United Kingdom

United Kingdom

Price not greenness key factor in new markets

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The short term outlook is grim for green power retailers in competitive markets; quality marketing is needed to overcome consumer apathy and confusion over the value of buying green, concludes a report on the effects of competitive markets on renewable energy. A monopoly environment, where the choice is merely between different tariffs, makes marketing green products easier.

The report, "Green Power in Competitive Electricity Markets," by economic consultant Cheryl Morgan, looks at green power markets around the world. It finds that in newly competitive markets consumers are bombarded with messages about cost saving. As a result the take up of premium products such as green tariffs is low to begin with. But once the initial savings created by competition have been exhausted, consumers are more likely to look for other reasons to switch supplier; a green offering can then look attractive. Moreover, as the market matures, interest in green tariffs should grow.

Morgan states that while newer specialist green power retailers have better environmental credentials than existing electricity retailers, they are handicapped by barriers to market entry and consumer concerns about the reliability of a newcomer. She also finds that UK consumers are "abnormally disinterested" in green power compared with those in other countries. The message for retailers is that they should keep customer acquisition costs low and use every marketing ally they can get, like religious groups and charities.

But Morgan warns that governments, renewable generators and environmentalists could be growing impatient with voluntary green tariff markets which they believe are not delivering sufficient growth. "As a result the struggling, immature, voluntary green power markets may be swept away and replaced by mandates and subsidies," she argues. "Whether green power can succeed in competitive markets could soon be a moot point because it seems possible that it will not be given a chance to prove itself."

Significantly, Morgan points out that a system for international trade in green certificates and a "fully functional carbon market" could be of great benefit to green power. "The real driver of such markets is price, not the greenness of the product," she says. The report points out that green sales in the UK could mushroom if companies found it cheaper to pay more for renewable energy than to pay the incoming climate change levy.

The report, published by the CWC Group of London, states that green power marketing has a better chance of succeeding in the US than anywhere else because US governments have been less keen on imposing significant obligations on their electorates to buy renewable energy. It may also succeed, however, in countries where green tariffs become established before obligations are imposed.

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