block includes 100% new renewableenergy. During the first year, sources for theproduct are expected to be 99.5% new landfill gasand 0.5% new photovoltaics. In the future,AllEnergy expects to increase PV and add wind tothe product content. AllEnergy’s green power

demand has already resulted in the installation ofsome PV and the company is currently in thedevelopment phase for a 7.5 MW wind facility inMassachusetts. In addition to the AllEnergy product, therehas also been some interest in the rooftop PVmarket. Specifically, Solar Works has receivedsome public funding in Rhode Island to market PVsystems, and Sun Power Electric is building rooftopPVs and selling that power both to PV site hosts aswell as to green power marketers and otherconsumers. A growing cooperative movement inthe region may provide a low-cost mechanism formarketers to access large numbers of potentialgreen power customers. The Boston Oil ConsumersAlliance, for example, is already aggregating theircustomers to buy green power from AllEnergy. No data are available on how manycustomers have switched suppliers in eitherMassachusetts or Rhode Island, and AllEnergy hasnot reported consumer demand results for theirgreen power product. Nonetheless, given the lack ofinterest on behalf of suppliers, it is doubtful thatmany consumers have taken the opportunity toswitch from their utility service. On the day of itslaunch, the Union of Concerned Scientistsannounced the purchase of 30 blocks ofAllEnergy’s green power product. AllEnergy hassince begun marketing their services, but hasreported that attracting customers is a difficult,complicated, and time-consuming process.13

Pennsylvania The Electricity Generation CustomerChoice and Competition Act, enacted in December1996, provided many of the basic ground rules forestablishing retail competition in Pennsylvania.Subsequently, the PUC negotiated detailedrestructuring settlements with each utility. As aresult, beginning in January 1999, customersrepresenting two-thirds of industrial, commercial,and residential load were eligible to select a newpower provider, with the remaining customerseligible in January 2000 (some utilities offeredchoice to all customers beginning January 1999). Though the market only opened in January1999, consumer choice in Pennsylvania is already

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shaping up to be far different from that witnessed inCalifornia, Rhode Island, or Massachusetts.Specifically, in Pennsylvania, several (though notall) of the utilities offer default generation service ata price that exceeds that available on the openmarket. Consequently, consumers that switchsuppliers are given a realistic opportunity forsignificant cost savings—up to 15%—and greenpower can be offered at a lower overall cost relativeto utility rates. The Pennsylvania PUC is alsoactively promoting choice and encouragingconsumers to choose a new provider. Therefore,despite a dearth of renewable power supply, limiteddisclosure requirements, concerns over theavailability and pricing of “capacity,” a phase-in offull, direct access, and market rules that differ byutility service territory, a number of marketers areactive in the Pennsylvania market. Some of thesemarketers are offering green power products. In PECO’s service territory, where the bulkof the marketing is focused, 48 suppliers areregistered to offer services to commercial and/orindustrial clients and 18 suppliers are registered tooffer services to residential households. Eleven ofthese residential suppliers have announced pricesand are already active. Three of these have begun tosell green power products: Conectiv, GMER, andthe Energy Cooperative Association ofPennsylvania. GMER is offering three greenproducts statewide: • Eco Smart, consisting of 99% natural gas

and/or large hydro and 1% new landfill gas• Enviro Blend, containing 47% existing small

hydro and landfill gas, 3% new landfill gas, and50% natural gas and/or large hydro

• Nature’s Choice, including 95% existing smallhydro and landfill gas and 5% new landfill gas.

GMER has also announced its intention toconstruct multiple PV facilities throughout thestate, beginning with a 50-kilowatt plant. The priceof GMER’s three products varies greatly by utilityservice territory, and the Eco Smart product is soldat a discount from 1999 utility rates in some areas.On average, green power price premiums are lowerthan those seen in California.

Conectiv offers both price-based productsand two green power products in PECO’s serviceterritory: • Nature's Power 100, containing 100%

renewable energy (50% biomass, 50% smallhydro)

• Nature's Power 50, containing 50% renewableenergy (25% biomass, 25% small hydro) and50% nonrenewable resources.

The prices for these two products are alsolower than those witnessed in California,Massachusetts, and Rhode Island. Finally, theEnergy Cooperative Association of Pennsylvania, amember-based cooperative, sells Conectiv’s twoproducts to its members at a discount. Because of the way the market wasstructured—especially the ability for alternativesuppliers to offer price savings—many industryobservers expected a significant amount of near-term customer switching in Pennsylvania. While themarket has only recently opened, availableswitching data support this expectation and showthat the Pennsylvania market is already far morevibrant than those in the other states reviewed here.Most importantly, a recent statewide pollundertaken by the PUC suggests that 425,000residential consumers, or almost 10% of theresidents in the state, had already switchedproviders as of January 1, 1999. Considering the0.9% response rate in California after 9 months, thisis an astounding response. Moreover, green powersales appear to be brisk in the Pennsylvania market.GMER has reported being the number one ornumber two residential supplier in each utilityservice territory, though GMER’s lowest-pricedgreen product has received the most interest bycustomers. In addition, industry sources estimatethat approximately 100,000 of the 450,000residential switchers have selected one of the“green” power products listed earlier. Thisrepresents over 20% of the residential switchers andabout 2% of all residential customers in the state.On this basis alone, it is evident that Pennsylvaniahas proven to be a more successful market for greenpower sales than California, Massachusetts, orRhode Island.

