Ed Holt

1
Customer Aggregation An Opportunity for Green
Power?
Ed Holt Ed Holt Associates, Inc. Lori
Bird National Renewable Energy Lab Analysis
Seminar Series Washington, DC July 12, 2001
2
What Is Aggregation?

• Aggregation the combination of electricity
  buyers/loads in a large pool
• the group obtains cost savings, different
  services, or more favorable terms
• suppliers incur lower customer acquisition costs
• regulated utilities are the ultimate aggregation
• Who benefits?
• large customers have been the quickest to benefit
• small customers are more expensive to serve
• some argue that aggregation is essential to small
  customers receiving benefit in retail choice

3
Overview of Study

• Funded by US DOE
• Objectives
• identify different types of aggregation
• learn whether aggregation can advance green power
• share these concepts with potential aggregators
  and green power advocates
• Relied on case study method
• surveyed literature and press reports (gt 100)
• categorized by type
• selected representative set for study

4
Who Are Aggregators?

• Aggregators as buying agents
• arrange for purchase directly by group members by
  selecting a supplier and negotiating terms
• often involved in the organization of the buyers
  pool, or identify and endorse a preferred product
  
• do not take title to power
• Aggregators as electricity providers
• take title to the power and resell it at retail
  to members of the group
• may provide other services desired by group

5
Types of Aggregation

• Buying pools
• groups organized by third-party buying agents
• includes internet-based pools
• Association-based aggregation
• existing group combines members loads
• e.g., retailers and municipal associations
• Affinity-based aggregation
• group that endorses particular supplier or
  product
• e.g., religious organizations, sustainability
  groups

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Types of Aggregation (cont.)

• Self aggregation
• combining multiple accounts to increase
  purchasing power
• Member-based
• energy cooperatives that supply members
• Automatic aggregation
• determined by state or local policy
• e.g., default service, opt-out community choice

7
Case Studies

• Business and industry
• Religious groups
• Local government
• Federal and state govt.
• Third party buyers agents
• Internet aggregators
• Cooperatives
• Community choice
• Default service

8
Business and Industry Organizations

• Business groups were among first to aggregate
  electricity loads
• Retail and manufacturers associations, chambers
  of commerce, universities, etc.
• Green Restaurant Association
• Organization of 60 restaurants formed to help
  members reduce their environmental impacts
• Endorsed green power supplier in California
• Encouraged about 1/6 of members to switch

9
Assessment

• Business groups have shown little interest in
  aggregated green power purchasing to date
• Most active are universities and those focused on
  sustainability issues
• Some possible explanations
• decision to buy green power is individual one,
  motivated by company values, civic
  responsibility, employee morale, and public
  relations
• groups may need to be educated about benefits of
  purchasing green power

10
Religious Organizations

• Episcopal Power Light
• active in CA and NE, Green Mountain donates 35
  to churches for each parishioner enrolled
• Maine Interfaith Power Light
• ecumenical group formed early 2000
• gauging interest before obtaining a
  supplier
• Partners for Environmental Quality
• bulk purchasing organization for 100 NJ churches
• similar agreement with Green Mountain, given 2
  staff members for outreach

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Assessment

• Religious organizations have shown significant
  interest in aggregated green power purchasing
• Major hurdles are educating members, forming
  coalitions with other faiths, procuring a
  supplier given limited experience with energy
  issues
• Difficult to determine which purchasing strategy
  is most effective (teaming with a supplier or
  obtaining members first), may depend on market
  characteristics

12
Local Governments and Schools

• ABAG Power
• purchases power for 59 cities and counties
  with 53 MW peak load
• savings through state purchase incentives
• City of Chicago
• 47 local government agencies formed Local Govt.
  Power Alliance
• issued RFS for 400 MW green power by 2005 (20)
• City of Santa Monica
• self aggregation, purchased power for 100 of its
  load
• agreed to 5 premium

13
Assessment

• Significant interest on the part of
  municipalities, both multi-city and
  multi-facility purchases
• Budgetary issues are concern, but can be
  addressed through energy efficiency and
  competitive market savings
• Unexpected benefit - aggregated purchases have
  resulted in long term contracts that protect
  against market price volatility

14
Federal Government

• Executive Order 13123
• issued by President Clinton in June 1999
• encourages agencies to purchase green power
• General Services Administration
• green power for 8 government accounts in PA
• cost offset through savings in competitive market
  
• Federal Agencies in Colorado
• 30 agencies committed to purchase
  10 MW of green power
• some purchasing through utility programs

15
State Government

• Pennsylvania
• Governor issued Executive Order requiring
  agencies to implement sustainable practices
• issued RFP for 5 green of total power purchase
• green premium paid through competitive savings

• New Jersey
• Agencies and 11 universities purchasing
  green power for 15 of their collective load
• Conectiv supplying 50 green product for
  1.7/kWh premium

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Assessment

• Federal and state governments can have large
  impact on demand
• Sustainability or renewable energy initiatives or
  directives are important driver for purchases
• Like local govts., budgetary issues are concern
• Have shown that aggregation works in regulated
  markets
• Unclear whether aggregated purchasing has
  resulted in cost savings for green power portion
  of purchase to date

