Power of choice.
In a part of the world where the official motto is "live free or die," a newfound freedom to choose the source of one's electricity has proven complicated. Last year, New Hampshire became the first area in the United States to allow some of its residents to select their electricity suppliers - rather than requiring them to buy from the local monopoly, as is the prevailing practice elsewhere. But the 17,000 households enrolled in the pilot retail electricity program soon found themselves being courted by about 15 would-be suppliers through a bewildering array of direct mail, telephone-marketing solicitations, and print and television advertising.
Most of the pitches appealed to consumers' interest in the environment. Suppliers mailed blue spruce seedlings to prospective customers, gave away bird feeders, and promised to donate proceeds to local environmental groups. Often, however, their claims that they would supply environmentally-benign electricity were questionable. One company marketed as "green" the hydropower from Hydro-Quebec, a Canadian utility whose giant dams have flooded much of Quebec's Cree tribal lands. Other power presented as "clean" was only relatively clean - electricity produced by nuclear energy, or natural gas advertised as "not nuclear, not coal, not HydroQuebec." Not for sale was what many customers might have sought: electricity from wind and solar power projects, which would reduce reliance on environmentally damaging coal and nuclear power plants.
Not surprisingly, many people participating in the program felt confused and overwhelmed by these solicitations. Followup surveys showed they were frustrated by their inability to make meaningful comparisons among the various offers. "They're all pandering to the environment. There's so much image, but little information," complained one beleaguered customer.
The New Hampshire experiment embodies both the promise and the pitfalls of what has come to be known as "green power marketing." As electric power industries move from monopoly structures to competitive markets, customers will have the opportunity to buy their electricity from less environmentally damaging sources. In the United States and other countries undergoing or about to begin restructuring, surveys have consistently revealed a strong public preference for renewable energy - and a willingness to pay a premium for electricity derived from those sources.
But this promise will not be realized without appropriate oversight by government agencies or industry monitors. As the New Hampshire experience demonstrated, in the absence of standards, companies will define "green" electricity differently; some may simply sell existing generation sources at a premium price.
Governments are slowly catching up with these green power brokers, and have begun to establish groundrules for the new markets. Some environmental advocates, accustomed to forcing monopoly utilities to build or buy power from renewable sources, are reluctant to surrender their "command and control" approach to electricity reform. Others, however, are working closely with the governments to channel the coming competition toward cleaner power.
The end of an era of monopoly power and heavy governmental regulation of electricity markets holds enormous environmental implications. Worldwide, power generation produces more pollution than any other single activity. In the United States, electric power generation accounts for two-thirds of the country's emissions of sulfur dioxide (the chief contributor to acid rain); nearly one-third of nitrogen oxide emissions; 36 percent of the carbon dioxide (the main greenhouse gas); and the vast majority of the country's high-level radioactive waste. Clearly, the health of millions of people and the natural environment are at stake as governments decide how to reshape the new power markets - and as people, for the first time, face critical choices about their electricity.
In its early days during the late nineteenth century, the electric power industry was composed of small, competitive companies - just as Thomas Edison, one of the first electric power entrepreneurs, had envisioned. But in subsequent years the industry's rapid growth led to consolidation and the emergence, by the 1920s, of many of the large, vertically integrated regional monopolies still prevalent. Most of these are privately owned and government regulated, although in some nations - including France and China - the government owns the power monopolies outright.
Today, the global power industry is a roughly $900 billion a year business - larger than airlines and telecommunications. And as these and other industries were during the 1980s, it is poised for dramatic change. In industrial countries, a driving force in the movement to restructure has been the pursuit of lower electricity prices by industrial consumers. In developing nations, the impetus has come from the financial collapse of power monopolies, which are turning up short of capital for expansion at a time of great and growing demand for electricity.
Over the past decade, Australia, India, the United Kingdom, the United States, and a handful of other countries have permitted independent electricity suppliers to sell power to electric utilities - who have traditionally controlled all areas of supply, from generation facilities to distribution grid. The emergence of these new suppliers has generally lowered the price of electricity and brought environmental gains. In the United Kingdom, for example, uneconomical coal plants have been replaced by a new generation of less polluting, more efficient gas-fired power plants.
Now, governments are preparing to allow suppliers to compete directly for individual consumers. Their role will likely resemble that of long distance phone companies in the United States and other countries. Consumers would continue to have a single local distribution company which maintains the wires and control systems and manages the metering and billing of electricity. But the power itself would come from separate power producers or marketers. A "retail" electricity market can already be found in Europe: Norway and Sweden opened their power supply in 1996, and the United Kingdom plans to do the same in 1998. Down under, the Australian state of New South Wales began power marketing in April of this year. In the United States, three states - California, New Hampshire, and Rhode Island - are planning to provide "customer choice" in 1998. In total, then, some 105 million people could face lower electricity prices next year (see table page 32). And many other countries and states are expected to follow suit in coming years.