9

IV. Critical Issues for Green PowerMarketing

What are the factors that encourage ordissuade green power suppliers to participate inspecific markets? What variables affect both thesuccess of green power products and the type ofproducts that are offered? This section discusses theimportance of market rules and public policies, thepossible need for disclosure and certification, and avariety of supply-related issues. Each of thesefactors influence whether and what type of greenproducts are made available to consumers andwhether these products will be successful. The Importance of Market Rules and PublicPolicies14

The success of retail markets for greenelectricity, however measured, will depend not onlyon the actions of private market actors but also onthe detailed “market rules” established by regulators and legislators at the onset ofrestructuring and on a variety of policies andprograms intended to support the market. In fact,one need not look farther than the four competitivemarkets discussed earlier to show that the “rules ofthe game,” especially the default generation price,will dictate the pace, success, and credibility ofgreen power marketing. In California, where many of the marketrules and policies are relatively conducive to greenpower marketing, but the default generation price isset at the wholesale cost of generation, green powerproducts are just about the only game in town formarketers interested in targeting residentialconsumers. Yet the low default price isdiscouraging the development of robust, price-based competition (at least for smaller consumers)and has therefore inhibited customer switching.Thus, while value-added products and green powersales are playing a prominent role in the residentialmarket, the overall size of that market has beenrather limited. In Massachusetts and Rhode Island, marketrules were initially somewhat uncertain, some rulesthat are in place are not particularly favorable togreen marketers, and the default generation price

was set at a level below the cost of wholesalegeneration. As a result, very little competition ofany form is occurring in those two markets,customer switching is negligible, and the greenpower market is basically stagnant. Finally, there is Pennsylvania, where manyof the basic rules are also unfavorable to marketers.For example, there are no fuel-source disclosurerequirements, the rules differ by utility serviceterritory, few efforts have been made to ameliorateconcerns over market power, several utilitiesencourage customers not to switch, and subsidiesare not widely available for renewable generatorsand green power marketers. Yet, the defaultgeneration price was set at a high level in severalutility service territories in Pennsylvania, andconsumer choice is being actively promoted by thestate PUC. Consequently, even with a number ofunfavorable market rules, there is active pricecompetition and some momentum on the part ofconsumers to switch providers. Moreover, withinthis market structure, green power providers appearto be having far more success than in markets where price competition and switching are morelimited. Regulatory and public policyconsiderations clearly influence both the willingness of green power suppliers to entercompetitive markets and the environmentalcredibility of the products and marketing claims ofthose suppliers. Somewhat surprisingly, theexperience described in this paper shows thatmarket rules that promote vigorous pricecompetition and overall customer switching areespecially important, even for the green powermarket. But beyond a high default generation priceand those rules discussed above, what types ofmarket rules and public policies are conducive togreen power marketing? In general, marketers believe that the firstpriority should be to design the basic market rulesin ways that allow overall competition to emergeand that minimize barriers to entry. As a result, in asurvey of United States green power marketers, thefollowing market rules were viewed by most asparticularly important:15

10

• A default generation price that is high enoughto encourage entry by competitive suppliers(this was the single most important market ruleidentified by marketers).

• Direct access processing and service that israpid, uniform, and consistent across utilityservice territories, and low customer-switchingcosts.

• A transition to a competitive market that israpid, without pilots or phase-ins.

• Billing and metering services and costs that arefully unbundled.

• Stranded costs that are recovered quickly via afixed ¢/kWh charge and rules that give utilitiesan incentive to mitigate the level of strandedcosts.

• Meaningful protections against the abuse ofmarket power.

• A careful balance between augmentedconsumer protection regulations and the addedcosts and burdens imposed on energy serviceproviders.

• Publicly-funded consumer education on retailchoice to offset consumer inertia andconfusion.

Once this basic foundation for competitionis established, marketers generally believe that anumber of policies and programs specificallyintended to encourage the green power marketshould be considered: • Mandate fuel source and emissions disclosure,

but only if simple and standardized.• Avoid strict, non-uniform, governmental

definitions of green power. Allow voluntarycertification programs and environmentalendorsements to help define the meaning ofgreen power.

• Ensure that transmission-pricing rules do notdisadvantage intermittent, low-capacity factorgenerators.

• Provide monetary incentives to green powermarketers, consumers, and/or renewablegenerators.

• Fund consumer education campaigns onrenewable energy.

It remains uncertain whether green powermarketing will add substantially to existing

renewables capacity levelsCor even stem thepossible decline in existing renewablesgenerationCin the absence of more overt types ofrenewables policy. Traditional economic theorysuggests that, in the case of green power, individualconsumer demand will be unable to fully replacecollective public policy measures. Therefore, inaddition to those market rules and policiesdescribed above, policymakers have alsoconsidered broader public policies to supportrenewable energy, including distribution surcharge-funded programs (often called a system-benefitscharge) and renewables portfolio standards. Thoughthe level of support differs dramatically, in each ofthe markets discussed earlier, namely California,Massachusetts, Rhode Island, and Pennsylvania,legislators and regulators have enacted one or bothof these two policy approaches. Disclosure and Certification Research shows that consumers often donot link their electricity use with environmentalharm, generally have inaccurate ideas about theresources used to generate their electricity, andwonder if they will get what they pay for if theybuy green power. Consumers also have difficultyevaluating the barrage of advertising and marketingmaterial associated with customer choice, areconcerned about the reliability of their newprovider, and expect exaggerated or misleadingadvertising claims by green power marketers. Notsurprisingly, many consumers exposed tocompetitive electricity markets simply find choiceoverwhelming and, as a result, find it easier to donothing.16

Early competitive markets are thereforevery likely to be marked by consumer confusion,skepticism, and inertia. In fact, experience in theNew Hampshire and Massachusetts retailcompetition pilot programs confirms these fears anddemonstrates that some suppliers have an incentiveto use misleading environmental claims and inferiorgreen products to attract customers (lesser, but stillserious, concerns have also been raised inCalifornia). These concerns and experiencessuggest that, of the market rules and policiesdiscussed earlier, both well-designed environmentaldisclosure regulations and green power certificationefforts may play an especially important role.

