Technical Report

NREL/TP-6A2-46449

September 2009

Green Pricing Program 

Marketing Expenditures: 

Finding the Right Balance 

Barry Friedman and Mackay Miller
National Renewable Energy Laboratory

1617 Cole Boulevard, Golden, Colorado 80401-3393

303-275-3000 • www.nrel.gov

NREL is a national laboratory of the U.S. Department of Energy

Office of Energy Efficiency and Renewable Energy

Operated by the Alliance for Sustainable Energy, LLC

Contract No. DE-AC36-08-GO28308

Technical Report

NREL/TP-6A2-46449

September 2009

Green Pricing Program 

Marketing Expenditures: 

Finding the Right Balance 

Barry Friedman and Mackay Miller

Prepared under Task No. SAO9.3003
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iii

Acknowledgments

This work was funded by the U.S. Department of Energy’s (DOE) Office of Energy Efficiency 

and Renewable Energy (EERE). The authors wish to thank Linda Silverman and the EERE 

technology programs for their support and review of this work. The authors also wish to thank

Lori Bird, Lynn Billman, and Claire Kreycik of NREL; Adam Capage, Gabe Petlin, and Amanda 

Mortlock of 3Degrees Inc.; Jay Carlis of Community Energy Inc.; Blaine Collison of the U.S. 

Environmental Protection Agency; Rob Harmon of the Bonneville Environmental Foundation; 

Alex Pennock of the Center for Resource Solutions; Dan Drennan of PNM Resources; Edward 

Holt of Ed Holt & Associates; John Holtz of Green Mountain Energy Company; Susan Innis of 

the Colorado Governor's Energy Office; Pat Keily of We Energies; Rita Kilpatrick of the

Southern Alliance for Clean Energy; Lisa Schwartz of the Regulatory Assistance Project; Laura 

Bickel of the Massachusetts Department of Public Utilities; and David Wright of the Ecology 

Center for their thoughtful review of the document, as well as Paula Pitchford of NREL for her 

editorial support. Additional information on green power market trends and activities can be 

found on DOE’s Green Power Network Web site at http://greenpower.energy.gov. 
iv

List of Acronyms

CAC customer acquisition cost

FPL Florida Power & Light

FPSC Florida Public Service Commission

GME Green Mountain Energy Company

GP green pricing

kWh kilowatt-hour

M&A marketing and administration

MW megawatt

MWh megawatt-hour

NREL National Renewable Energy Laboratory

PPA power purchase agreement

PUC Public Utility Commission

PV photovoltaic

RE renewable energy

REC renewable energy certificate

RPS renewable portfolio standard

VGP Vectren Green Power
v

Executive Summary

Voluntary utility-based green pricing programs in the United States have grown significantly in 

the past five years, from 1.8 billion kWh in sales in 2004 to more than 4.8 billion kWh in sales 

for 2008. However, program growth slowed in 2008 compared to that of previous years. 

Yet, in July 2008, when the Florida Public Service Commission (FPSC) voted to terminate 

Florida Power & Light’s (FPL’s) Sunshine Energy green power program, some industry 

stakeholders and members of the media raised questions about whether other green pricing 

programs were spending too much on marketing. Although the Sunshine Energy termination was 

based on the FPSC’s questioning of the need for a voluntary program in light of Florida’s 

expected renewable portfolio standard (RPS), the termination sparked a debate that went beyond 

the issues in the FPL case, focusing on whether PUCs and consumer watchdogs were 

requiring—or programs were providing—sufficient transparency to serve consumer protection 

interests. Often, program participants may be unaware of what projects they are supporting with 

their dollars, particularly for those programs sourced through renewable energy certificates from 

non-local sources. 

In practice, it is difficult to determine the optimal amount to spend on marketing and 

administering a green pricing program. Budgets for marketing and administration of green 

pricing programs are a function of several factors: the region of the country; the size of the utility 

service area; the customer base and media markets encompassed within that service area; the 

point or stage in the lifespan of the program; and certainly, not least, the utility’s commitment to 

and goals for the program. All of these factors vary significantly among programs. 

In addition, views about an appropriate level of expenditure on marketing often rest on whether it 

is framed as consumer education in the public interest. Programs must balance investing in 

consumer education, expanding program participation, keeping participation affordable, and 

ensuring that sufficient portions of premiums are spent on new renewable energy development, 

what might be thought of as “product quality.” Although a program might want to emphasize one 

over the other, the two goals are not mutually exclusive; strong marketing has been shown to 

support robust participation, which can enable a program to support new renewable energy 

projects. The design of a program strategy depends on what the strategy is meant to accomplish. 

Some utilities have comprehensive environmental goals or goals intended to green their brand. 

Others are satisfied by merely making the program available to customers. 