The fight to lower consumer prices is exactly what worries many environmentalists, however. The cost to society of generating electricity - air pollution from coal, disruption of ecosystems and indigenous peoples, carbon emissions - is poorly reflected in the price of power: some environmentally damaging sources are expensive, while others are among the cheapest to use. An open market thus may coax into early closure a number of nuclear power plants, but may also increase the use of idling coal-fired power plants in the U.S. Midwest, for example. "Downwind" states in the northeastern United States have concluded that electricity competition could complicate their already difficult efforts to meet national clean air standards.
PLACES WHERE PEOPLE CAN CHOOSE THEIR ELECTRICITY SUPPLIERS Place Eligible Population Beginning Date AUSTRALIA New South Wales 2 July 1996 NORWAY 4 January 1996 SWEDEN 9 January 1998 UNITED KINGDOM 8 April 1998 UNITED STATES California 30 January 1998 New Hampshire 1 June 1998 Rhode Island 1 July 1998
CONSUMERS AS TRANSFORMERS
In this new competitive world, customers will become increasingly responsible for the electricity they choose and use. And since current market prices in most countries do not tell the true cost of the power used, customer choice provides a more direct indication of the extent to which people value clean air, environmental justice, and a stable climate. Indeed, public opinion polls suggest many would like their future energy mix to be quite different than the present supply so dominated by coal and nuclear energy - which turn out to be the least popular types. Barbara Farhar, of the National Renewable Energy Laboratory in Golden, Colorado, culled data from 700 surveys conducted in the United States over the past 18 years and found that a strong majority prefer renewable electricity over their current sources. An estimated 10 to 20 percent, moreover, were willing to pay a premium price for renewable electricity. Consumers in Australia, Canada, the Netherlands, and Switzerland have voiced similar support for renewables.
Given this potentially large demand, 24 utilities in the U.S. are conducting "green" market research, and 12 of these - though still operating in monopoly markets - have begun to offer renewables through "green pricing" programs that allow customers to pay a premium to support existing or planned projects. In the largest program to date, the Public Service Company of Colorado has enrolled 7,000 customers. The premiums they pay (averaging about 50 cents per month), combined with a federal government grant, will help finance construction of a large wind farm that will provide power to an estimated 1.1 million people.
Green pricing schemes arc also underway in at least four other countries, with mixed results. Germany's largest power company, RWE Energie, has signed up 10,000 customers who have agreed to pay an extra 12 cents per kilowatt-hour for electricity, with the proceeds used to finance solar and wind energy projects. In a more controversial move, electric cooperatives in Minnesota recently announced plans to offer wind power to consumers - at a premium price. But the wind power they plan to market would come from Northern States Power, a privately-owned utility that had agreed with the state government to build a large wind farm in return for storing large amounts of nuclear waste in the state. Utilities involved in this scheme have been denounced by environmental and consumer advocates for, in effect, charging twice for the same benefit.
The green pricing of electricity by power monopolies raises a host of issues, many of which cry out for regulation. But the open markets offer an even greater potential for green power, as these competitive companies have the needed incentive to drive down the price of cleaner energy sources so as to make them competitive with fossil fuels. Many environmentalists hope that interest in renewable energy will translate into investment capital that will be used to build newer, cleaner sources of electricity. Wind power, for example, is nearly cost-competitive with coal-fired power: several million green buyers may provide the push needed to establish it in the marketplace.
The viability of renewable energy in an open market will be tested in California and New England, where the U.S. restructuring bandwagon is moving the fastest and where retail competition in electricity is likely to become widespread over the next few years. On January 1, 1998, all California electricity customers will ostensibly be able to choose their own electricity suppliers. In a sort of modern gold rush, some 1,000 power marketers are now assembling business plans in the state. These range from Enron Corp, the largest natural gas company in the United States, to Foresight Company, a three-person startup.
Most of these pioneers will not actually own power plants, but will "package" electricity for sale to consumers. And in a reprise of the New Hampshire blitz, millions of Californians are receiving a profusion of pitches like the one exhorting: "You Choose. Make a Difference. Choose Eco-Power electricity service and reduce your contribution [to pollution] by over 60%." Once again, the definition of "green" appears to vary widely, from existing natural gas and hydropower-based electricity to power derived from renewables such as biomass, geothermal, solar, and wind energy.