11

Mandatory disclosure of productinformation such as prices, resource mix, andenvironmental impacts is intended to facilitate thecomparison of different electricity products andgreen claims. Disclosure may also provide theancillary benefits of raising consumer awareness ofnon-price attributes to consider in purchasedecisions and enhancing consumer protection bylimiting false and/or misleading claims. On thispremise, 11 states have either adopted legislation orare writing rules to require disclosure, and anadditional 16 states are in various stages ofconsideration.17 In California, for example, thelegislature requires retail suppliers to disclose thefuel mix of their products to customers. InMassachusetts, both fuel mix and pollutantemissions must be disclosed. Unlike mandatory disclosure regulations,green power certification is a generally a voluntary,product-approval program based on standards setby the certifying organization. The effectiveness ofvarious forms of product labeling has been debated;certification is not universally hailed.18

Nonetheless, the function of product certification isto provide an impartial, third-party endorsement toaid buyers in overcoming some of the problems ofproduct selection, to prevent false and misleadingadvertising, and to spur suppliers to compete inoffering environmentally preferable products.19

Administered by the Center for ResourceSolutions, the Green-e Renewable ElectricityBranding Project is the first program in the UnitedStates to certify green power products. The programis operating in California and Pennsylvania, andhopes to expand to New England shortly. To usethe Green-e logo, product offerings must meet orexceed standards for renewable energy content andtotal air emissions, and must not includedifferentiated nuclear energy. Since the Green-eprogram is still young, its effect on buildingconsumer confidence in green product offerings isdifficult to gauge. Nonetheless, anecdotal evidenceand a survey of marketers suggest that the programis already having a positive impact on theenvironmental attributes of the green productsoffered in California, that consumers are becomingincreasingly aware of the brand, and that the brandis enhancing the stability of the green powermarketplace by creating some confidence within the

environmental community about the green productofferings.20

Supply Issues Product content and resource supply issuesare strongly related to green power marketcredibility. Table 1 provides summary statistics ofkey product content differences between thoseproducts offered under the pilots and those soldunder full competition (ignoring renewablessystems placed and used on site by customers).Marketers continue to experiment with new productdesigns and, as discussed below, improvements inthe general environmental quality of the productswould still be desirable. Comparatively speaking,however, Table 1 demonstrates that theenvironmental and resource characteristics of greenproducts sold under full competition are superior tothose supplied in the pilots. In the New Hampshire and Massachusettspilots in particular, a number of suppliers usedimage advertising and/or offers of ancillaryenvironmental goods and services to position theirproducts as green. Few products includedsubstantial quantities of non-hydro renewableresources, and nearly all of the productsrepackaged existing resources rather than includenew renewables supply. Under full competition,on the other hand, all of the green products arecurrently being differentiated based on theirresource content and most incorporate a far higherpercentage of renewable resources. Moreover,60% of the products include a commitment tosupplying some new renewables over time. A number of factors are likely the causeof the divergence in product content between thepilot programs and those states more fully open toretail competition. First, the short duration andlimited size of most pilot programs discouragessuppliers from constructing new renewable plants.Recovery of investments in new facilities isuncertain in these instances, and there is generallyinsufficient lead-time to warrant developing newplants. Suppliers therefore rely on available existingresources, on image advertising, and on theprovision of ancillary environmental goods. Underfull retail competition, a greater opportunity existsto build new facilities. Second, marketers are

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becoming increasingly aware of the importance ofrenewables supply generally and new supplyspecifically. Especially in the New Hampshire andMassachusetts pilots, suppliers were experimentingwith a variety of product concepts and marketingappeals. Now that marketers have some experiencewith direct access, including a recognition of theenvironmental backlash that resulted from the twopilots, they are more aware of product designchallenges and the meaning of “green power” toenvironmental stakeholders. Finally, consumerprotection regulations, disclosure and certificationrequirements, environmental endorsements, publicinformation campaigns, and mandatory greenpower definitions are also pushing marketers toimprove the environmental and resourcecharacteristics of their products. Despite improvements in product quality,however, some concerns remain with thecharacteristics of those products offered under fullretail competition. Perhaps most importantly,despite the inclusion of some new renewables in theproduct content, the majority of products stilllargely rely on existing resources, many of whichare utility owned. Of the 12 products that doincorporate some new renewable energy, the newcontent is typically relatively small—seven of theproducts include less than 15%—and the specificcommitment to new resources is often somewhatvague. This has led to concerns that green powermarketing is largely repackaging an existing mix ofrenewables that would have generated power absent

consumer payments, yielding little immediateenvironmental improvement or incrementalrenewables supply.21

