Why green-power premiums may fade

Pricier options may become obsolete if government requires utilities to bring more renewables on line.

For the past decade, power customers eager to wean the United States off fossil fuels could do something about it: Pay a few extra dollars to bring energy from wind, cow dung, and other renewable sources to the grid.

Now these pioneers are at risk of getting swallowed up by a stampede of government green-energy programs. At least 29 states have mandated standards requiring utilities to bring more renewable energy on line. Congress is considering federal standards, too. So utilities are wondering if they should keep marketing voluntary programs or if there are better ways to harness the enthusiasm of their cutting-edge customers and, in turn, boost mainstream acceptance of green energy.

"These programs are likely to be reexamined," says Mark Crisson, CEO of the American Public Power Association, an industry group for more than 2,000 publicly owned utilities. "The whole idea here was to take a voluntary approach to promoting the idea of renewables and to raise customer awareness. Once the state and other jurisdictions step in with mandates ... it [raises] the question: Why do you need a voluntary program?"

Green-power programs were never very big. More than 600,000 American customers choose to pay an extra 1.9 cents per kilowatt hour, on average, to fund the green option from approximately 850 utilities, according to the National Renewable Energy Laboratory (NREL) in Golden, Colo. On average, 2 percent of a utility's customers opt for green power when given a choice.

"Ten years ago, market research showed 50 to 70 percent of people would sign up for these programs if they were offered, and we haven't seen anything near that in the marketplace," says Lori Bird, an NREL senior energy analyst.

Currently, the nation's highest participation rate is in Palo Alto, Calif., where more than 1 in every 5 residents pays extra for the green option. They're people such as Diane Allen, a retiree for whom a projected $40,000 expense to install solar panels doesn't make economic sense.

"Voluntary programs are really important just to show that citizens are interested and to keep the pressure on city councils and the state government" to enforce and eventually raise standards for renewables, Ms. Allen says.

In terms of energy sales, however, just 0.5 percent of America's electricity comes from renewable sources supported by voluntary pricing programs. Those results have brought less-than-glowing reviews from utilities, which generally aren't required by law to offer such programs.

These programs "are obsolete," says Barry Moline, executive director of the Florida Municipal Electric Association, which represents 34 utilities. "They're obsolete because they're not effective at getting widespread renewable-energy investment."

Some consumer advocates disagree, pointing to the steady growth in sales and participation in green-power programs since the early part of the decade. Even when the economy went sour in 2008, green-power sales through voluntary programs climbed by about 20 percent over 2007, according to the NREL.

Voluntary programs could increase their impact in years ahead as more Americans warm to the importance of renewables, says Larry Chretien, executive director of the Energy Consumers Alliance of New England, a pro-environment advocacy group in Boston. He's urging lawmakers to require utilities to retain and promote voluntary programs.

"The point … is to bring more renewable energy into the grid than would happen otherwise," Mr. Chretien says. Mandated levels "aren't nearly [high] enough to make the changes to our energy system that many of us believe need to happen.... We want to be sure the voluntary consumer is given a chance."

Observers say green-purchasing programs have helped utilities inform the public that shifting to renewables has a cost, Mr. Crisson says.

By documenting a growing interest in renewable power, these programs have also helped convince lawmakers to press ahead with minimum standards and target dates, Ms. Bird says.

Now that those goals have largely been accomplished, the question becomes: What purposes, if any, will these programs serve in the future?

Voluntary buying programs aren't likely to vanish anytime soon. Both Mr. Moline and Crisson expect utilities to keep offering them as a service to environmentally minded customers who may not be able to harvest power themselves. But rather than beef up expensive marketing for these programs, Crisson says, utilities are likely to start asking: "What's our exit strategy?"

"One lesson that's been learned over time is that you have to reach out to [customers] and make them aware that the program is being offered," Bird says. Once customers sign up, she says, they tend to be "sticky" and keep paying premiums even as mandates take effect, and despite a rough economy.

Free marketers, who generally prefer voluntary programs to government-mandated quotas, counter that most customers aren't drawn to pricier options in the first place.

"When people are faced with a choice, they generally move away from expensive power," says Jerry Taylor, a senior fellow at the Cato Institute, a free-market think tank in Washington, D.C.

Meanwhile, utilities are eyeing other options to help them reach renewable-energy targets. In Florida, where some voluntary purchasing programs have attracted just a few dozen buyers, municipal utilities see more promise in providing incentives to homeowners to install solar panels and sell power back into the grid, Moline says.

Florida municipal utilities "have migrated to a different type of a program," he adds. "They're now saying to customers: 'Instead of paying a buck a month, you can invest in photovoltaic [solar panels], and we'll pay you 15 cents per kilowatt hour. That's a much better deal for you, and it gets more renewable energy into our community faster.' "

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