Green Power May Be Too Pricey for the People

When the deregulated power market finally arrives next year, will consumers choose to pay more for electricity from clean, renewable sources?

That is a question confronting environmentalists, utility company managers and state legislators who are all preparing for deregulation and the uncertainties that are expected to accompany the coming free market.

The question hinges on the demand for so-called green power--electricity generated from sources that do not depend on finite resources and do not pollute the environment.

Electricity in California is generated primarily through massive dams, burning coal and splitting atoms. All of these power sources, environmentalists argue, harm the environment, creating air pollution, nuclear waste and an altered landscape, among other problems.

Green power, by contrast, is generated from solar, wind and geothermal sources that do not pollute, do not leave dangerous byproducts or pose a hazard to the animals and plants of the region. But, as with so much that seems so promising, it is expected to cost more than conventional power.

But how much more will it cost? Will consumers find the difference small enough that green power will emerge as a potent market force?

Power providers and industry watchers are making predictions, and hedging their bets in some cases by attempting to offer both clean and conventional power.

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Though a number of polls indicate Californians support so-called “green” power--electricity generated from renewable resources--the debate centers on how many would be willing to pay higher rates to nonpolluting energy providers.

“Green power and the consumers’ ability to choose power providers, green or not, is the most important environmental choice they make, period,” said Kirk Brown, assistant director of the Center for Resource Solutions, a nonprofit organization that, along with the state’s Public Utilities Commission, developed a register of green power providers. “Power plants are the single largest producer of air pollution in the nation.”

Whether or not clean energy providers are successful, Brown said, remains to be seen.

“But Californians are very concerned about the environment. [Green power providers] represent California’s position on the cutting edge,” he said, noting that the state’s deregulation allows green power to progress beyond renewable energy pilot projects now underway elsewhere in the nation.

Under legislation passed last year, the utility market will be gradually opened to competition among companies from across the nation. Deregulation means that state-sanctioned monopolies currently providing power must be prepared to compete with other utilities by 2003 and allow other companies to use their distribution lines.

Lawmakers have said that such a free market for power will bring rates down and move an overextended industry toward greater efficiency.

With deregulation, companies such as Oakland-based Eco-Power/Foresight Energy are hoping that consumers will consider coal, hydroelectric and nuclear-fired power too costly to the environment and will instead opt for renewable energy sources such as wind, solar and geothermal power generators, said Warren Byrne, co-founder of Eco-Power.

Eco-Power has already sold roughly 20 megawatts’ worth of power, the rough equivalent of 25,000 residential users, for delivery beginning in January, said Byrne. Customers will pay between 10% to 15% more than the market rate of roughly 11 cents per kilowatt hour for the “green power,” he said.

Of the 160 private utility companies that have registered with the state, only six are listed as “green power providers.”

Other companies that have been certified as green power providers include PacifCorp, Green Mountain Energy Resources and Edison Source, a subsidiary of Southern California Edison’s parent corporation.

“We support Green Power,” said Clarence Brown, a spokesman for Southern California Edison, which serves 11 million customers in Southern California. “We don’t know for sure what the demand for green power is, but our research shows half of California residents show an interest in it,” said Bob Handell, president of Edison Source. “But I don’t think that many will subscribe to green power [and pay the premium above market rates].”

A poll conducted last year by the California League of Conservation Voters indicated that some 30% of the state’s power consumers would pay a premium above market rate for environmentally safe energy. A handful of other polls on the issue have found similar responses.

Already, 13 pilot programs in places such as Massachusetts, New Hampshire and California have demonstrated consumer interest, according to the California League of Conservation Voters. In Traverse City, Mich., for example, participants in a year-old wind-power program pay a 20% premium over current rates for their power, said Jeff Feldt, general manager of the city’s municipal utility.

Volunteers in Traverse City’s program pay nearly 8 cents per kilowatt hour, Feldt said, more than a penny and a half more per kilowatt hour than standard customers.

Such programs are small in scope and have not yet determined if green power would survive open market competition; programs such as Traverse City’s rely on volunteers and are not representative of communities as a whole, Feldt said.

Power plants using coal-fired or nuclear generators are hazardous to the environment, said Francis Chapman, an analyst with the Environmental Defense Fund in San Francisco. In the U.S. alone, coal-fired plants emit nearly 2 billion tons of carbon dioxide--enough to fill every home in the country 18 times over, every year, Chapman said, noting that such plants also generate most of the country’s sulfur dioxide and mercury emissions, all of which contribute to acid rain and smog.

Nuclear power plants, Chapman said, generate high-level radioactive waste that the nation has yet to find adequate storage sites for. Such waste remains “dangerously radioactive,” carcinogenic and harmful to living tissue in plants and animals for 10,000 to 250,000 years, according to the EDF.

Although state lawmakers considered the opportunities a deregulated market would create for green power, no special provisions were included, according to staffers in both the state Senate and Assembly.

“Green power got short shrift,” said state Assemblywoman Diane Martinez (D-Los Angeles), chairwoman of the Assembly’s Utility and Commerce Committee, who noted that more discussions of green power would have been welcome.

While Martinez professed her support for green power, she bemoaned deregulation, claiming it will essentially create a new set of utility monopolies in California that, by law, are able to bill rate-payers for the still-unrecouped costs of nuclear power plants, which are harmful to the environment and already too numerous in the region.

“There will be a fraction of green power providers out there,” she said. “Hopefully they’ll do well.”

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Clean power typically costs far more than coal, nuclear or hydro-electric power, the primary sources of electricity in the state, and that would certainly drive away customers, said Michael Peevey, president of New Energy Ventures, a Los Angeles-based private utility that has signed up a number of large commercial and industrial clients for power beginning in January.

New Energy Ventures buys its power from the traditional sources: hydroelectric, nuclear and coal-fired generators.

“Deregulation will, on its own, spark new technology, making [power generation] cleaner and more efficient,” he said, adding that the power monopolies never felt the pressure to develop new technology.

The possibility that a new slate of power monoliths will replace the current set of monopolies is conceivable, say some industry observers, thereby subverting the goals of deregulation: market competition and cheap electricity.

“I’ve heard a number of these co-called energy experts, or gurus, who say five major companies will generate electricity in this country; that’s it,” said Dan Waters, executive director of the Southern California Public Power Authority, a financing consortium representing 11 utilities and some 7 million customers. A new set of monopolies might replace the old set, he said, “making deregulation an unknown quantity. No one knows what it will look like in five years.”

Nevertheless, Waters said, companies that could offer green power would offer something little available in today’s utility market, thus creating a niche for themselves in a state noted for its environmental considerations.

“There are people who are willing to put their money where their ideology is,” said Warner Hirsch, a professor of economics at UCLA. “But how receptive they are to green power and how much more they would be willing to pay for it, that remains to be seen.”

Deregulation, which is forcing utilities to cut operating costs, hike rates and restructure debt, is still years away from full realization, said Bernard Polk, the general manager of Glendale’s Public Service Department, which supplies electricity to roughly 85,000 customers.

Already, the Los Angeles Department of Water and Power has announced plans to fire some 2,000 employees, the largest mass government layoff in Southern California history.

People will choose their power provider based on price, Polk said. “If a [green] provider is charging more, which they likely will, how successful could it be?”

Advocates of green power echoed this concern.

“The most important poll will be when people actually vote on green power with their own dollars,” said John White, director of the Coalition for Energy Efficiency and Renewable Technologies.

“Sentiment may be high for green power, but the ability to deliver it in a cost-effective way is an open question. It will be expensive to be in the business, at least in the short term.”