Though many of these are legitimateconcerns, especially in the early years of greenpower market development there are severalreasons why marketers are relying heavily onexisting resources. First, given the high costs ofattracting and acquiring customers in a deregulatedenvironment, green suppliers are wary of chargingtoo much for their services. Existing resources thathave already recovered their capital costs are oftenmuch less costly than new projects that mustrecover both capital and operating costs. Second,and perhaps more importantly, it takes time and aserious, long-term commitment to develop newresources, and consumer demand for green power isstill highly uncertain. Smaller companies inparticular, faced with uncertain green powerdemand, simply do not possess the resources andcredit to support significant quantities of newgeneration. Until a positive record of consumerdemand is established and green power marketersare on firmer ground, it will be difficult for mostmarketers and generators to finance new renewablefacilities. As an interim measure, many marketerswill therefore rely on lower-risk, existing resourceswhose output can be purchased now via short-term,flexible contracts. New mechanisms for riskallocation, risk management, and financing will be

Table 1. Environmental Characteristics of Products Offered in Pilots and Full Competition

Product Content

Retail Pilot Programs (NH, MA, OR)

Full Retail Competition (CA, MA, RI, PA)

Total number of green products offered to residential consumers

11

20

Percent of green products differentiated based on resource content

55%

100%

Percent of green products with 50% or more renewables content(including large hydro)

36%

95%

Percent of green products with 50% or more “eligible renewables”content (biomass, wind, small hydro, geothermal, solar)*

9%

85%

Percent of green products that include a commitment to supplysome new renewables

9%

60%

*It is assumed that the hydro-based products in the New Hampshire and Massachusetts pilots consist primarily of large hydroresources.

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needed before substantial amounts of newrenewables can be developed. If these mechanismsare worked out, and if demand solidifies andmarketers obtain a stronger foothold in the market,green products can be expected to include greaterquantities of new renewables in the future.22 It isapparent that many industry observers will rate theoverall success of the green market based on itsability to deliver this new renewable energy supply. V. Demand for Green Power Residential consumers are widely regardedas offering the largest potential market for greenpower. In surveys, 40%-80% of these consumersstate that they are willing to pay a small premiumfor renewable energy.23 Though the results ofmarket research of this type should not beinterpreted as an actual indicator of consumerdemand, it does reveal broad interest in renewableresource purchases. But with retail competition,will consumers really demand green power and bewilling to pay a premium for a product thatprovides environmental benefits to all? Unfortunately, given the emerging natureof the green power market, it is not yet possible todraw strong conclusions regarding its ultimate sizeor its potential to create new markets for renewableenergy. Further, the evidence presented in thispaper offers a mixed review of green powermarketing results to date. In the Massachusetts and New Hampshire pilots,perhaps 20%-30% of residential consumers thatswitched providers selected a “green” product,suggesting a large role for green marketing.Moreover, in the more fully competitive markets ofCalifornia, Massachusetts, Rhode Island, andPennsylvania, large proportions of households thatswitch are selecting green power options. Forexample, virtually every residential switcher inCalifornia is being served by a green product, andapproximately 40%-50% have opted to pay morespecifically for a green power offering. And inPennsylvania, where robust price competitionexists, approximately 20% of residential switchersare selecting green options. It is difficult to extractrobust conclusions from this data, however, or toextrapolate future green power demand from theseearly results:

• First, because of the way the pilots weredesigned, participants in New Hampshire andMassachusetts saved money regardless ofwhich provider they chose (participants did,however, often pay more for the green optionsthan for the cheapest alternatives). Greenproducts may look more attractive in thisenvironment than in one where significantpremiums are required. Results inPennsylvania, where premiums are generallylow and green power demand is high, supportthis argument.

• Second, the green options offered in

Massachusetts and New Hampshire, inparticular, have been criticized for not beingvery “green.” This helped hold down the greenpower price premiums and may have thereforeattracted additional green demand. Yet, it isalso possible that the poor quality of productslimited interest among committed andknowledgeable environmentalists in “goinggreen.”

• Third, in all cases, those who have or are

switching providers may have a higher thanaverage propensity to choose green. That is,some consumers may have participated in thepilots because they wanted the opportunity tobuy green power. Likewise, given the way themarket has been structured in California,Massachusetts, and Rhode Island, nearly all ofthe residential products are green offerings. Asthe markets more fully open and as moreproducts become available, the percentage ofswitchers that pick a green option may welldecline.

Finally, and most importantly, these resultsmust be viewed in the context of the vast majorityof consumers that have chosen not to switchproviders. In Massachusetts and Rhode Island,precious few options are available to smallerconsumers, and in California only 0.9% of theresidential consumers had opted to switch providersby the end of December 1998. Even in the pilotprograms, where consumer price reductions wereassured, a large majority of consumers chose not toswitch. Though the Pennsylvania market is shapingup as one where customer switching is much higher, in general newly restructured markets are

14

expected to open rather slowly. After all, even ifnew competitors can offer significant savings andother benefits, the switching process itself entailslarge transaction costs for smaller consumers,especially in the time and effort required to gatherinformation and evaluate offers. As a result, in theearly years at least, the most important barrier togreen power may well be an overall lack ofswitching activity.

