Residential Green Energy Pricing Programs – Popular Yet UncommonPosted to Guidehouse in the Utility Management Group
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- Apr 30, 2021 8:30 pm GMTApr 30, 2021 8:40 pm GMT
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Many Americans long for ways to use clean energy in their homes to combat global warming. According to the 2020 Climate Change in the American Mind study by the Yale Program on Climate Change Communication, two in three Americans (66%) feel a personal sense of responsibility to help reduce global warming.
However, when it comes to paying to receive 100% clean energy, too few take advantage of the opportunity. Less than one in 100 of American residences—only 0.75%—have signed up to participate in consumer green energy pricing programs, according to data from the National Renewable Energy Laboratory (NREL). This is a missed opportunity for utilities to support their green energy initiatives and for customers who want to do what they can to support the environment.
Price Premiums and Consumer Willingness
Green energy pricing programs involve a price premium for the green power. Information from the Open Energy Information (OpenEI) program tracks renewable procurement options. The program’s data shows that the median price premium per kilowatt-hour for a residential customer to participate is $0.013, while the average price per kilowatt-hour in the US is $0.132 per the US Energy Information Administration (EIA). This works out to be 10% more to buy clean energy. The average monthly bill would rise $12, which can be a modest amount or significant depending on a customer’s individual circumstances.
Another report from the Yale Program on Climate Change Communication, Energy in the American Mind, addressed the question of willingness to pay more. The report found that nearly half of respondents (47%) would pay more for clean energy if it was offered as an option. Interestingly, when customers were aware of the option to buy green energy, the survey found that one-third actually signed up.
The difference between half and one-third is likely a case of social-desirability bias, where respondents answer survey questions in a way they think is right and consistent with their values. Still, one-third of customers voluntarily adopting to pay a premium is a much higher participation rate than many other programs. More significantly, it is much higher than the 0.75% that participate today.
Why Don’t Consumers Participate?
Consumers may not participate in these programs for several reasons. The first is that not every consumer has the option to participate in a consumer green energy pricing program. Nearly half of respondents (48%) in the Energy in the American Mind study did not know if their utility offered green energy pricing as an option. Another third (34%) knew they didn’t have the option to buy 100% green energy. According to the EIA, only eight of the top 20 largest utilities offer green energy pricing options.
In addition, there is some confusion as to what clean energy means. This is not unreasonable because even industry participants are debating the answer. Renewable portfolio standards (RPSs) are defined by governments and regulators to delineate what constitutes clean for their jurisdiction and these definitions can vary widely. NREL publishes an annual survey of different RPSs, which demonstrates that even the opinions of experts can differ.
Among consumers, a widespread consensus is that wind and solar are green. Still, about 5% of consumers are wary of these sources (based on the Energy in the American Mind report). Their concern is not entirely unfounded. For example, NREL wrote about the challenges of recycling solar panels after they have exceeded their economic life. Manufacturers of solar cells use a variety of materials to obtain the clean energy from the sun, and some of these materials are classified as hazardous waste. Such materials should not end up in the local landfill, which could pollute the groundwater following years of green service.
The Energy in the American Mind report found greater uncertainty among respondents about whether there is a negative impact from hydroelectric dams, geothermal, and methane capture from landfills. It is not unreasonable that a customer would be confused, and confused customers hesitate to buy.
Finally, concern exists among some residential customers that a green pricing program is a deceptive shell game where if my energy is 100% clean, my neighbors’ energy becomes that much dirtier with no net benefit to society for participating in the program. This is not the case. As explained by the US Department of Energy, “The premium covers the increased costs incurred by the power provider (i.e., electric utility) when adding renewable energy to its power generation mix.”
Benefits of Green Energy Pricing
In cases where the generation mix is already predominantly renewable, the premium for green energy pricing supports renewable programs behind the meter. For example, Tacoma Public Utilities (TPU) offers the Evergreen Options Program. Because TPU claims its power is already 97% carbon-free, it uses the premium to buy renewable energy certificates (RECs) and fund its local renewable energy initiatives for nonprofits. Nonprofit organizations that received support for their behind-the-meter renewable programs include schools and churches within the TPU service area.
Additionally, green energy pricing programs enable customers to take an active role in supporting the greening of not just the grid, but their grid. However, adequate merchandising and customer education about these programs where they are offered is missing. It is not uncommon that a utility launched a green energy pricing program a decade or so ago and had uninspiring results. The customer of 2021 is much more aware of the impact of global warming and value of taking steps sooner rather than later then the customer of 2011.
Utilities not offering these programs need to shift gears and introduce green pricing options. Adding a program that could generate $12 more in monthly revenue from even a fraction of customers seems like a straightforward business case. If the program is a disappointment and only attains a modest 10% adoption rate, that is still an additional $2 billion in annual revenue. Besides the significant financial gain, such a move would engage and gratify many customers.