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Key Project Decisions
Green-pricing program or Rate-base Funding
A third project decision relates to recovering the costs of utility renewable energy projects. There may be opportunities for project funding to come from outside the utility in the form of lump-sum grants that pay for project costs; and some municipal utilities have systems benefits funds, a portion of which may go to renewable energy projects and programs. But here we discuss the two main sources of internal funding for renewable projects: green pricing programs, and the rate base. In addition to these methods for bringing renewable energy to customers, utilities may want to consider giving customers the choice to own their own distributed renewable energy generation, such as residential PV or small-scale wind. For more discussion on retailing residential PV product, see Customer-sited and owned PV systems.
In Utility Case Studies you will find descriptions of utilities' experiences with funding renewable energy projects through green-pricing programs or the rate-base; contact information is also provided.
Pros of green-pricing programs
Utilities hold different attitudes on what a green-pricing program should accomplish and how it should be structured. A utility might want to tie the voluntary customer payments to a specific project that is paid for by subscriber funds to avoid the perception that customers are paying for projects that would be otherwise added to the rate-base. Or a utility might want to rate-base the majority of a project's costs while developing a green-pricing program to recoup some of the above market costs for a renewable energy project from customers willing to support a its renewable energy goals. See also our green pricing section.
- Utilities recover some of the above market costs of renewable energy investments. When all of the output from a renewable energy project or purchase is subscribed there are no additional costs added to the utility's rate-base.
- Green energy products give customers the opportunity to invest directly in renewable energy. This is particularly attractive to commercial customers who wish distinguish themselves in their markets through green energy purchases. Customers' voluntary participation in these programs also sends a message to resource decision makers about the popularity of renewable energy generation and their willingness to pay for it.
- Utilities gain experience marketing a differentiated electricity product, including product positioning, targeting customer groups, marketing development and product pricing.
- Marketing green energy products creates an explicit message about a utility's commitment to renewable energy.
Pros of rate-basing renewable generation
- Utilities that rate-base the costs for renewable energy generation do not have to incur marketing expenses or complicate billing systems.
- Utilities can integrate larger quantities of renewable energy into generation portfolios than a voluntary green-pricing program alone can allow.
- Depending on the amount and source of renewable generation integrated, rate-basing this power can yield dependable, predictable, and (if needed) large amounts of money, while keeping the per-customer impact small.
- Utilities will not need long-term plans for voluntary green-pricing programs. Because these programs are relatively new and involve a small percentage of total customers, many utilities have not contemplated the long-term implications of asking customers to pay premiums to support renewable energy. Some of the issues that utilities will need to consider are: how long to offer the program if an increasing amount of renewables are added to the rate-based costs; how to disengage participants if, or when, the program is discontinued; and how to treat paying customers of older projects as newer, less expensive renewable generation is acquired.
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