Despite these caveats, early experiencewith retail competition does suggest that greenpower products will have some success inpenetrating newly-opened electricity markets. First,environmental claims and the supply of renewableenergy can clearly be used to capture at least aniche segment of residential consumers. Second,given the high proportion of residential switchersthat are selecting green power products, there is atleast the potential for a significant level of demandfor green power as markets open and moreconsumers switch providers. Early experience inPennsylvania is promising, with approximately20% of the residential switchers selecting a greenoption even with substantial levels of overallswitching and the availability of price-basedoptions. Third, experience so far indicates thatnonresidential consumers may prove to be anespecially important target during the early years, asthese electricity users have initially shown moreinterest in participating in retail competition and theper-kWh customer acquisition costs are lower thanin the residential market. Based on a survey ofgreen power marketers as well as evidence inCalifornia and certain utility programs, it looks as ifthese larger consumers could constitute 25% oftotal green demand.24

It will, however, clearly take some time forthe market to develop. Moreover, legitimateconcerns remain about the ability of consumermarkets to support significant amounts ofrenewable energy and achieve environmentalobjectives. The long-term prospects for greenpower therefore remain uncertain, and marketers,policymakers, and advocates should not expectimmediate results. Demand for new products oftenfollows an “S” curve, starting slowly beforeproceeding through rapid growth.25 Experience inother markets suggests that it may take 10 years ormore for green power to make significant inroads

into the market, if ever.26 In fact, even the greenmarketers do not anticipate immediate results, butrather expect to garner 0.5%-2% of the residentialmarket within 1 year after retail competition isallowed, and 4%-10% after 5 years.27

In the near term, then, niche markets forgreen power clearly exist and have the potential, ifdesigned well, to provide a modest yet meaningfullevel of support to the renewables industries. Overthe long-term, continued work by all parties will berequired to lay the groundwork for a durable,sizable, and credible green power market.

VI. Observations and Conclusions

Based on the results presented in thispaper, we offer the following observations andconclusions:

First, the results of the pilot programs inNew Hampshire, Massachusetts, and Oregonconfirm that power marketers will offer greenpower products in a competitive context. All threepilots involved green power marketing and 11separate green products were offered. Only afraction of these products were differentiated basedon their renewable energy content, however, withseveral suppliers relying on image advertising andancillary environmental goods to “green” theirproduct offers. In large part because of the shortduration and small number of customers eligible toswitch providers in these pilot programs, only oneproduct included a commitment to supply newrenewables. Given the nature of pilot programs ingeneral, however, these results should not be usedheavily in assessing the prospects for green powermarketing under full retail competition.

Second, though the markets are still veryyoung, experience in those states more fully open toretail competition (California, Massachusetts,Rhode Island, Pennsylvania) is more likely than thepilots to provide a realistic indication of theopportunities and pitfalls of green power marketing.Each of these markets differ substantially, but allinclude green power marketing activity. A total of20 products are offered by nine retail marketers inthese states, and additional suppliers continue toenter the markets. Though concerns about the

15

quality of the “green” products remain, theenvironmental and resource characteristics of theproducts sold under full competition appearsuperior to those supplied in the pilot programs. All20 of the green products are differentiated based ontheir renewable energy content, and 60% commit toadding some new renewables to their portfoliosover time. There are a number of barriers toincluding new renewables, however, and most ofthe products rely heavily on existing resources.Greater commitments to incremental sources areexpected to be made as the market matures, andmany industry observers will rate the long-termsuccess of the market on its ability to deliver thisnew renewables supply.

Third, the availability, success, and qualityof green power products will hinge on severalfactors, including the market rules and publicpolicies adopted in a restructured marketplace.States with supportive public policies and marketrules may help foster a credible and sizable greenpower market; states without supportive rules andpolicies may thwart the development of this newmarket. The basic rules that govern the operationand structure of the market itself will perhaps havethe most impact on the ability of green powermarketers to successfully compete. Mostimportantly, default service that is offered at orbelow the wholesale market price of power willhamper competition by discouraging customerswitching and will be detrimental to green power byrequiring higher-price premiums. At the same time,more overt forms of renewables policies will likelybe required to fully support the renewable energyindustries and augment the green power market atleast in the near term.

Fourth, to enhance the credibility of thegreen power market, facilitate the comparison ofdifferent electricity products, educate and influenceconsumers, and improve overall product quality,environmental disclosure policies and certificationprograms may also play an important role in thegrowth of green power markets. In fact, to mitigateongoing concerns about product quality and thetruthfulness of green claims, a number of stateshave already passed disclosure laws, and thevoluntary Green-e program is certifying greenproducts in California and Pennsylvania.

Finally, it must be acknowledged thatwhether restructuring will launch a durable,credible, and sustainable market for green power isnot yet known. Experience with the green powermarket to date has been mixed and there has beenconsiderable debate on the merits and drawbacks ofgreen marketing as a tool for commercializingrenewable energy technologies. Moreover, it willclearly take some time before sufficient experienceis gained to estimate future demand and theresultant impact on renewables supply with anyprecision. Retail competition will, however, clearlymean more to consumers than just the opportunityto purchase cheaper electricity. Based on theevidence provided in this paper, it is clear that thereis at least a niche market of consumers, bothresidential and nonresidential, that are willing topay a premium for green power products.Moreover, evidence from the pilot programs andfull retail competition suggests that a good fractionof residential consumers that switch suppliers mightbe induced to select a green power product.Unfortunately, the evidence also shows that, unlesselectricity markets are explicitly designed toencourage switching, few residential consumerswill be interested in switching providers in the nearterm. Accordingly, it is important for green powermarketers, advocates, and others to have realisticexpectations about the likely near-term consumerresponse to green options, and to place a particularemphasis on those market rules that will affect theultimate size and credibility of the green market.

