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Green and clean is not enough on its own

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The long term driver for sales of wind power will be customer choice, but customers must be clearly informed of available choices and market distortions have to be ironed out. In Austin, Texas, consumers can see that a fossil fuel charge that reflects fuel prices is now only fractionally less than the green power charge

Consumers want their energy green and are willing to pay a premium in much of the US to buy at least a portion of their power from renewable resources, agreed speakers at this year's National Green Power Marketing conference. And while they did not claim sole responsibility for pushing what could be nearly 2500 MW of new wind capacity in the United States this year, credit still must go to the marketing industry for demystifying wind energy for consumers and for creating marketable products consumers will buy.

Some long time advocates and companies stepped into markets while renewable energy production costs were still high. Their tenacity was described by David Garman, assistant secretary for renewable energy at the US Department of Energy, as "something akin to a religious conviction." Now that the costs have dropped for most renewable sources of energy, however, and especially for wind power, there is a new conviction, he said, that is "also run by the bottom line." The fact that green marketing programs exist, he said on the first day of the sixth annual conference, enabled his office to buy the green equivalent of the power used during the conference, plus enough for the transportation everyone used to get to and from Portland, Oregon.

Getting green to market

Most of the conference centred on the activities of businesses, cities and states that are devising ways for consumers to get the green energy they want, in both regulated and restructured markets. "People want clean energy and they want it now," said Renewable Northwest Project's Rachel Shimshack. "It's our responsibility to figure out how to get it for them."

Despite the fact that the US Northwest has some of the cheapest electric energy in the country and no mandate to build renewable energy generation, it is an area in which over 1600 MW of wind projects are planned by 2003. Shimshack attributed this to the reduced costs of wind power, higher prices for other fuels, farmers who are actively seeking to lease their land for wind turbine installations and the visibility of projects. But, she added, customer demand created by marketing has played a big role. In fact, 15 separate green marketing programs are now selling 36 million kWh to customers in the region.

Yet across the US customer demand generated by green marketing programs has been responsible for only about 100 MW of wind power, according to Enron's Elliot Mainzer. Dennis Kelly, Green Mountain Energy Company's CEO, wants to change that. "Our goal is to build 1000 MW of new renewable energy based on customer demand," Kelly said. But, he added, that will not happen just by offering programs. "If you build it, they won't necessarily come. Green and clean is not enough. It's all about marketing and sales. You need classic marketing techniques."

Kelly, who has seen Green Mountain Energy grow in four years to a half-million-customer business in six states, said value is important to customers, not just price. "People expect a product that comes at a premium, but it has to be real and local to have an impact. Running a national ad campaign is not the way to target customers in Texas. You need targeted marketing."

With the right combination of marketing, long term relationships with customers and market structure, Kelly predicted that some markets, especially those in states that have restructured their electricity markets, could reach penetration rates in the "high teens or even a 20 per cent market share."

In the restructured states

By all accounts, however, the market structure has to be right, a lesson that California has been teaching the nation for nearly a year. Tim Tutt of the California Energy Commission said the number of the state's electric customers who signed on for green energy initially climbed "impressively" to a peak in early 2000 of about 216,000 and hovered around 200,000 until December 2000. Then both wholesale and retail energy prices in the state hit all-time highs. By May, the number of customers buying green power from an alternative supplier had dropped to just over 50,000. Paying more for power and paying a premium for a renewable mix did not sit well with consumers, he said.

"California had as many as 19 active marketers in the state," Tutt said. "Now there are three, but those that are still here are in it for the long run." Still, he predicted growth in California's installed wind capacity and sees a bright future for wind and other renewables in California.

In Pennsylvania, which is in its fifth year of transition from a highly regulated environment, the experience has been much different. By April 2001, 800,000 customers had changed to competitive suppliers, including less than 100% green suppliers, according to John Hanger, president and CEO of Citizens for Pennsylvania's Future. (That number dropped in July to 591,000 customers.) "Pennsylvania [power prices were] about 15% above the national average in cost," Hanger said. "Now they are one per cent below. And, with the help of sustainable development funds, our two wind farms will soon have more company."

In regulated states

Successful green marketing programs do not require restructured markets. Although not reaching the total numbers of customers as programs in Pennsylvania and California, the Northwest, Colorado and the Midwest are finding that regulated customers also want an option to buy some or all of their energy from green resources.

Mike Sloan of Virtus Energy believes the Texas Renewable Portfolio Standard, which requires utilities to build 2880 MW of renewable energy by 2009, will act as a catalyst to "start the market. The future is the voluntary market." Already Green Mountain and Reliant Energy are teaming up to offer a program. The keys to a robust renewable energy future in a regulated market are a fair market structure, motivated regulated utilities and solutions to transmission problems, Sloan said. Austin, Texas, one of the first cities to adopt an energy policy, has now resolved to get 5% of its energy from green resources by 2005 -- 72% percent of that from wind, according to the City of Austin's Mark Kapner.

Austin established its GreenChoice program because of customer concerns about the environment, but also because city officials believe renewable energy will provide a hedge against fuel price inflation, Kapner said. In fact, the program is structured to replace the municipal utility's fuel charge, an item on each retail customer's bill that is periodically adjusted according to fossil fuel prices. The GreenChoice charge is $0.0285/kWh compared to the current fuel charge of $0.0268/kWh. Austin began billing in April and, as of mid July, the program already had 8700 residential, 18 large industrial and 74 small business customers enrolled, accounting for 193 million kWh.

In fair competition with gas

The comparison in price between Austin's fuel charge and the GreenChoice charge shows how wind's competition with natural gas is changing. The city's fuel charge, which in early 2000 was $0.0133/kWh, grew to the current level of $0.02.68/kWh early this year. Bill McAleb of RDI Consulting in Boulder, Colorado, said that 2000 "may be remembered as the most volatile year ever for natural gas markets" and added that the future role of natural gas is now "mired in uncertainty."

Although McAleb predicts gas prices will ease in the next couple of years, they will still remain higher than the low 1998-99 prices. In addition, there will continue to be hot spots in the US, mostly due to restrictions on pipeline capacity. He predicts the demand on existing pipelines in Northeastern and mid-Atlantic states will generate higher than normal prices. The Northwest's fate, said McAleb, will be even worse. "The Northwest will be the next California," he said, as the current natural gas capacity is taken up by gas-fired generation now under construction and by rapid growth.

With the continued growth in installed wind capacity and US consumer interest in making a statement about the environment through purchases of green power, the number of green marketing programs is destined to grow. The question is, will they grow faster in regulated or restructured markets?

According to information provided by Ed Holt, a Maine energy consultant, the answer may not matter. Currently 15-18% of customers in regulated markets have access to green power. The median market penetration is 0.8% and the highest penetration is 7.4%. In restructured markets, 100% of consumers have access to green power, but market penetration is 1.6 to 1.9%.

As Green Mountain Energy's Kelly said, it might be in the marketing.

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