The question of an appropriate amount of marketing expenditures has arisen within a context of 

product quality and program integrity. Specifically, there is a perception that participants’ dollars 

could be put to better use through greater investments in new renewable capacity than in 

marketing. 

This report presents data on programs that have funded both marketing and program 

administration. The National Renewable Energy Laboratory (NREL) gathers the data annually 

from utility green pricing program managers. Programs reporting data to NREL spent a median 

of 18.8% of program revenues on marketing their programs in 2008 and 16.6% in 2007. The 

smallest utilities (those with less than 25,000 in their eligible customer base) spent 49% of 
vi

revenues on marketing, significantly more than the overall median. Data reported from utilities 

yields a median estimated customer acquisition cost of $27 per net new residential customer in 

2008, compared to a median customer acquisition cost of $30 in 2007.1 These numbers should be 

viewed as indicative; particularly after programs reach beyond the “low hanging fruit” of 

customers most likely to participate, it can be significantly more expensive to attract customers. 

Following the termination of the FPL program, some U.S. public utility commissions (PUCs)

made inquiries concerning the way programs spend customer premiums, whether they spend too 

much on marketing at the expense of products, and the value customers receive for the premiums

they pay to participate. This report addresses the role of renewable energy credit (REC) 

marketers and start-up costs—and the role of marketing, generally, in achieving program 

objectives, including expansion of renewable energy. We also address the following related 

questions: 

• Does the voluntary market support new, additional renewable development? 

• Are program marketing efforts benefiting the public interest, or just supporting private 

gain?

• What are some of the costs and risks incurred by REC marketers operating in partnership

with green pricing programs? 

• Is it feasible, and would it be beneficial, for green pricing programs to be more 

transparent in either regulatory or public disclosure, with regard to projects supported 

and/or program expenditures?

Framing these questions in the form of common criticisms recently expressed in the market and 

the media, this report aims to shed light on considerations that should be included in analyzing

these issues and to support policy-makers, regulators, and the public in assessing green power 

program budgetary choices and the related issues of market transparency and integrity.

 1 Of 84 respondents to the survey, 48 green power programs provided adequate data to estimate the CAC. 
vii

Table of Contents

Acknowledgments.......................................................................................................................... iii

List of Acronyms ........................................................................................................................... iv 

Executive Summary........................................................................................................................ v 

Introduction..................................................................................................................................... 1 

Green Pricing Program Marketing and Administration Expenditure Data................................. 4 

Common Criticisms........................................................................................................................ 7 

Common Criticism No. 1: Green Pricing Programs Spend too Much on Marketing................. 7 

Common Criticism No. 2: Marketing Expenditures Serve Private, not Public, Interests......... 17 

Common Criticism No. 3: Green Pricing Programs do not Result in New RE Development . 19 

Common Criticism No. 4: Programs are not Sufficiently Transparent .................................... 22 

Conclusions................................................................................................................................... 25 

References..................................................................................................................................... 27 

Appendix. Sample Green Pricing Program Marketing Materials................................................. 29 

List of Figures

Figure 1. Average Marketing and Administrative Expenses (gross) in 2008, by Size of Eligible 

Customer Base............................................................................................................................ 5 

Figure 2. Median Marketing and Administrative Expenses in 2008 as a Percentage of Green 

Power Revenue........................................................................................................................... 5 

Figure 3. 2008 Average Marketing Expenditure (cents) per kWh of Green Power Sold, by Size of 

Utility.......................................................................................................................................... 6 

Figure 4. Utility Expenditures on Marketing, Total Number of Utilities Providing Data to NREL, 

Compared with Top Performing Utilities Providing Data for 2006 .......................................... 9 

Figure 5. Average Dropout Rate in Voluntary Green Power Programs, 2003-2008 .................... 13 

Figure 6. Mean Annual Marketing Expenditure, Years 1-3 ......................................................... 14 

Figure 7. 2008 Customer Acquisition Cost, by Customer Base Size ........................................... 16 

Figure 8. Example of Green Pricing Messaging........................................................................... 20 

Figure A-1. A Portion of a Sample Marketing Piece from the Pacific Power Green Pricing 

Program .................................................................................................................................... 29 

Figure A-2. A Portion of a Sample Marketing Piece from the Sacramento Municipal Utility 

District Green Pricing Program................................................................................................ 30 
1

Introduction 

Voluntary utility-based green pricing programs in the United States have grown significantly in 

the past five years, from 1.8 billion kWh in sales in 2004 to more than 4.8 billion kWh in sales 

for 2008. Although these long-term growth trends continued in 2008, growth rates for program 

sales showed a year-over-year decline among utility-based programs, for the first time in several 

years. In particular, the growth of residential participation in green pricing programs in regulated 

states slowed in 2008 (Bird et al. 2009). This recent pattern emerged against a complex backdrop 

that included a global economic crisis, a presidential campaign emphasizing renewable energy

(RE), and a public dialogue more focused on clean energy solutions than at any other time in 

almost 30 years. 