16

Appendix A. Green Power Products

Table A-1. Green Power Products Offered under Retail Competition to Residential Consumers*

Company and Product Resource Mix Product Price for AverageResidential Consumer**

New Hampshire: Pilot

Green Mountain EnergyPartners

97% hydro, 3% nuclear and fossil fuel 2.66¢/kWh (generation only)

Northfield Mountain Energy Because pumped storage hydro is involved, itis not possible to specify the exact shares offuel sources included

3.11¢/kWh (generation only)

Working Assets Green Power No nuclear, coal, or Hydro-Quebec; in firstquarter 1997, resource mix included 51%hydro, 3% landfill gas, 41% gas, 1% oil, and4% unspecified


Massachusetts: Pilot

AllEnergy 10% hydro, 6% other renewables, 38% coal,22% gas, 10% oil, 14% nuclear; three priceoptions impact SO2 emissions credits retiredand PV panels installed

3 Options:3.01¢/kWh (generation only)3.21¢/kWh (generation only)3.41¢/kWh (generation only)

Enova Energy 5.7% hydro, 2.3% other renewables, 57.3%nuclear, 20.9% coal, 13.9% oil, 0.1% gas


Northfield Mountain Energy 100% hydro 2.60¢/kWh (generation only)

Working Assets Green Power No nuclear, coal, or Hydro-Quebec; 30%-45%hydro, 3%-10% other renewables, 35%-50%gas, 0%-0.5% oil


Oregon: Pilot

Electric Lite Inc.Electric Lite Green

26% geothermal, 25% landfill gas, 25% hydro,and 24% natural gas, oil, coal, and nuclear

1¢/kWh premium above Electric Lite’slow-cost product; avg. bill increases$7/month

California: Full Competition***

cleen 'n greengreen 50

50% eligible renewables (undesignated mix ofsolar, wind, small hydro, biomass, andgeothermal; includes 10% new renewables);50% large hydro and natural gas

0.98¢/kWh premium over 1999 utilityrates; avg. bill increases $5.4/month

cleen 'n greengreen 100

100% eligible renewables (undesignated mix ofsolar, wind, small hydro, biomass, andgeothermal; includes 20% new renewables)


Commonwealth GreenSmart

100% eligible renewables (geothermal andbiomass)

0.12¢/kWh discount off 1999 utilityrates; avg. bill decreases $0.66/month

Edison SourceEarthSource 2000

100% eligible renewables (undesignated mix ofsolar, wind, small hydro, biomass, andgeothermal; includes 10% new renewables)


Edison SourceEarthSource 100

100% eligible renewables (undesignated mix ofsolar, wind, small hydro, biomass, andgeothermal)


Edison Source 50% eligible renewables (undesignated mix of 1.36¢/kWh premium over 1999 utility

17


EarthSource 50 solar, wind, small hydro, biomass, andgeothermal), 50% California System Power

rates; avg. bill increases $7.5/month

Enron Energy ServicesEarth Smart Power(Product Discontinued)

50% eligible renewables (includes geothermal,biomass, and new wind), 50% large hydro andnatural gas


Green Mountain EnergyResources

Wind for the Future

75% eligible renewables (small hydro, biomass,and geothermal; includes 10% new wind overtime), 25% large hydro



75% renewable product

75% eligible renewables (small hydro, biomass,and geothermal), 25% large hydro



Water Power

100% hydro 0.975¢/kWh premium over 1999utility rates; avg. bill increases$5.4/month

Keystone Energy ServicesEarthChoice 100

100% eligible renewables (undesignated mix ofsolar, wind, small hydro, biomass, andgeothermal)


PG&E Energy ServicesClean Choice 100

100% eligible renewables (undesignated mix ofsolar, wind, small hydro, biomass, andgeothermal; includes 25% new renewables overtime)



50% eligible renewables (undesignated mix ofsolar, wind, small hydro, biomass, andgeothermal; includes 13% new renewables overtime), 50% large hydro



20% eligible renewables (undesignated mix ofsolar, wind, small hydro, biomass, andgeothermal; includes 5% new renewables overtime), 80% large hydro


Massachusetts and RhodeIsland: Full Competition

AllEnergy ReGen

Each 2,000 kWh/yr block: first year—99.5%new landfill gas, 0.5% new PV; second year—84% new landfill gas, 1% new PV, 15% newwind

$8.0/month for first block; $6.0/monthfor other blocks

Pennsylvania: Full Competition


Eco Smart

99% natural gas and/or large hydro, 1% newlandfill gas

Depends on service territory, e.g.:PECO—0.4¢/kWh reduction on 1999utility rates; avg. bill decreases$3/monthPP&L—0.7¢/kWh premium over 1999utility rates; avg. bill increases$5/month

18



Enviro Blend

47% existing small hydro and landfill gas, 3%new landfill gas, 50% natural gas and/or largehydro

Depends on service territory, e.g.:PECO—0.5¢/kWh premium over1999 utility rates; avg. bill increases$4/monthPP&L—1.3¢/kWh premium over 1999utility rates; avg. bill increases$9/month


Nature’s Choice

95% existing small hydro and landfill gas, 5%new landfill gas

Depends on service territory, e.g.:PECO—1.1¢/kWh premium over1999 utility rates; avg. bill increases$9/monthPP&L—2.3¢/kWh premium over 1999utility rates; avg. bill increases$17/month

ConectivNature’s Power 100

100% eligible renewable energy, including50% biomass and 50% small hydro

In PECO’s service territory, 0.5¢/kWhpremium over 1999 utility rates; avg.bill increases $4/month

ConectivNature’s Power 50

50% eligible renewable energy (25% biomass,25% small hydro) and 50% nonrenewableresources

In PECO’s service territory, 0.2¢/kWhreduction on 1999 utility rates; avg.bill decreases $1.2/month

* Note that most of the products included in this table are only those that are differentiated based on their power content.Products that use other forms of environmental claims are not included (except for the Massachusetts pilot, whichincludes all of the “green” options selected by the pilot administrator).

