Promoting Green Power in Canada - Centre for Human Settlements

Promoting Green Power in Canada Pollution ProbeBox 4.1 — The Cost of Green Power MarketingGreen marketers have publicly testified that the advertising and marketing costsnecessary to acquire one customer are approximately (US)$100. Premiums paid forrenewable power, and costs for customer service, start-up, overhead and profits are inaddition. The figure of $100 is a low estimate, however. Enron spent more than $300 toacquire each of the 30,000 customers it acquired before pulling out of the Californiaresidential market. Thus, a better range of estimated marketing costs is $100–$300 percustomer. Green product prices of 13–15¢/kWh produce annual average residential“green consumer” bills of approximately $840. Thus, $100–$300 in per-customermarketing costs account for between 12% and 36% of a green consumer’s total annualelectricity bill. Assuming that a marketer has a cost recovery period of two years and thatconsumers remain with the marketer for two years, marketing costs would account forbetween 6% and 18% of a green consumer’s total annual electricity bill. Thus, forexample, out of average 14¢/kWh green rates, marketing costs would amount tobetween 0.8¢/kWh and 2.5¢/kWh.The premiums being charged for green products with at least 50% non-large-hydrorenewable energy content and that do not promise new renewables range from 0.93–3.07¢ above the cost of default utility service, as compared to the estimated 0.8¢/kWh to2.5¢/kWh in marketing costs. Thus, it is clear that a very high percentage, perhaps 80%,of the premiums being charged for green products is accounted for by marketing costs,not by the cost of the products’ renewable energy content. Viewed another way, greenmarketers have stated that they can acquire wholesale renewable power from utilities fora premium of less than 0.5¢/kWh, and it is widely known in the industry that the extracost can be as low as 0.1¢ to 0.2¢/kWh. Subtracting out wholesale renewable energycosts of 0.1¢ to 0.5¢/kWh from the average 2.0¢/kWh premium charged for greenproducts that do not promise new renewable energy content leaves 1.5¢–1.9¢/kWh formarketing and overhead costs. Thus, a reasonable estimate of the fraction of greenproduct premiums that pay for marketing and overhead costs is 75% to 95%. Based onthe average 2¢/kWh premium, therefore, consumers would pay $10 extra on theirmonthly bill, of which $7.50–$9.50 would go towards marketing and overhead costs.[RADER 1998, p. 35]market, while others looked for less costlyapproaches to marketing their products andother ways to improve turnover [WISER 2000,p. 11]. The most successful U.S. green powerprogram, the Los Angeles “Green Power for aGreen L.A.,” was audited in 2002 and foundthat it costs (US)$82,000 a day. Millions ofdollars had been paid to a public relationsfirm to advertise the program, with many ofthe customers being subsidized [REF 2002c].The existence of green pricing or marketingprograms in a jurisdiction is clearly a basiccondition for renewable electricitygenerators to benefit from green powerpremiums. In restructured markets, consumerscan swap electricity providers; in regulatedmarkets, green pricing programs can supportthe renewables sector. In restructuredmarkets, regulatory conditions will influencethe level of switching. Low default serviceprices will impede the ability to sell greenpower at a high enough premium to cover62