Study: Consumers Unwilling to Pay More for Renewable Energy

Study: Consumers Unwilling to Pay More for Renewable Energy
July 21, 2013

Bonner R. Cohen

Bonner R. Cohen is a senior fellow with the National Center for Public Policy Research, a position... (read full bio)

Relatively few consumers are willing to pay extra for renewable energy offered under voluntary ‘green’ pricing programs, according to a newly published report from the Institute for Energy Research.

The report, “Evaluating Voluntary Consumer Adoption of Green Pricing Programs,” examined information obtained from 31 electric utilities nationwide that allow customers to “opt in” to green pricing programs. These programs allow consumers to purchase their electricity from renewable sources such as wind, solar, geothermal, and biomass.

State Mandates, Higher Prices
Green pricing programs charge participating customers a prescribed cost per kilowatt hour (kWh) of green energy produced. The prices typically do not fully reflect the higher costs of producing electricity from renewable sources, but they are higher than conventional power prices. The additional charge varies from utility to utility, ranging from .33 cents per kWh to 5.0 cents per kWh. 

Currently, 12 states require utilities to offer green pricing programs to their customers.  Those states are Washington, Oregon, Montana, Colorado, New Mexico, Minnesota, Iowa, Virginia, Delaware, New Jersey, Connecticut, and Vermont.

In some cases, the Institute for Energy Research (IER) report points out, consumer purchases are used to directly increase the production and use of renewable energy within the customers’ local utility power grid by helping pay for renewable power generated by the local utility itself. In many cases, however, the renewable energy sold to a customer is not produced by the utility selling the electricity. Where geographic, regulatory, or economic conditions make direct sales impossible, renewable energy is purchased by customers in the form of a Renewable Energy Certificate, or REC. Each REC represents 1000 kWh and allows consumers to claim utilization of green energy even if their local utility does not directly offer such options.  

Very Low Participation
Despite the efforts of state lawmakers to structure the green pricing programs so they will attract customers, participation in the initiatives has been low, according to the report. In the 31 utilities that supplied IER with data, the average level of participation in the surveyed “opt-in” green pricing programs was less than 2.1 percent.

Two-thirds of all utilities offering green pricing programs recorded participation rates of 1 percent or less. Participation in green pricing programs ranged from a high of 21 percent for one utility in Palo Alto, Calif., to less than 1 percent in other states.

Participation Tied to Income
IER found participation rates correlated with income and educational attainment. The median income for customers of the utilities in the top 10 percent of green pricing participation was 176 percent higher than for those in the bottom 10 percent of participation. The college graduation rate for customers in the top 10 percent of green pricing participation was 288 percent higher than for utilities in the bottom 10 percent.

IER also found policies associated with renewable power mandates (in force in 29 states and the District of Columbia) may undermine consumer support for green pricing programs. In states with renewable power mandates, electricity costs are almost 40 percent higher than those in non-RPS states.

According to IER’s examination of the data, “consumers evaluate the benefit of Green Pricing Programs along economic lines. Such direct economic considerations most often take precedence over the indirect ideal of greater renewable energy production.”

“While people like the thought of electricity from renewable sources, they don’t want to pay more for it, with the exception of the well-to-do,” said Daniel Simmons, IER’s director of state policy. “This report shows how damaging it is to mandate renewable electricity, because it forces people to pay higher prices for power when they would prefer not to.” 

Bonner R. Cohen, Ph. D. (bcohen@nationalcenter.org), is a senior fellow at the National Center for Public Policy Research.

Internet Info:

“Evaluating Voluntary Consumer Adoption of Green Pricing Programs,” Institute for Energy Research, June 2013, http://heartland.org/sites/default/files/ier_green_pricing_study.pdf

Bonner R. Cohen

Bonner R. Cohen is a senior fellow with the National Center for Public Policy Research, a position... (read full bio)