Purchasing Clean Energy without Getting Burned

Environmentally conscious consumers know that they can “vote with their wallet” by purchasing green goods and services, and by supporting socially conscious businesses. What many don’t know, unfortunately, is how to best choose their options. This is especially true in the clean energy space where a company’s marketing efforts, and the confusion of the marketplace may cause them to make unwise choices.

Presently, there are four ways that are most common for buying clean energy. You can install a solar system on your roof or property, purchase green electricity, purchase Renewable Energy Certificates (RECs), or invest in energy efficiency upgrades (“negawatts”).  Each option comes with its own benefits and costs.  I’ll start by looking at purchasing green electricity.

There are a few pitfalls to avoid when deciding to buy green electricity from a retail electricity supplier. I’ve highlighted a few right here:

Certification and Verification

When you switch to green electricity for your home or business, nothing material will change for you and there’s no physical evidence of your purchase such as a piece of equipment. Sure, you have a contract that promises you green electricity, but that is not enough assurance for many people. One good way to know that you are actually getting the green power you are paying for is by making sure you buy green power that is certified and verified by Green-e. The folks who run Green-e require suppliers to demonstrate that the green energy they are selling matches the green energy they are buying. This is done through a third party audit. I know of no other certification and verification processes that meet the high standards set by Green-e , though they may exist.

Teaser Rates

I heard one clean energy company executive on the radio telling the audience that switching to wind power from them would cost $8-$12 a month. That sounds reasonable until you dig a little deeper and learn that they are offering a three month “teaser” rate. The affordable teaser rate of 9.7 cents/kwh or so expires after three months, at which point the consumer is subject to incredible price spikes through a variable rate. What might those spikes look like? The company’s fixed price deal, which tells you the kind of rate they think they need to make off their customers over the course of a year, ranges from  12-13.5 cents/kwh. That’s the difference between paying $8-$12 a month or $40-$50 a month. When you put it in annual terms, you really get the picture. With the higher rates, you could be facing an electricity bill that is as much as $600 more than you would otherwise pay. That’s for an average home. If you are a bit wealthier than average and have a larger home, chances are your annual bill could hit close to $1,000.

Avoid “teaser” rates at all cost. Despite the pleasant-sounding rationale you may hear from the energy company, it will end up being a bad deal for most of you. Why? Because as an executive at one of these companies told me, they really offer the teaser rate for one reason – they know that 80% of their customers will forget to keep checking their energy rate after three months. That’s right. They have it down to a science. They know that you will sign up thinking that after the teaser is over you’ll just switch elsewhere, but that 80% of you never do.

Dig Deeper

Another aspect of disingenuous marketing you may see is a company that purports to be the little guy fighting the rest of the “big greedy” energy world. Like all deception, there’s probably a grain of truth to it. But do consumers know the fat profit margin these guys are getting for the energy they are selling you? In order to understand this, you have to understand the main components that make up the cost of green energy. Back to that 13.5 cent wind power example. In this case, the green part of that power, the part of that rate that actually goes to the wind farm is likely around 1.5 cents.  Yup, that means you are paying 12 cents/kwh for brown power, which is the exact same power your utility offers at rates as low as 8.5 cents/kwh.  So why such a huge discrepancy? Two words – Profit Margin. The company probably makes in the range of 50%-%70 margin on the product they sell you. I say probably because I’m making an educated guess based on market conditions. I have not seen their books. There are other smaller factors as well, such as cost of capital, but I believe margin makes up the largest chunk of the difference.

Don’t get me wrong, I’m all for profit and the competitive free market. What I think is morally and ethically unjust is sticking your customers with exorbitant rates in order to feed the profit margin needs of your investors all under the guise of being progressive. A company is either a consumer friendly, 100% honest and transparent company that offers the most competitive rates it possibly can or it isn’t. I think in order to be the former, a clean energy company has to choose steady organic growth over VC -backed hyper growth. This means they should not try to make exorbitant profits on the backs of their customers.

Another example of a questionable marketing practice is a company that sells green power among a suite of products, but then works to prevent clean energy laws from passing at the state or federal level. Their green power products are probably legitimate, I’m not questioning that. But if your intention is to “vote with your wallet,” than you may be voting for the wrong candidate. A portion of the dollars you spend with them goes to lobby against the very thing you are trying to promote.

Conclusion

The thing all of these practices have in common is their reliance on uneducated and/or overstretched consumers. It takes a little homework and a little more time to find out the truth behind these marketing efforts. Or it takes the ability to say “no” to certain products that you know are designed to take advantage of your lack of attention (ie. variable rate or “teasers”). Even in this case, I don’t want to paint too broad a stroke here. There are some variable products that are tied to the variability of the utility standard rates. Those are fine because they are actually market responsive, and you know the premium you are paying every month. But this last point just serves to prove once again how much a consumer needs to be educated before venturing into the clean energy field by purchasing green power from a retail electricity supplier.

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