** Price estimates are not all presented on equal terms and are therefore not all directly comparable. California pricesreflect an average usage of 550 kWh/month. Pennsylvania prices reflect an average usage of 750 kWh/month.

*** For the California and Pennsylvania products, “eligible renewables” are defined to include solar, wind, geothermal,biomass, and hydro less than or equal to 30 MW.

Sources include: Holt and Fang (1997), Rothstein and Fang (1997), Wiser and Pickle (1998), and a variety of news releases,direct mail, and web sites.

End Notes 1. Energy Information Administration. The Changing Structure of the Electric Power Industry: SelectedIssues, 1998. DOE/EIA-0620. July 1998. 2. Energy Center of Wisconsin. Green Power in Perspective: Lessons from the Marketing of ConsumerGoods. Madison, Wisconsin. December 1997. Nakarado, G. “A Marketing Orientation is the Key to a Sustainable Energy Future.” Energy Policy, 24(2), 1996. Rader, N. and Short, W. “Competitive Retail Markets: Tenuous Ground for Renewable Energy.” TheElectricity Journal, 11 (3), 1998. Wiser, R. and Pickle, S. Green Marketing, Renewables, and Free Riders: Increasing Customer Demandfor a Public Good. Lawrence Berkeley National Laboratory, LBNL-40636. Berkeley, California. 1997. 3. Energy Information Administration. The Changing Structure of the Electric Power Industry: SelectedIssues, 1998. DOE/EIA-0620. July 1998. 4. For detailed descriptions of the first six pilots, see: Edison Electric Institute. Retail Pilot Programs:The First Six. Washington, D.C. 1997. 5. Landon, J. and Kahn, E. “Retail Access Pilot Programs: Where’s the Beef?” The Electricity Journal,December 1996. Lineweber, D. “What Competition Pilots Don’t Tell You About Customer Choice in CompetitiveMarkets.” Proceedings: 8th National Energy Services Conference. June 1997. 6. For more detail, see: Holt, E. and Fang, J. The New Hampshire Retail Competition Pilot Program andthe Role of Green Marketing. NREL Topical Issues Brief, National Renewable Energy Laboratory.November 1997. 7. University of New Hampshire Survey Center. Retail Electric Competition Pilot Program SurveyReport. Conducted for the NHPUC. January 1997. 8. For more detail, see: Rothstein, S. and Fang, J. Green Marketing in the Massachusetts ElectricCompany Retail Competition Pilot Program. NREL Topical Issues Brief, National Renewable EnergyLaboratory. October 1997. Titus, E. and Fox, E. “An Evaluation of the Massachusetts Electric Company’s Retail Choice Pilot: AnOverview.” Proceedings: 1997 Energy Evaluation Conference. Chicago, Illinois. 1997. 9. Abe, Jon. Personal communication. Environmental Futures, Inc. January 28, 1998. 10. This section is based in large part on two market assessments of the pilot program: Assessment of the

PGE Introductory Customer Choice Program: Interim Report #1. Submitted to The PGE IntroductoryCustomer Choice Program Task Force. June 8, 1998. Assessment of the PGE Introductory Customer Choice Program: Interim Report #2. Submitted to ThePGE Introductory Customer Choice Program Task Force. August 19, 1998. Also see: “Energy Companies End Price Competition Test.” The Oregonian. July 10, 1998. 11. Phillips-Israel, Kathy. Personal Communication. PGE. September 16, 1998. 12. For more information on the California experience with green power marketing, see: Wiser, R. andPickle, S. Selling Green Power in California: Product, Industry and Market Trends. Lawrence BerkeleyNational Laboratory, LBNL-41807. Berkeley, California. May 1998. Wiser, R., Golove, W. and Pickle, S. “California’s Electric Market: What’s in it for the Customer.”Public Utilities Fortnightly, August 1998. 13. Tennis, Michael. Personal Communication. AllEnergy. September 14, 1998. 14. This section is based on: Wiser, R., Pickle, S. and Eto, J. “Details, Details... The Impact of MarketRules on Emerging “Green” Energy Markets.” Proceedings: ACEEE 1998 Summer Study on EnergyEfficiency in Buildings. Pacific Grove, California. August 1998. 15. Wiser, R., Pickle, S. and Eto, J. “Details, Details... The Impact of Market Rules on Emerging“Green” Energy Markets.” Proceedings: ACEEE 1998 Summer Study on Energy Efficiency in Buildings.Pacific Grove, California. August 1998. 16. Winneg, K., Herrmann, M., Levy, A. and Roe, B. Summary Report, Baseline Survey. ConsumerKnowledge, Practices, and Attitudes: Electric Utility Deregulation and Customer Choice. NationalCouncil on Competition and the Electric Industry. 1998 Levy, A., Teisl, M., Halverson, L. and E. Holt. Information Disclosure for Electricity Sales: ConsumerPreferences from Focus Groups. National Council on Competition and the Electric Industry. 1997. Teisl, M., Halverson, L. and E. Holt. Information Disclosure for Electricity Sales: Consumer Preferencesfrom Focus Groups—West Coast. National Council on Competition and the Electric Industry. 1997. University of New Hampshire Survey Center. Retail Electric Competition Pilot Program Survey Report.Conducted for the NHPUC. January 1997. 17. Center for Clean Air Policy. Policy Handbook: Disclosure in the Electricity Marketplace. Draft.March 1998. 18. Harris, J. and Casey-McCabe, N. “Energy-Efficient Product Labeling: Market Impacts on Buyers andSellers.” Proceedings of the ACEEE Summer Study on Energy Efficiency. Pacific Grove, California.August 1996.

