Companies Give ‘Green’ Power the Green Light
As Californians gingerly test the new competitive retail market for electricity, there appears to be a strong appetite for the wholesome option of renewable energy, even though it means paying more.
By one estimate, marketers of “green” electricity have captured more than one-quarter of the 95,000 or so customers who have switched from their investor-owned utilities to other electricity providers.
Most of those who have chosen renewable energy are residential customers, but a few big corporate names have gone green for at least some of their energy purchases, including Toyota Motor Sales in Torrance; Patagonia, the Ventura-based outdoor clothing manufacturer; and AirTouch Cellular in Sacramento.
The lure for businesses is not just to help the environment, they also want to enhance their image with consumers.
But the overall market for green electricity is probably limited, experts say, and not just because of the higher cost. There are also psychological barriers for the uninitiated, such as: Will my electricity be reliable? (Yes.) Can I guarantee that my home will receive the renewable energy that I pay for? (Absolutely not.)
When you buy green power, you don’t directly get what you pay for, as you do with other environmentally correct products.
Energy experts liken the electricity grid to a lake. If you buy clean water and pour it into the lake, it replaces water from dirty sources and makes the lake cleaner for everyone. But you don’t get the pure water that you bought trucked directly to your house.
Nevertheless, “the green power market is an important market, and I think it’s potentially a big market,” said Ryan H. Wiser, a researcher at the Lawrence Berkeley National Laboratory in Berkeley who has studied California’s burgeoning green electricity business.
Since March 31, when the California electricity market was opened to competition, customers of investor-owned utilities--about 70% of the 14 million or so residential and business electricity users in California--have been able to choose other providers for their power. (Municipal-owned utilities are currently exempt from competition.)
Southern California Edison, Pacific Gas & Electric, San Diego Gas & Electric and other investor-owned utilities have become distribution companies, providing electricity even when customers do not specify an alternative provider.
Among the green choices available from energy providers in the open market is electricity from nonpolluting sources such as geothermal, small hydroelectric projects, biomass, wind and solar. (The bulk of the electricity sold in California is generated by burning natural gas or coal and from large hydroelectric projects or nuclear facilities.)
So far, customers representing nearly 10% of the state’s energy usage have selected a new electricity provider. By comparison, in the first year of telecommunications deregulation, AT&T; lost just 4% of the market to new competitors, Wiser said.
Slightly less than 1% of residential customers able to switch have chosen a new electricity provider. About 25,000 of these 63,000 residential customers--or nearly 40%--have chosen green electricity, according to Wiser’s surveys.
“It’s really great to see the industry taking off,” said Julie Blunden, California regional director of Green Mountain Energy Resources, one of six companies offering renewable electricity to residential and small-business users in the state. Another handful of companies provides power to large customers and resellers.
“It’s important to customers to feel that they are able to make a difference in the power system,” she said.
Vermont-based Green Mountain is the market leader in California with more than 10,000 customers, nearly all of them residential. Other big green electricity players include Edison Source, PG&E; Energy Services and Enron Energy Services, all subsidiaries of larger energy companies.
One reason a large proportion of residential and small-business users are choosing green electricity over other types of energy is that there are few other choices. The 1996 law that opened the market to competition mandated that investor-owned utilities must offer residential users a 10% discount over 1997 rates. To compete with the utilities, new marketers typically must lower their prices or offer something extra--in this case, green energy. Big electricity sellers have concentrated on winning industrial and commercial accounts, which yield higher profits.
A recent survey by the San Diego-based Utility Consumer’s Action Network concluded that the selection of electricity products for small energy customers is poor.
“The bottom line is that consumer choice is limited to ‘green or scream,’ ” said UCAN Executive Director Michael Shames. “If you are willing to pay more for environmentally cleaner energy, you’re in the green. But if you want to lower your electric bill, you’ll have to scream louder, because right now the game is rigged for big corporate customers.”
Because green energy costs more to produce, all the product lines being offered are more expensive than the discounted generic power mix offered by the utilities and non-green providers. But the price varies. In some cases, the price customers pay is less than they would have paid last year for the generic mix.
Green Mountain, for example, offers three products: a 100% hydropower option that adds about 8.5% to the average bill, according to UCAN estimates; a 75% renewable-energy option that adds 10.6% to the average bill; and a 75% renewable-energy option featuring wind power and a promise to build new turbines for every 3,000 customers who sign up, which adds 18% to the average bill.
Marketers say that customers are attracted by the opportunity to help the environment, and in the case of businesses, to help their images with consumers.
“We feel that it’s really progressing,” said Lynda Yana, spokeswoman for Edison Source, an unregulated subsidiary of Rosemead-based Edison International. “As the consumer becomes more educated, it’s becoming a much easier sale.”
In fact, green marketers report that their own customers have become their best salespeople, recruiting friends and family. Some religious leaders in Northern California are pushing green power to their congregations.
Santa Monica resident Tim Carmichael said he opted to buy his electricity from Green Mountain because, “I’ve always believed in the potential of alternative energy. I think it’s wonderful that Californians now have the opportunity to do something about it in their own homes.”
Toyota Motor Sales, which has contracted with Edison Source for 12 megawatts worth of green power a year (roughly the equivalent of 12,000 households’ usage), and Patagonia, which is going all-wind through Enron Energy Services for its 1 million kilowatt-hours of electricity a year (equal to the annual electricity consumption of nearly 200 households), both said that the choice of green electricity was part of their history of environmental responsibility.
“Our concern is that this may be seen as a marketing ploy,” Toyota spokesman Jeremy Barnes said. “This may be seen as a way to sell more cars, and if that’s a byproduct, that’s great. But it’s simply one more step in the road that we’ve taken. We have a proven track record on environmental issues.”
Jil Zilligen, Patagonia’s director of environmental programs, said customers expect environmental leadership from the clothing maker.
“We certainly hope our customers appreciate and see the real value of this,” Zilligen said. Patagonia researched its options for a year before choosing Enron Energy Services, a subsidiary of Houston-based Enron Corp., which will build a new wind farm to serve Patagonia and others.
It is difficult this early in the power market’s overhaul to project how many customers green electricity eventually will attract, Wiser said.
Green marketers, like their non-green counterparts, must overcome consumer confusion and apathy about the restructured electricity market. They must also allay concerns about reliability. Some of those fears will dissipate with time as electricity users become more familiar with the concept of a competitive energy market, Wiser said.
Donice Oden has been paying for wind power from Green Mountain for the last six months.
“I’m really concerned about our atmosphere and pollution, and I felt I could do something with the energy for my own home,” a one-story house in Orange, she said. “It’s going great and I didn’t notice that much more on my bill.”