At the same time, public regulatory commissions and other voluntary green market stakeholders 

have begun to more closely scrutinize the marketing expenditures of green power programs. 

These concerns came to the fore in July 2008, when the Florida Public Service Commission 

(FPSC) voted to terminate Florida Power & Light (FPL)’s Sunshine Energy green power 

program, the first time a sizable green pricing program was terminated by a regulatory body. 

Initially, the reason the commission acted to terminate the Sunshine Energy program was an 

audit finding by the FPSC Audit Staff that only about 24% of the $11.3 million collected from 

program participants was applied to developing renewable energy facilities and that the majority 

of the revenue was directed toward marketing and administrative costs.2 Even though a 

subsequent audit of the program resulted in a different set of conclusions and a different rationale 

for termination, the event became the impetus for a discussion among industry observers on the 

subjects raised initially in the case. 

Because the Sunshine Energy program sparked the debate, it is important to understand the

FPSC’s final basis for the decision to terminate the program, a different set of issues that was 

instead related to their assessment of the need for a voluntary program in Florida after the 

legislature mandated an RPS: 

Although the Program was improving in the last year or so in terms of 

contributions to renewable energy, the Program was terminated because it no 

longer served the interests of its participants and no longer aligned with current 

state renewable energy policies. With the recent legislation directing the FPSC to 

promulgate rules for a Renewable Portfolio Standard and a growing emphasis on 

developing renewable energy sources within the State, it is appropriate to critically 

reassess the use of “voluntary” customer contributions as a tool to promote 

renewable energy.3

 2 In the ruling, a secondary issue was that some Commissioners asserted that the program was no longer necessary 

because the state has recently adopted policies to encourage the development of renewable resources in the state. 

Order No. PSC-08-0600-PAA-EI, issued September 16, 2008, in Docket No. 070626-EI, the Commission 

terminated the program effective July 29, 2008 (FPSC 2008). 3

 FPSC Vote Sheet, Commission Memo: Request for Oral Modification - Item 10, September 29, 2008, Agenda 

Conference.
2

The program was run primarily by a third-party renewable energy credit (REC) marketer, Green 

Mountain Energy Company (GME), in partnership with the utility. Among the FPSC’s stated 

concerns at the time was that the program was charging its residential customers $9.75 per month 

and paying about $2.75 per month for the renewable energy to supply the program.4 However, a 

second audit by the FPSC Audit Staff found that approximately 41% of program revenues had 

been allocated for renewable energy supply for the program, which included a portion for 

“accrual...for future payments.”5

In a May 2008 order, the Indiana Utility Regulatory Commission similarly found that a voluntary 

program proposed by Southern Indiana Gas & Electric Company, while “a laudable effort,” was 

“apt to be confusing to its customers and ... not ... in the public interest,” based on the 

contention that “customers are likely to believe they are purchasing renewable energy by 

enrolling in the VGP [sic] program, when in fact they are paying Vectren South to retire the 

RECs that are associated with the renewable energy they have already paid for in their electric 

bill ... with the proceeds going primarily to pay for VGP program administration costs.”6

These instances have amplified questions among market participants, consumer advocates, and 

regulators about the value customers are receiving for their premiums and how revenues from 

premiums are spent. From the point of view of some utility program administrators and of REC 

marketing companies partnering with utilities, there is a sense that their business model and the 

benefits of green pricing may be somewhat misunderstood and that a better sense of the context 

in which decisions are made would be useful to the industry. 

In this, it may be helpful to better understand various considerations related to marketing 

expenditures. These include the costs and risks specific to a program’s start-up phase, as well as 

those associated with long-term engagement in wholesale renewable energy markets, for which 

prices have fluctuated widely in the face of regulatory and supply-related uncertainties, as well 

as among U.S. regions. In addition, marketing expenditures are meant to satisfy goals and utility 

or public values that extend beyond sign-ups, such as public awareness and the value of customer 

education. Lastly, marketing costs across industries may also not be well understood. Financial 

services firms, for example, spend as much as $280 to obtain a new residential customer

(Wreden 2005). 

