Green pricing is an optional, environmentally-preferred service that regulated utilities can offer their customers. The concept was developed to harness the power of customer choice in a regulated world of integrated resource planning and calculated avoided costs. Utility customers are given the opportunity to buy clean energy from renewable resources by paying a premium-the incremental cost above the utility's avoided cost. This supports the acquisition of new renewable resources and advances the commercialization of new, clean technologies. Seventeen utilities now offer green pricing options to their customers.²

Anticipating the deregulation of electricity supply, several suppliers (utilities, independent power producers, marketers or brokers) are developing green power products. Green power is a competitive product that electricity suppliers market to attract and retain customers. Unlike green pricing, green power does not depend on integrated resource planning and avoided costs. Suppliers may sell power from existing projects as well as from new renewable resources.³ Depending on the project, the price may be above, at, or below the average market price. Consumers have had limited exposure to green power experiments, largely because few markets are yet open to retail competition. Nevertheless, the results of this research apply both to green pricing and green power marketing.

In the short history of green pricing programs, little effort has been made to interest businesses in buying power from renewable energy sources. Although in several cases businesses have been eligible to buy green power, most utilities offering this opportunity have failed to target their business customers, focusing solely on residential customers.⁴

Some observers now think that, compared to the residential sector, it may be possible to tap the business sector at a lower marketing cost and with equivalent positive impacts on the development of renewable resources.

Business customers are far fewer in number, but their use of electricity is significantly greater than that of the residential sector. (See Figures 1 and 2.) The conventional wisdom is that larger volume consumers will not pay a premium for green power. Some observers now think that it may be possible to tap the business sector at a lower marketing cost and with equivalent positive impacts on the development of renewable resources. Other market analysts expect that business customers may achieve similar market penetrations to those of residential customers and have a larger impact on the demand for renewables.⁵ However, with little marketing effort now directed to business customers, it is difficult to know to what extent they would be interested or what their motivations might be.

In 1994, one green pricing program, the green rate windpower project in Traverse City, Michigan, solicited customers to subscribe to a single 600 kW wind turbine. Based on estimated wind turbine output and average household electricity use, Traverse City estimated that it needed 200 customers to commit to buying the windpower before it placed the order for the turbine. Ultimately, about 245 residential customers and 26 business customers signed up.

In the next section, we discuss the elements of success in the Traverse City green rate project. These factors are the community, the utility and the green pricing program.

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