LIGHT AND TRUTH
The proliferation of green power marketers has generated controversy over the nature of the power being sold, and with it concern that consumers will be misled by slick advertising. As a result, regulators in many jurisdictions are considering "disclosure" requirements for those who market power directly to consumers. As David Moskovitz, director of the Regulatory Assistance Project and a former utility commissioner from the state of Maine, frames it, "Informed customers are an essential ingredient of efficient competitive markets. ... Today's regulators need to ensure that customers have the information they need to make well-informed decisions that recognize the significant environmental impacts of future energy supply choices."
Several types of electricity disclosure are currently being weighed. Under one proposed disclosure scheme, those making "green" claims would be required to divulge the precise sources of the power they are selling. Under a more comprehensive proposal being advocated in some U.S. states, all power marketers - regardless of the pitch they use - would have to disclose both the source of the power they provide and the emissions those generators produce.
Because of the difficulty of physically tracking electricity from energy source to final use, it will not be possible to allow consumers to actually purchase "green electrons." Rather, the electricity buyer will select a supplier whose bill will confirm both the precise energy mix relied on and the emissions produced, over a period of time - much like the "Nutrition Facts" label on a food package (see illustration, page 34). And just as a food label's list of ingredients or calories may alert people to their eating habits, electricity labels may provide a sobering wake-up call to consumers who were under the impression that their power was relatively "clean."
The food label comparison is instructive because it illustrates the importance of employing green labeling not just as a marketing lure, but as a mandatory form of disclosure. Since food labeling became mandatory in the United States in 1984, the market share of low-fat, high-fiber food has nearly tripled. But to achieve such results it was necessary for all competing food products to have labels - the high-fat ones as well as the low-fat ones - so that consumers could easily compare products. Similarly, electricity consumers who want, say, a low-fossil fuel, nuclear-free energy diet will need information from all energy suppliers - not just the purportedly "green" ones.
For green power marketing to be credible, consumers will also need some way of verifying green claims. At present, two tracking approaches are being considered. The first uses the existing computer system that follows the flow of money between companies on regional power grids in order to track the source of the power being sold to any given consumer. According to Lin Franks of Tule Hubs Service Company, which provides programming for such tracking, computers and software now deployed on major power exchanges are sufficiently sophisticated to provide this information.
The other approach is a system of "tradable tags." For each unit of electricity produced (say, 100 kWh), a "tag" would be created identifying the source of generation and emissions. Suppliers would be required to report their "mix" of tags on consumers' utility bills, and presumably a supplier with a high percentage of renewables could charge a higher price. The "green" tags, then, would have higher value. Suppliers would be allowed to buy these tags from each other - and adjust their billing accordingly. Consumers would know that in paying for the reported green tags they are supporting the generation of that amount of renewable energy somewhere, even if not at that supplier's own facilities. (Some suppliers may not even generate power at all, but may buy tags from those that do.) Some analysts say this approach would be easier than one relying on contracts. Others, however, point out that consumers could not be assured that the green tags held by their supplier would lead to cleaner power generation near where they live, and would therefore be less likely to accept this concept as an adequate form of disclosure.
To ensure that consumers can make meaningful comparisons among electricity suppliers, disclosure will need to be standardized. In the United States, the National Association of Regulatory Utility Commissioners has urged states to adopt uniform disclosure standards for all retail power sales, allowing people to compare the resource mix and environmental effects of the power they buy. Several have responded and are now considering legislation or regulations that would enact such standards.
Disclosure aside, genuine environmental improvements will be achieved only if green power programs spur an actual shift in energy supply toward cleaner sources - rather than merely reshuffling the status quo. Examples of "green washing" and "green scams," potential barriers to the creation of a legitimate market for clean electricity, have garnered headlines in recent months. In Sweden, one power company offered "green" power from existing hydropower plants - without committing to build or purchase any additional renewable power supplies, leading to a customer outcry. Concerns have also been raised as to whether hydropower or electricity derived from burning solid waste should qualify as "green."
The challenge of determining what constitutes green power is reflected in various efforts to certify claims to green power, largely based on the model of the Green Seal found on such products as detergent and toilet paper. In response to the clamor in Sweden, the Swedish Society for Nature Conservation has launched a green power certification program which evaluates power suppliers' claims and, if a claim is judged to be sustainable and can be verified, issues a logo certifying it as such. In Australia, a Green Power certification program in New South Wales, set up by the state government, has been touted as "the world's biggest green electricity scheme." To date it has accredited eight companies - offering hydro, biomass, wind, and solar power - with a yellow daisy label.
