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In Our Opinion:   The Tough Sell of Marketing Voluntary Green Power Programs -- Especially in the South.


 

Some key current facts from the U.S. Department of Energy:

  • The Average Participation Rate (e.g., market penetration)
        for customers purchasing green electricity is about 1%.
  • The Median Price Premium for Green Power is 2.5/kWh.
  • This usually represents a Green Premium of over 25%
        from electricity produced from fossil fuels.
  • In National Opinion Survey after Survey by Environmental Organizations, poll results show a tremendous level of support for Renewable Green Energy. But when it comes to actual purchasing decisions there is a very clear disconnect -- where consumers are not walking the talk represented in their survey responses.

    So, what gives? Many Marketing and Green Power Accredition organizations believe this disconnect between consumer "beliefs" and "purchasing decisions" is primarily a matter of better educating the public on renewable energy and environmental issues -- i.e., better marketing.

    We don't buy into this view. When it comes to consumer buying decisions on green power (other than perhaps a very small market niche), the issue is price, price, price. A recent article in American Demographics Magazine backs up this opinion.

    According to the Green Gauge Report conducted by Roper Starch Worldwide of New York City, the ecological friendliness of products was never of primary importance to consumers, and its importance is waning. The general public has become more lukewarm about the environment in the past few years. Since 1990, the most environmentally dedicated group hasn't declined, but the group most willing to put its money where its mouth is has shrunk dramatically. The most apathetic group has grown.

    Market Component Size & Willingness to pay Premiums.

    Consumer Group
    Market Size
    Premium %
    True-Blues
    10%
    7%
    Green-Backs
    5%
    20%
    Sprouts
    33%
    4%
    Grousers
    37%
    0% to 4%
    Basic Browns
    15%
    0%

    True-Blue Greens are the most proactively green Americans. For these people, being environmentally aware isn't an on-again, off-again activity; it's a way of life. They're the recyclers, composters, and volunteers, but who are a decided minority in most communities. They make up 10 percent of the American adult population, down just a bit from the 11 percent they represented in 1990.

    One in ten adults is not a minuscule market by any means, and True Blues have other desirable characteristics. They are well-educated and well off. They are also more likely than average to be politically and socially active, which means that they are opinion leaders and have influence on many other consumers. But there's one way in which they're not the best green market. They are willing to pay only 7 percent more, on average, for ecologically friendly products.

    Greenback Greens on the other hand, are willing to shell out up to 20 percent more for green products. But they are only moderately active in environmental causes in general, and their allegiance is faltering. They've declined from 11 percent of adults in 1990 to 5 percent in 1996. Greenbacks are a little younger than average, and somewhat more likely to live in the West or Midwest. They're the group most likely to hold white-collar jobs.

    Sprouts:   Some former Greenback Greens have moved into the Sprouts group, meaning that they still care, but are less willing to pay premiums. Sprouts make up 33 percent of the adult population, up from 26 percent in 1990. They have embraced environmentalism somewhat slowly. They reflect the general public in terms of their political orientation.They will pay green-premiums of about 4 percent, on average.

    Grousers:.   Some erstwhile Greenback Greens may also have joined the ranks of passive Grousers, who view the environment as someone else's problem. They care about the environment to some extent, but not enough to go out of their way to do anything about it. Grousers say they're too busy to shop green, or they complain about product cost and quality. As a group, they are slightly less educated than the average American, more politically conservative, and more likely to live in the South.

    Basic Browns:   The share of adults who are Grousers has shrunk in recent years, from 24 percent in 1990 to 15 percent in 1996. This isn't necessarily good news for the green market, though. Many Grousers may have become even less inclined to act green than they were, by joining the ranks of Basic Browns. These environmental deadbeats don't give much of a hoot about the environment at all. They've grown to 37 percent of adults, from 28 percent in 1990. Browns are the poorest and least educated group; like Grousers, they're more likely than average to live in the South.

    Our Opinion:   According to the U.S. National Renewable Energy Laboratory (NREL), the median premium for Green Energy Programs in the U.S. is about 2.5/kWh -- representing a premium of over 25% above residential prices of electricity. The average participation rate (e.g., market penetration) of these green marketing programs is around 1% of total customers.

    Residential Green Marketing Programs charging 25% premiums may be primarily tapping into a very small market segment (e.g., the GreenBack Greens) -- which nationally represents only about 5% of the total market. In the Southern U.S., this market segment of GreenBack Greens is probably even smaller.

    Based on the above marketing information, it may be that Green Power Providers achieving participation levels of approximately 1% are achieving a very respectable 20% market penetration rate with the GreenBack Greens (e.g., 1% of a total market of 5%). If correct, this seriously puts in doubt marketing strategies that "better education" will have any significant impact on increasing overall market penetration levels for renewable energy.

    The issue is price. With the current high premiums charged by Green Energy Providers, it may be that only about 5% of the total potential market is being targeted (i.e., the GreenBack Greens). Only by significantly lower price premiums which can appeal to a much broader market of True Blues, GreenBacks, Sprouts, and Grousers (85% of total residential energy customers) can any meaningful levels of market penetration be achieved.

    In our opinion, the only way to achieve significant market penetration levels in Florida will be through lower cost biomass energy -- including co-firing (e.g., fuel switching) energy crops in existing coal-fired power plants. In co-firing, existing power plants' infra-structures are used (e.g., boilers, turbine/generations, etc.), thus avoiding the high capital costs of building a new stand-alone renewable energy facility -- resulting in lower green premiums compared to options such as wind or solar.


    1 According to the U.S. Energy Information Agency, in 2001, the average residential electricity price in Florida was ~8.6/kWh -- which was almost identical to the average residential price for the entire U.S.
    2 Using a residential price of 8.6/kWh, a 7% premium would be .60/kWh.