In the Spring of 1996, a rural electric cooperatives (REC) and local renewable energy advocates in Minnesota began an effort to bring wind power to local consumers. The program asked customers to pay a "green premium" above their regular monthly electricity bills (or the price difference between electricity from wind power and electricity from a utility's current generating capacity). Both sides had concerns and hopes.

The distribution and generation and transmission cooperatives (the "co-ops") within the REC worried that the wind project would raise average rates, thereby compromising their competitive position versus other utilities. Also, they did not want the project to draw negative attention to existing coal-fired plants. Lastly, they did not want to reduce the operation of the coal-fired plants. But the co-ops identified benefits that outweighed the risks of the wind project. First, they believed (and later confirmed by polling) that their customers valued environmental protection. Offering wind power would strengthen its relations with customers and improve its competitive position in the future. Second, the project would encourage local economic development. Third, it would flexibly meet regulatory requirements, such as integrated resource planning and clean air standards, without raising average rates as customers volunteered to pay higher "green premiums."

Renewable energy advocates also had several concerns and interests. They were concerned that the "green premium" would be too high, fostering the perception that renewable energy costs significantly more than other energy alternatives. In addition, they feared that utilities would use the project as a weapon to attack as unnecessary legislative proposals to promote renewables. However, a variety of benefits outweighed these concerns. First, the project would bring potential environmental improvements to Minnesota. Second, it would encourage rural economic development. Third, it would be a useful tool to promote renewable energy as an affordable source of electricity. Finally, it could serve as a pilot project for future co-op green offerings.

The Participants

Participating co-ops consisted of Cooperative Power (CP), a generation and transmission co-op, and the Dakota Electric Association, a distribution co-op. CP operates generation facilities, including oil- and coal-fired combustion and hydropower, and owns transmission lines. DEA, one of 17 distribution co-ops served by CP, is in charge of power distribution to its customers, as well as billing and servicing. The remaining 16 distribution co-ops had the option to join the green power offering.

Renewable energy advocates included several local groups organized under the Minnesota Sustainable Energy for Economic Development (MN SEED) Campaign. The groups had considerable experience educating Minnesotans and lobbying the state legislature to cultivate favorable attitudes toward renewable energy. The Union of Concerned Scientists (UCS) provided technical input to the project and acted as a liaison between MN SEED and the co-ops.

The Result

As of November 1997, 11 of CP's 17 distribution co-ops have joined the green offering. The green premium is two cents per kilowatt-hour. The co-ops have secured 3,250 subscriptions of 100 kWh per month apiece. CP is close to its goal of 3,750 subscriptions to install 1.5 megawatts of wind power. It will install and begin operation of the wind turbines by November 1998.

The Lessons

* Advocacy and public outreach create the right conditions for project development. Co-ops want to satisfy customers. Consequently, for green offerings to succeed, the public must support renewable energy. Advocacy and public outreach by groups such as MN SEED and UCS are crucial to cultivating this support.

*Advocates should not let the perfect stand in the way of the good. Even if advocacy groups believe that green offerings are not ideal, sufficient replication of the offering can stimulate renewables markets, accelerate technology development, and reduce prices.

*Co-ops should make as long and stable commitment to a project as possible. In order to recover capital costs and guarantee steady revenue, investors in renewable energy want long and stable demand for a renewable energy project. Accordingly, Minnesota wind developers needed a 15-year contract commitment from CP to raise affordable capital and minimize the green premium.

*Co-ops and renewable energy project developers should minimize small project costs or maximize project sizes. Because small projects have comparatively high proportional transaction costs, either the project developer must organize projects cheaply, or the co-op must raise the project size to enjoy economies of scale, reduce proportional transaction costs, and lower green premiums.

*Advocates should give "project champions" time to work internally to build organizational support. By maintaining silence while the co-op project champions build support for projects within their Boards, advocates can improve the chances of Board approval without outside interference, and gain the trust of the project champions.

*Advocate-sponsored consulting is invaluable. Many advocates, such as UCS and MN SEED, have extensive experience in renewable energy technology and project planning. They also have direct contact with supporters of renewable energy, which proves useful to a co-op marketing a green power offering.

*Co-ops and advocates should target common interests. Project champions and advocates should emphasize their shared interests in promoting renewable energy to serve more customers, develop the local economy, and improve the environment.

*Grassroots environmental groups can effectively market green power programs. Grassroots advocates can reach out to supporters in a co-op's service area to assure the co-ops that their customers are interested in a green offering. Of course, before supporting a green offering, advocates must carefully evaluate it for price, "good" versus "bad" environmental products, and public communication requirements.

*Co-ops and advocates should communicate thoroughly and frequently. Open communications avoid misunderstandings and build confidence between co-ops and advocates.

Trust is critical and hard to come by. Co-ops and advocates often have little experience working together. However, as the co-ops in advocates in Minnesota proved, honesty, flexibility, and a willingness to listen are important for establishing a green offering.

Overall, utilities should appreciate the role that renewable energy can play in enhancing their service, especially in anticipation of customer-centered electricity competition. Advocates should use their superior knowledge of renewables, and their extensive contacts with key potential customers, to work sensitively with co-ops on green pricing programs. Green pricing programs are not a single, major breakthrough for renewable energy in the United States. However, by raising demand for renewable energy technologies and services, and possibly cultivating political constituencies for pro-renewables public policy, they represent incremental steps that can be combined to make a major contribution to sustainable energy use.

Index Message from the Staff of the REPP Article