Simplicity is essential to making certification work, and in California efforts are underway to develop a renewable electricity logo analogous to the now easily-identified recycling logo. The Center for Resource Solutions' Renewable Energy Branding Project has created a green power certification mark which would indicate that at least half of the power marketer's energy supply comes from renewable sources, and the other half has less air pollution than the average for that region. Companies participating in the program will also be required to provide customers with a standardized disclosure statement and adhere to a marketing code of conduct established by the center.
To be perceived as legitimate by consumers, certification must also be independent. A critical next step, then, will be to establish an accrediting organization with clearly defined ecological principles to confirm the integrity of the certifiers themselves. Models for such a non-governmental organization include the U.S.-based Green Seal and, at the international level, the Forest Stewardship Council which accredits certifiers of sustainably harvested wood according to specific principles and criteria (see "Certifying Wood," September/October 1996). In the United States, independent utility consultant Ed Holt has proposed the creation of a National Renewable Energy Consumers Council which would initially certify green power but then evolve to become an accreditor of certifiers.
Another crucial, but far less discussed, step in building a genuine green power market will be to organize prospective buyers of power - particularly the small residential consumers most vulnerable to confusing and misleading claims. Several Californian cities - coordinated just as they have been to promote recycling - are considering the formation of municipal buyers' clubs. They might, for example, set their own standards for green electricity, offer consumers the option of joining the club, and then bargain directly with power marketers for several million dollars' worth of green electricity.
Paralleling the debate over the disclosure and certification of "green" power is a lively argument over the limitations of the market in supporting cleaner electricity. Many renewable energy advocates assert that society as a whole must assume responsibility for reducing the huge environmental burdens of today's energy systems. Only government mandates, they conclude, can be counted on to promote alternative energy sources.
This public policy emphasis is most evident today in Germany's "electricity feed law," which requires that electric utilities purchase all the power generated from solar, wind, and biomass energy, and mandates the price at which it is purchased. The law has allowed Germany, starting from scratch, to become the leader of the global wind power industry during the 1990s. California, whose power industry is restructuring much faster than Germany's, has taken a different approach to promoting renewables. Last year it passed legislation requiring that, beginning in 1998, all consumers pay a surcharge of 3 percent toward a fund, amounting to $540 million over four years, that will be used in part to help subsidize the purchase of renewable electricity.
Another policy being advocated by environmentalists in the United States, at the state and national level, is the Renewable Portfolio Standard (RPS): a requirement that all power marketers hold a fixed proportion of renewables in the electricity they offer. Nancy Rader of the American Wind Energy Association, one of the chief advocates of this approach, proposes that the RPS be tradable so that one company could purchase renewable energy credits from another - encouraging those best able to generate low-cost renewable electricity to do so.
Although such mandates can certainly create markets for renewable energy, their political sustainability in today's freewheeling competition is uncertain. In all likelihood, some governments will make renewable energy investment obligatory - and others will not. Green power marketing thus will have a particularly important role to play where renewable energy mandates are not enacted. But it could also spur additional investments even in those areas where some minimal requirement is set. If constructed carefully with the fight rules of disclosure and certification, then, a market for green power could help ensure that the changes wrought by restructuring include a transition to cleaner energy sources. If not, the confusion witnessed in New Hampshire will likely be repeated in other places - and an opportunity to bring tangible benefits to citizens and the world they inhabit will have been tragically missed.
Meanwhile, the utility that owns one of the suppliers offering questionable hydropower in New Hampshire has - thanks to federal funding - completed a long-planned project in neighboring Vermont: the largest wind farm in the eastern United States. Like the surrounding foliage, the eleven tall turbines up on Searsburg Mountain are drawing hundreds of tourists. But the pivotal questions, here and elsewhere, are how high public interest in cleaner power will rise above curiosity to a clear willingness to pay more for it - and how effectively governments will transform this interest into a real force for change.
RELATED ARTICLE: CITINGS
A major point of concern within the modem conservation movement is that environmental change may be happening so quickly that species will not be able to track familiar habitat as that habitat moves around the landscape. And there is now the added concern that vast tracts of agriculturally modified land, not to mention suburbs and huge cities, lie as obstructions in the paths of ecosystems moving about to track climatic change. Nonetheless, the old patterns still persist somewhat today: The great northerly migration of many animal and plant species during the twentieth century in North America represents a direct expansion of species' ranges as they simply track a progressively warmer climate.
Niles Eldredge in Dominion
Seth Dunn is a staff researcher at the Worldwatch Institute.
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|Title Annotation:||consumers' freedom to choose electricity sources and green power marketing|
|Date:||Sep 1, 1997|
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