17
Third Party Buyers Agents

• Buyers agents solicit and manage energy
  purchases for one or more customers
• AES New Energy (National Energy Choice)
• active in New England, represented 200 MW
• guaranteed 5-8 savings, including efficiency
• Metromedia Energy in PA, NJ, NY and MA
• independent of any utility or supplier
• compensated at 25 of actual savings

18
Assessment

• Buyers agents are unlikely sources of green
  power purchasing for groups
• No third-party buyers agents were identified
  that engaged in green power brokering
• Agents make profit by obtaining electric service
  at lowest possible cost, earn commissions from
  savings
• Green power procurement would have to be
  structured differently

19
Internet Aggregators

• Many Internet companies are simply resellers of
  electricity and other services
• Some are truly aggregators that create a pool and
  then solicit best possible price
• consumers decide whether to accept the offer
• beMANY.com
• BrightOptions.com
• OnlineChoice.com
• Compensated by referral fees from suppliers

20
Assessment

• On-line aggregators have not captured much of the
  market yet
• Impact will grow as customer choice spreads
• almost always the lowest cost option
• Not a successful model for green power, yet
• emphasize low price and billing convenience
• not brand and value-based products
• Internet may be useful as a portal to locate
  green power options

21
Cooperatives

• Existing cooperatives with expanded mission
• Energy Cooperative Association of Pennsylvania
• New energy cooperatives
• 1st Rochdale Cooperative NYC
• Connecticut Energy Cooperative
• no instant membership
• one-stop energy shopping, non-energy
  services
• two electricity products ValueWatt and EcoWatt
• growing slowly, over 1000 customers since July
  2000

22
Assessment

• Fuel oil coops are good candidates
• Coops have a tradition of social responsibility
  supportive of environmental action
• Launching new energy coops is tough, but there is
  a support network of coop financing, power
  management, back office support and service
  development

23
Community Choice

• Mass. and Ohio have opt-out legislation
• Cape Light Compact 21 towns representing 185,000
  customers
• Stymied by weak market in Massachusetts
• Northeast Ohio Public Energy Council
• 94 communities, 400,000 residential customers
• issued RFP and selected Green Mountain
• cheaper than standard offer
• 98 natural gas, 2 renewables

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Assessment

• Good potential to support green power
• purchase criteria subject to local interests and
  politics
• cost savings will likely remain priority
• if green power is supported, could have
  relatively large impact
• Opt-out approach will be more effective than
  opt-in
• cheaper, easier, bigger

25
Default Generation Service

• Standard offer provided to customers who do not
  affirmatively choose a supplier
• Pennsylvania regulators required PECO to divest
  20 of its customers
• PECO issued RFP, required 2 from renewables
• The New Power Co (selected) promised to offer
  these customers a renewable upgrade option

26
Assessment

• Default service rules offer an opportunity for
  policy makers to include green power
• either as obligation (minimum) or as voluntary
  option, or both
• May be politically challenging, but potential
  impact on sales of green power is significant

27
Opportunities

• Today, groups most active in aggregating demand
  to purchase green power are
• energy cooperatives
• local, state and federal governments
• religious organizations
• Those that hold the greatest potential for future
  activity are
• community choice
• default service
• perhaps Internet aggregators

28
More Opportunities

• State incentives can support customer aggregation
• Massachusetts has set aside funds for parties
  interested in forming consumer aggregation groups
  to purchase green power
• Rhode Island has funds available for large green
  power purchasers
• Several states have funds available for green
  power education efforts

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Barriers

• Higher cost of green power
• Need for education and information
• Competitive market Issues
• low default prices that suppress competition
• opt-in policies
• wet signature requirements
• Lack of human capital
• Scarcity of green power in some regions

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Recommendations for Aggregators

• Use both energy efficiency and negotiated cost
  savings to offset extra cost of green power
• Negotiate with green power provider to compensate
  group for customer acquisition
• If default service price is low, dont expect to
  find cost savings, or even supply offers
• Use network of support services and strategic
  alliances, especially for cooperatives

31
More Recommendations

• Offer more than one product, not just green
• standard electricity, other services
• increases scale of operation, more
  cost-effective, opportunities for cross-selling
• Expect to have to educate group members and
  potential customers
• about choice, reliability and credibility as well
  as environmental impacts of electricity
  generation
• Define green power before soliciting supply
• work with local environmentalists
• may simply specify Green-e certified

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Conclusions

• Groups can be buying agents or providers
• acting as provider may be more effective than
  merely endorsing a product or provider, but this
  requires more sophistication and capital, carries
  more risk
• Existing organizations more successful
• existing member base
• experience with bulk purchasing

33
More Conclusions

• Groups with an environmental mission are most
  likely to purchase or offer green power
• Aggregation holds potential for green power
• can increase access to green power
• may lower the cost of green power
• opportunity to educate members

The report is available online at http//www.eren
.doe.gov/greenpower