# Presentation: 505758

## Customer Aggregation: An Opportunity

***Ed Holt & Associates, Inc.***
**Lori Bird**
***National Renewable Energy Lab***
**Analysis Seminar Series**
**Washington, DC**
**July 12, 2001**

-  for Green Power?

## 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

## 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 (> 100)
- categorized by type
- selected representative set for study

## 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

## 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

## 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

## Case Studies

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

## 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

## 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

## 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

## 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

## 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

## 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

## 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

## 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

## 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

## 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

## 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

## 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

## 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

## 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

## 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

## 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

## 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

## 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

## 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

## 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

## 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

## 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

## 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, don’t expect to find cost savings, or even supply offers
- Use network of support services and strategic alliances, especially for cooperatives

## 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

## 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

## 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