Next week, PowerGen launches a national TV advertising campaign to persuade consumers to pay for the privilege of helping to clean up their environment. The Government’s call for utilities giants to treble the total UK electricity supply derived from renewable sources has fuelled interest in the concept of eco-friendly energy as a mass-market.
Major players such as PowerGen, npower and ScottishPower are offering consumers the chance to obtain their electricity from renewable sources such as wind power, hydro-electric and solar power – and help increase the green electricity supply from three per cent to ten per cent of all electricity supplied by 2010.
At a time when deregulation has resulted in the power companies scrambling for customers, the utilities have seized on the “green” idea as an opportunity to increase their market with own-brand products.
PowerGen, which charges customers a four per cent premium in return for a promise it will be matched pound for pound by investment in renewable energy, is airing the first national TV campaign next week for GreenPlan, which launched in March. The £1m ad blitz looks as if it will be the first of many such ads to appear on TV in coming months.
PowerGen marketing director John Evans says: “A lot of people will inevitably be sceptical about our motives, but one of our jobs is to explain in a clear and simple way what the scheme is really about.”
The green schemes, which all charge consumers a premium, work in two ways. One scheme charges an increased tariff, with the extra money going into a company fund to develop renewable energy generators.
The other allows power companies to use the money to replace energy unit for unit from renewable sources.
The power companies claim the entire premium goes towards developing renewable energy systems and they do not make a profit. The companies have agreed to allow independent auditors to check they are not making profits.
A spokeswoman for npower, the sales arm of National Power, says: “We can categorically say that all of the money goes into the trust and we won’t pocket any of it.”
By pouring millions of pounds into marketing the green schemes, power companies hope to benefit in a number of ways.
Undoubtedly, being seen as an eco-friendly company is a good way of building a brand and attracting more customers. Companies can then exploit the broadened customer base to sell other products.
PowerGen’s Evans admits: “We are supporting the Government’s energy initiatives. But this is a chance to extend our customer base while we’re pitching the product at middle-England.”
Npower will launch green energy initiatives later this year alongside other home services, which it hopes to sell to new customers.
A spokesman for British Gas Trading, which now offers electricity alongside home repairs, insurance and security schemes, says the Centrica-owned company is “seriously considering” launching a green scheme.
As more of the main utilities players launch green packages it will become a disadvantage not to have one.
Companies may have to resort to clever marketing strategies to tug at the heart-strings of a cynical public who may not be as environmentally aware as they were in the Eighties, when scares about the “greenhouse effect” spurred people into action. Since then eco-friendly products have received less media coverage and are less of a priority for today’s consumers.
Most of the power giants have so far relied on direct marketing campaigns – in a slow burn launch of green energy. It looks as though this careful approach will be replaced by bigger TV ad campaigns.
According to the Energy Saving Trust (EST) – an independent body set up by the Department of Trade and Industry in 1992 and still partly funded by the Government – 11,000 customers had signed up to green electricity schemes by December 1999.
PowerGen’s Evans admits persuading people to join schemes will be a tough task.
“I’m surprised only 11,000 people have bought green energy. But it has huge potential and I’d be disappointed if PowerGen didn’t have about 40,000 customers within a year.
“Our research shows about 100,000 expressed interest. Everyone says they want it, but the acid test is getting people to do it.”
ScottishPower launched a green energy scheme in December 1998, charging a £15 annual premium for residential customers, which goes towards renewable energy.
Electricity product marketing manager Alison Cummings says: “We’re pleased with the response to the scheme and independent financial auditors give our customers added confidence about what we’re doing.”
Power companies clearly have a tough task on their hands to persuade suspicious consumers they are not launching schemes to raise their own profiles and profits.
And without enough financial input from residential customers to help buy more expensive green energy, they may not be able to reach the Government’s ten per cent figure by the target date of 2010. Currently, only 2 per cent of the UK’s energy supply is provided by renewable energy, according to the National Grid.
The DTI’s Digest of UK Energy Statistics report shows that for the UK’s 1998 electricity output, coal accounts for 35.4 per cent of supply, gas 31.7 per cent and nuclear power 29.9 per cent. Oil provides 1 per cent.
All green schemes are overseen by Future Energy, a scheme run by the EST which launched last July. This accreditation scheme vets and audits energy companies that offer green schemes, to make sure they live up to claims made to consumers.
Future Energy lists 15 schemes from 12 companies, including PowerGen, npower and ScottishPower, Eastern Energy’s Ecopower and Yorkshire Electricity.
Future Energy spokeswoman Sam Armstrong says: “We are confident that the idea will be popular enough with customers to make a difference to energy supply in the UK.”
One observer estimates that in order to provide power for London, wind farm turbines would have to be built at 100-yard intervals across the whole of Sussex and Kent. But the Government is backing a “horses for courses” idea of each region using its most efficient natural resource to provide renewable power.
A DTI spokesman says: “It’s entirely up to the market where they buy renewable energy, or what schemes they choose to build.
“If power companies think the cheapest form of energy will give best value, we won’t intervene.
“But there is a Government fund available to help develop less competitive technologies and increase renewable energy share year on year.”
Currently, landfill, gas incineration and wind power are the cheapest forms of renewable energy. More expensive sources, such as offshore wind power, biomass (burning biological waste) and photovoltaic energy (solar panels) are seen as long-term options.
If the companies cannot get enough customers to sign up to what is effectively a voluntary tax, the fund will not be big enough to develop enough generators to source the target ten per cent from renewable fuels.
Power companies hope that by signing up as many businesses as possible to the green schemes, they will persuade their residential customers to take part.
Under the Government’s Climate Change Levy, which launches in April 2001, businesses will be exempt from a hike in energy taxes if they buy renewable fuel.
London Electricity spokesman Alex Parsons says: “We have signed up a lot of businesses in London that realise that if they don’t face up to changing their supply, their costs could increase by 20 per cent.
“Being responsible corporate citizens is also important to raise the awareness among residential customers, who are more likely to sign up to schemes they see local businesses taking part in.”
Most people view nuclear power as the most dangerous form of energy supply and would be keen to see their money used to replace it with renewable energy.
Ironically, the share of supply taken up by an increase in renewable energy generation will probably lead to a reduction in coal-fired power stations, while nuclear energy continues to rise.
The DTI claims nuclear power is much cleaner than fossil fuel energy and has helped the UK achieve targets set at the 1997 Kyoto Framework Convention for Climate Change.
Whether it is the safest form of energy is a different matter – particularly with recent fears about safety and controversy at nuclear power generator BNFL appearing to influence government policy on nuclear power stations.
Companies must hope customers still care enough about the environment to pay a premium, or even take the time to change their energy supply.
At this early stage in the deregulated energy market, power companies will welcome the chance to sign up higher income customers – as those who take green electricity are likely to be. They will also be able to position themselves as responsible corporate citizens, improving their position when negotiating with Government on a range of issues.
The success of green energy will be a measure of whether being eco-friendly still commands a premium, and it could pave the way for a rebirth of mass-marketing green products and services. However, if it is badly handled, it could sow doubts in consumers’ minds about whether big companies have the right to charge premium rates for eco-friendly power.