Success Factors in Traverse City
The following section summarizes what we view as the factors that made the Traverse City project successful: program simplicity, environmental awareness, utility credibility, project visibility, community pride, and personal marketing.
Success Factors in Traverse City
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The Traverse City wind rate program appears to be successful for several reasons. First, the program is simple in design and easy to join. These factors may be sufficient to overcome some customers' hesitations about signing a long-term contract. Customers understand the product they are buying: energy from a renewable resource, and cleaner air.
Another important contributor to success is that the Traverse City community is environmentally aware. The participants know that the area offers a superior quality of life and they want to preserve it. However, most of the business customers do not seem to be "hard-core" environmentalists. Some do not like the label; some are interested in economic growth as much as environmental preservation; and others have not even bothered to visit the wind turbine, although it is only two miles from the downtown.
There are other, non-product attributes that help the program. A small, publicly-owned utility is closer to its customers, which may enhance the program's credibility. It would not have mattered to some participants, however, if Consumers Power, a large, investor-owned utility nearby, had undertaken the project.
The wind project is local and visible, which also makes community-based marketing easier. Finally, local pride runs high among the participants and motivates other customers to sign up.
A utility with one significant project will at some point begin to think about how to enlarge its success. Using Traverse City as an example, but intending our comments for a wider audience, we propose several steps that program sponsors can take to prepare for growth.
First, consistent with the participants' desire to show business leadership, the utility should devise and implement a recognition program. Traverse City missed an early opportunity to market the program by offering co-operative advertising or other forms of recognition. Providing this support and recognition now may help keep participants happy about being in the program, and it may make them more likely to continue when their commitment expires. Further, recognition for participants will increase the visibility of the program; by raising awareness, it also will make marketing the next wind project easier. Tomorrow's participants will have seen what such recognition can do for them.
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Recognition for participants will increase the visibility of the program and, by raising awareness, make marketing the next wind project easier. |
Second, now that the wind rate has begun appearing on participants' bills, the utility could survey both residential and commercial customers about their satisfaction with the program in order to plan a second phase. Although there is much to be said for the simplicity of going directly to the market without any market research, as TCL&P did originally, good marketing follows the leaders: By understanding what the first participants like and dislike about the program, the next offer could be better tailored to appeal to customers. Further, the program sponsor should now consider polling non-participants about their awareness of the wind project and their opinions about it because this is the pool of potential participants.18
Many observers wonder whether there are more customers like the early business participants. Has Traverse City skimmed the cream? To answer this question, the utility must expand the program and attempt to sign up new customers on the wind rate. If business leadership has meaning, other businesses will follow, especially if the early leaders receive recognition.
An obvious third step is to test the market for additional wind turbines. The next phase could offer two to five new turbines, depending on the number of customers who sign up. Fort Collins, Colorado recently solicited customers for a windpower program in many respects similar to that of Traverse City. Fort Collins announced that it would acquire one to three 750 kW wind turbines, depending on the level of interest, and estimated that it needs about 350 customers for each turbine.
If this step is too big for a small utility to take, Traverse City could work with other Michigan municipal utilities to find partners willing to share the risk. Alternatively, they could work through the Michigan Public Power Authority as a wholesale supplier to develop wider markets and share development risks.19
Extrapolating from Traverse City
Is Traverse City and the participation of businesses in its wind project unique, or can we extrapolate from its experience to inform other efforts? With a new concept like green pricing, we instinctively look for models. If we are careful, we can generalize from Traverse City's experience, recognizing that the model must be adapted to local circumstances.
Some possible limitations to using the Traverse City program as a model for others include the following:
Type of Utility. Some observers have suggested that because Traverse City Light & Power is a municipal utility, it has an advantage over investor-owned utilities as a purveyor of green power. In fact, credibility of the green power sponsor, customer awareness of energy issues and a feeling of control by utility customers are more important than the type of utility that offers the program. Investor-owned utilities that are customer-focused, try to solicit customer viewpoints and respond to their customers' concerns should be able to market new products successfully. Moreover, not all customer-owned utilities enjoy the enthusiastic support of their customers. Some customer-owned utilities have been less responsive than their investor-owned counterparts to the needs of business customers, for example.
Although credibility is important, 42 percent of the business participants interviewed indicated that the credibility of the sponsor (TCL&P) was not very important or not at all important in their decision.
Finally, it is not just customer-owned utilities that face high visibility energy issues, such as rate increases, energy resource investments, and power-plant performance and safety. In both investor-owned and customer-owned utility jurisdictions, local energy issues have raised the awareness of utility customers about the environmental costs of their energy choices. The market may be ripe for renewable energy in areas where consumers are concerned about these kinds of issues.
Community Size. Some people may assume that because Traverse City is a small town it enjoys a cohesiveness of interest and purpose that led to unusual support for the wind project. They may also assume that a small community network and personal outreach facilitated marketing to business customers. This did occur with some customers, and it is true that all the interviewees recognized the importance of the environment to their quality of life and continued prosperity.