ABT Associates. Determinants of Effectiveness for Environmental Certification and Labeling Programs.Environmental Protection Agency, EPA 742-R-94-001. Washington, D.C. 1994. Dyer, R. and Maronick, T. “An Evaluation of Consumer Attitudes and Use of Energy Labels in thePurchase of Major Appliances: A Longitudinal Analysis.” Journal of Public Policy and Management, 7,1988. Taylor, D. “Certification Marks—Success or Failure?” The Journal of Marketing, 23 (1), 1958. Parkinson, T. “The Role of Seals and Certifications of Approval in Consumer Decision-Making.” TheJournal of Consumer Affairs, 9 (1), 1975. Grodsky, J. “Certified Green: The Law and Future of Environmental Labeling.” The Yale Journal onRegulation, 10, 1993. Menell, P. “Structuring a Market-Oriented Federal Eco-Information Policy.” Maryland Law Review, 54(4), 1995. Laric, M. and Sarel, D. “Consumer (Mis)perceptions and Usage of Third Party Certification Marks, 1972and 1980: Did Public Policy Have an Impact?” Journal of Marketing 45, 1981. 19. ABT Associates. Status Report on the Use of Environmental Labels Worldwide. EnvironmentalProtection Agency, EPA 742-R-9-93-001. Washington, D.C. 1993. 20. Rabago, K., Wiser, R. and Hamrin, J. “The Green-e Program: An Opportunity for Customers.” TheElectricity Journal, 11 (1), 1998. 21. Rader, N. “Green Buyers Beware: A Critical Review of ‘Green Electricity’ Products.” Public Citizen.October 1998. 22. For more information on renewable energy financing and green power marketing issues, see: Wiser,R. and Pickle, S. Financing Investments in Renewable Energy: The Role of Policy Design andRestructuring. Lawrence Berkeley National Laboratory, LBNL-39826. Berkeley, California. March1997. Hamrin, J., Wiser, R., McCormack, K. and Holt, E. New Markets for Wind: The Supplier Response.Prepared for the National Wind Coordinating Committee. Draft. August 1998. 23. Farhar, B. and Houston, A. “Willingness to Pay for Electricity from Renewable Energy.”Proceedings: 1996 ACEEE Summer Study on Energy Efficiency in Buildings. Pacific Grove, California.August 1996.

24. Holt, E., and Wiser, R. Understanding Consumer Demand for Green Power. Prepared for theNational Wind Coordinating Committee. Draft. August 1998.

Wiser, R. and Pickle, S. Selling Green Power in California: Product, Industry and Market Trends.Lawrence Berkeley National Laboratory, LBNL-41807. Berkeley, California. May 1998.

Kasius, A. and Seth, C. “Environmental Performance Through Energy Procurement in CompetitiveMarkets.” Corporate Environmental Strategy 5 (2), 1998.

Holt, E. Green Power for Business: Good News from Traverse City. Renewable Energy Policy Project,Research Report #1. July 1997.

25. Rogers, E. Diffusion of Innovations. The Free Press. New York, NY, 1962.

26. Electric Power Research Institute. New Product Introductions: Case Histories from Other Industries.Prepared by Putnam, Hayes & Bartlett, Inc. TP-106901. 1996.

27. Wiser, R. and Pickle, S. Selling Green Power in California: Product, Industry and Market Trends.Lawrence Berkeley National Laboratory, LBNL-41807. Berkeley, California. May 1998.

Topical Issues Briefs Previously Published by the National RenewableEnergy Laboratory*

The New Hampshire Retail Competition Pilot Programand the Role of Green Marketing

November 1997NREL/TP-260-23446

Green Marketing in the Massachusetts Electric CompanyRetail Competition Pilot Program

October 1997NREL/TP-460-23507

Power Marketing and Renewable EnergySeptember 1997

NREL/SP-460-21651

Net Metering ProgramsSeptember 1996

NREL/SP-460-21427

Small Turbines in Distributed Utility Application:Natural Gas Pressure Supply Requirements

May 1996NREL/SP-461-21073

*See inside cover for instructions to order Topical Issues Briefs

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1. AGENCY USE ONLY (Leave blank) 2. REPORT DATEMarch 1999

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4. TITLE AND SUBTITLEGreen Power Marketing in Retail Competition: An Early Assessment

6. AUTHOR(S)Kevin Porter, Ryan Wiser (LBNL)

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13. ABSTRACT (Maximum 200 words)Green power marketing—the business of selling electricity products or services based in part on their environmental values—isstill in an early stage of development. This Topical Issues Brief presents a summary of early results with green power marketingunder retail competition, covering both fully competitive markets and relevant direct access pilot programs. The brief provides anoverview of green products that are or were offered, and discusses consumers’ interest in these products. Critical issues that willimpact the availability and success of green power products under retail competition are highlighted.

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14. SUBJECT TERMSElectric utility restructuring; deregulation; green power; retail competition

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