Renewable Energies Are Here: How Will These Affect Competitive Choice Markets?

Renewable Energies Are Here: How Will These Affect Competitive Choice Markets?

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Renewable energy has grown in popularity, availability and usage over the past few decades, driven by decreasing costs of solar cells and increased awareness of greenhouse gas emissions and sustainability.  While there is some debate over the long-term viability of “green energy” (particularly wind), these energy sources are poised to continue capturing share in the electricity generation market. Whether you are a fan of renewable energy or not, green energy sources have impacted all facets of the industry including generation capacity, distribution and rates. 

Why an emphasis on renewables? A Gallop Poll of All American stated 76% also believe the US should place a greater emphasize on solar power while 71% agreed on placing greater emphasis on wind power as alternative energy sources as part of a domestic energy production strategy.

Source: Gallup Poll (Note:  percentages reflect Americans who believe “more emphasis” should be placed on each respective energy source)

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With such broad support for green energy sources, it makes sense for retailers to explore the potential opportunities of “alternative energy.”  By offering renewable energy options to their customers, ESCOs can highlight a more diverse product portfolio in their marketing and communications. At the same time, ESCOS can earn points with customers (and prospective customers) for being a company that provides clean energy solutions in addition to their other services.  Thankfully, ESCOs have several options to strategically employ renewables within their product portfolio. 

For instance, some retail electricity providers have established themselves by only offering green energy; other ESCOs offer renewables as a separate product or as part of a bundled package to their customers.  By offering these products and solutions, ESCOs allow their customers to feel they are “part of the solution,” thereby providing customers some peace of mind about the electricity they use.  In addition, both current and future customers may have a more favorable impression (both consciously and subconsciously) of ESCO brand that offer green solutions.  The wide-spread support for renewable energy sources in the US could result in a expanded customer base and increased revenue. 

While the benefits of incorporating renewables into an ESCO’s portfolio are widespread, there are several potential barriers to reaching this goal.  Both state and federal regulations and renewable energy benefits programs are obstacles that ESCOs will need to navigate.  While most state and federal regulators have good intentions and are working to create energy plans that allow increased use of green energy, they also have had a negative impact on business practices and increased costs.   For example, while federal regulations are consistent across the industry, state regulations and plans vary widely. These differences can be blamed on physical location, politics and pre-existing energy marketing structures.  In some states, ESCOs are required to either offer specific renewables to their customers or to deliver a portion of their supply from renewable sources. These actions force changes in business plans, supply chains, trading methods and operational structures. Many of these businesses have been operating in the oil, natural gas and electricity sectors for years and have had to learn quickly the nuisances within the green energy business.

State and federal programs have driven companies to offer alternative energy options; but ultimately, cost is still an issue. Though costs are decreasing (particularly for solar generation), the cost to produce and distribute renewable energy is still more expensive than traditional energy supplies such as coal or natural gas. These higher costs are passed on to the end customer either through the direct purchase of renewable energy or through Renewable Energy Certificates (RECs).  For small retail energy providers, the cost of renewables could be higher due to the small volume of green energy purchased.  Large ESCOs typically are able to purchase greater amounts of green energy and can more readily negotiate cheaper rates. 

In the end, there is no denying that renewable energy will continue to grow and will be an important part of electricity production in the US.  In the short-term, it may not be an easy transition to incorporate these alternative sources into the energy mix, as retail energy suppliers are “stuck in the middle” of the green energy debate with little recourse but to follow along.  Staying informed on this bellwether issue is critical; follow the news and pay close attention to what the federal and state governments are doing to impact your business.  Also, take time to consider whether (and how) adding renewable energy options to your product portfolio benefits your company.

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