The Grassroots are Greener:
A Community-Based Approach to Marketing Green Power
Part VI: Economics & Transferability
A variety of governmental and foundation funds supported the development and implementation of the community-based marketing approach in Colorado. Governmental funders included DOE, EPA, and the Governor's Office of Energy Conservation. Several private organizations — including the Greenville, Rockefeller Family, and Energy Foundations — also provided support. This core funding was further leveraged by a wide variety of inkind contributions — staff time, use of pre-existing networks, marketing materials, and newsletters — from municipalities, state agencies, local community groups, nonprofit organizations, and others.
Although any marketing effort entails costs, community-based marketing is an efficient method, especially when the costs are appropriately allocated over a customer's entire electricity use. Unfortunately, most utilities will ascribe the marketing costs only to the green power portion of the sale. The rationale for this is that the company is already satisfying customers' electricity requirements with system power; the only change with the green power sale is that a certain number of kilowatt-hours of green energy are being substituted. Thus any costs associated with the sale of the green electricity are allocated solely to that portion of the product.
To illustrate, the LAW Fund estimates that the street-team effort to subscribe business customers cost about $40,000 from July 1998 through April 1999. Over this nine months, the street team aggregated purchase commitments of roughly 1,500 blocks of wind power from 150 customers, yielding total annual wind power sales of 1,680,000 kWh. In all, about 900 customers were approached, 150 agreed to purchase some amount of wind, and roughly the same number declined, with responses from about 600 customers still pending.
Taking just the firm purchase commitments to date, the street-team effort cost 2.4¢/kWh of annual aggregated wind power subscribed, assuming that the marketing costs are recovered in the first year.27 The marketing costs, then, are almost equivalent to the 2.5¢/kWh cost of the wind energy itself. Clearly, if marketing costs were recovered in the wind energy premium, the attractiveness of the purchase would be reduced substantially, as customers would be facing a premium close to 5¢/kWh.
But the green power sale represents only 15%, on average, of the business customer's monthly consumption. If the marketing cost were spread over the customer's entire consumption, as would be customary for a new customer acquisition, it would be less than 0.4¢/kWh, before accounting for the possibility that some of the 600 undecided customers might still choose to purchase wind energy. In contrast, in competitive markets for-profit providers often spend 1.7-5.0¢/kWh to obtain new residential customers.28 Although this residential number is not directly comparable to the costs of reaching small businesses, it suggests that the grassroots approach is highly cost-effective.
In Colorado, a market that remains regulated, much of the success of the community-based marketing approach relied on the ability of the LAW Fund and other groups to cover their costs by raising funds from government and foundation sources. By capitalizing on the experience gained so far in Colorado, the LAW Fund estimates that the Grassroots Campaign could be successfully replicated for less in other regulated settings. Even hiring one full-time person in a service territory to work with the utility supplier can make a real difference in terms of lending credibility to the wind power product and creating community-wide support for clean energy.
In a competitive market, the costs associated with running a community-based effort could potentially be recovered in the retail price of the green power product. This would allow the costs of the green marketing to be spread over the entire sale, not just the green component. Indeed, one of the most promising applications of the community-based approach is to fund it in a market environment. For example, if one individual using the street-team approach in a retail competition setting could generate sufficient revenues to cover the fully allocated costs, then this approach would be replicable with little limitation. And it would be economically possible to employ an army of publicly spirited individuals — 10, 20, or 100 — to educate customers about the economic and environmental impacts of their energy choices. There are also new types of funding mechanisms being established in restructuring legislation. These include system benefits charges and funds allocated for customer education programs that could conceivably be tapped to extend the reach and effectiveness of a Grassroots Campaign in a competitive market environment.
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