While marketing in a small community may be helpful, it is are not necessary to the success of a program like Traverse City's. A utility serving a much larger area could successfully market relatively small-scale renewable resources to nearby local communities rather than to its entire service area. Also, the cohesiveness of a small community can be overstated; note that many Traverse City businesses did not sign up for the wind rate. Further, it would be a mistake to believe that community-based marketing can only occur in small towns or cities. Large urban areas have their own networks and influential organizations. Finally, utilities are increasingly emphasizing service to their large business accounts by establishing personal relationships with major customers. Utility representatives can conduct in-person marketing even over a large area using knowledge of their customers' business philosophies and corporate image.
Environmental Awareness. We have noted that many Traverse City businesses value a clean environment and are willing to pay more to keep it that way. This should not be considered atypical. We know from many opinion polls and market surveys over a twenty-year period that a majority of U.S. voters and consumers are concerned about the environment generally, and about the environmental impacts of energy production and use specifically. Barbara Farhar states in her recent brief on public views about energy and the environment that ". . . approximately 56% to 80% of respondents to recent national surveys say they would pay a premium for environmental protection or renewable electricity."20 Note that communities with unhealthy environments or smog-impaired visibility may be even more motivated than Traverse City customers were to purchase clean power.
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The key to expanding commercial support for renewable energy beyond small businesses is discovering which product designs are most appealing to other business segments and what kind of marketing is needed to ensure their purchase. |
Business Size. Some people may believe that because Traverse City commercial participants are small businesses, we cannot make conclusions about businesses in general. However, we believe that all businesses-small to large-probably share many of the same motivations for buying green power. The key to expanding commercial support for renewable energy beyond small businesses is discovering which product designs are most appealing to other business segments and what kind of marketing is needed to ensure their purchase.
For example, a 20 percent price premium may be manageable for small businesses, but the same premium might be unaffordable for an energy-intensive manufacturer. If the energy cost represents one percent of total input costs (for most businesses it is less), a 20 percent premium would increase energy costs to 1.2 percent of total costs. If the initial energy cost represents five percent of total costs, the 20 percent premium increases energy costs to six percent of total costs. This does not mean that the addition of 0.2 percent to total costs is inconsequential to a competitive business, but it does illustrate how sensitivity to a green rate may vary.
One alternative to charging all businesses the same premium could be to design a business program that is less sensitive to energy use. Such a program might allow business customers to choose the percent of their electricity generated by renewable energy. A small business might be able to afford 100 percent, while a large energy consumer might find 10 percent more acceptable. They would still pay for green kWh but they could choose the amount that best fits their situation. Alternatively, businesses could be offered a package of environmental control technology and energy efficiency (which often go together). The reduction in energy and waste management costs could be used to help pay for the added cost of the renewable energy supply. Yet another approach would be to offer businesses the option of paying a fixed fee for the retirement of emissions credits with the revenue used to purchase the renewables that make the pollution reduction possible. Several of these approaches may be needed to reach the various market niches that together can have a more significant impact among business consumers.
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Green power marketing should emphasize a theme of business leadership for the future. Linking a clean environment to economic growth also may pay dividends. |
How should renewable energy be marketed to businesses? One obvious motivating message is environmental stewardship. Based on the Traverse City experience, green power marketing should also emphasize a theme of business leadership for the future. In addition, linking a clean environment to economic growth may pay dividends.
Personal contact with businesses will help enlist their support, especially if the contact is a known, credible agent or a personal relationship already exists.21 The potential role of individual members of environmental groups or other allies as personal marketing agents should not be overlooked.
Offering to support participating businesses by publicizing their purchase of renewable energy may be attractive to some types of business, particularly retail stores. Stickers or other display items would be useful, as would newspaper ads about the green rate program featuring or listing business participants. For small businesses, appealing to the owner's personal philosophy may be an effective approach, as well.
While appealing to the personal philosophy of the owner is less likely to apply in larger businesses, they may respond positively to the themes of business leadership and environmental stewardship, and to marketing publicity that enhances their image. Co-operative advertising may be appreciated or they may prefer to conduct their own marketing campaign.
One way to reach large corporations is to implement a national marketing campaign that creates visibility and enhances the corporate image. One example is the Climate Challenge and Climate Wise programs, directed at electric utilities and energy users, respectively. Participating companies voluntarily agree to reduce their emissions of greenhouse gases as part of the U.S. government's commitment to returning emissions to 1990 levels by the year 2000. Participant motivations may be to:
Over three hundred corporate partners have signed up for Climate Wise, including Dow Chemical, AT&T and General Motors. Businesses might choose green power as a way to achieve greenhouse gas reductions. Utilities that offer green power to these customers would have to agree that the credits belong to the customers, rather than to the utilities. In fact, the green power product would be packaged and marketed with this benefit in mind.
The Environmental Protection Agency's voluntary Green Lights program, in contrast, offers immediate financial returns from lighting efficiency improvements. Nevertheless, it is an example of a national marketing campaign that has been effective with large corporate and institutional consumers.
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