In addition, the role of the voluntary market in U.S. renewable energy development has been 

significant (Bird et al. 2004, Bird et al. 2008). From 2004 to 2008, voluntary market demand for 

 4 According to GME, that audit was conducted in May 2008 without the participation of GME or review of GME’s 

financial records for the program. The terms of GME’s contract for the Sunshine Energy program explicitly 

prevented GME from participating in state regulatory matters or communicating directly with the FPSC. Following 

the commission’s vote to terminate the program, GME was free to communicate with the FPSC. The commission 

voted to terminate the program on July 29, 2008, but kept the docket open to facilitate further audit review of the 

program. GME subsequently volunteered to a comprehensive audit of its program records by FPSC Audit Staff at 

the company’s headquarters in Austin, Texas.

5 Division of Regulatory Compliance and Consumer Assistance Auditor’s Report, September 3, 2008, 

FPSC Auditor Report, August 28, 2009, Table, p. 7. The Commission reviewed the additional audit findings at its

session on September 29, 2008. In its vote sheet dated September 29, 2009, the commission voted to accept the audit 

findings and close the docket, the commission determined “the audit results indicate Green Mountain used the 

monies for purposes related to the Sunshine Energy Program.”

6 Order of the Indiana Utility Regulatory Commission, Cause # 43259 Sl, May 28, 2008.
3

renewables slightly exceeded compliance market demand for new renewables (Bird et al. 2009).7

In 2008, state RPS policies collectively called for utilities to procure about 23 billion kWh of 

“new” renewable energy generation (Barbose 2009), compared to about 24 billion kWh sold into 

the voluntary green power market.8 In addition, although the contention cannot be proven, the 

awareness raised through program marketing may well have increased the popularity or helped

pave the political path toward RPS requirements, because several states—perhaps most notably 

California, New York, Wisconsin, Colorado, and Texas—had relatively successful voluntary 

programs before their RPS was either enacted or increased. 

The question of the appropriateness of marketing expenditures is most often raised in the context 

of charitable organizations and other nonprofits, whose success is in fact sometimes rated or 

ranked on how little they spend on marketing and overhead.9 The question is asked far less of 

for-profit companies, and GME argued the applicability of the question in its defense before the 

FPSC, as follows: 

[A] utility company might contract with a local General Motors dealer to purchase a fleet of 

trucks. The utility pays the dealer the agreed-upon price .... After the dealer has covered the cost 

of purchasing and delivering the trucks, any revenue left over from the purchase price belongs to 

the dealer. Any inquiry into the dealer’s advertising, selling or other costs is inappropriate and 

demonstrates a misunderstanding of the legal and economic basis of the relationship between the 

dealer and FPL.

However, any utility program, whether or not partnered with a private company, could be 

expected to address the question of appropriate marketing expenditure levels, because regulators 

are charged with protecting the public interest in a way for which private industry has no analog. 

The question of whether marketing expenditures are too high leads to an evaluation of several 

underlying issues. The concerns and debates that surround marketing expenditures have their 

roots across legal, business, environmental, and regulatory contexts. In this paper, we identify 

and analyze ancillary questions and cover the following aspects of the central question about 

appropriate or optimal marketing expenditures, such as whether a green power purchase is a 

product or charitable contribution, whether marketing is equivalent to consumer education about 

renewables, the degree to which new renewable development results from participation in a 

green pricing program, the importance of price transparency to regulators and of product 

transparency for consumers, and the role marketing expenditures play in start-up costs.

 7 For 2008, sales by green pricing programs in regulated states grew by 12% and by 19% in restructured states, 

compared with growth rates of 25% and more than 88% respectively, for 2007. 

8While RPS policies generally allow pre-existing renewable energy generation sources (i.e., those installed prior to 

the adoption of the RPS) to meet their targets, the estimates presented here reflect only the amount of new renewable 

energy generation that these policies are expected to stimulate. New is defined by the Center for Resource Solutions 

as generated from a project that became operational on or after January 1, 1997. These figures are compared to the 

voluntary market estimates, because voluntary markets primarily support generation from new renewable energy 

projects (i.e., those installed after voluntary green power markets were established). Estimates of compliance market 

demand assume that RPS targets are fully met, which is not always the case.

9 For example, www.guidestar.com ranks nonprofits on this basis. The comparison of green pricing programs to 

nonprofits is made for several reasons. Perhaps the most important for our purposes is the similarity in messaging. 

Similar to charitable organizations, green pricing programs typically craft cause-marketing messages that resemble a 

request for a donation in that an appeal is made to make a difference or do the right thing.
4

The report aims to shed light on considerations that should be included in a complete analysis of 

these issues and improve the basis upon which decision makers, regulators, and the public can 

assess and improve green power program budgetary choices. In many cases, however, solutions 

to issues raised are within the purview of the marketplace, utility management, policy-makers, 

and regulators. 

We present these topics in the context of the recent criticisms within which they have been 

raised. We also provide a brief discussion of tactics—the various mechanisms employed by 

programs to deliver their message and on which marketing dollars are spent. Finally, we provide 

in a sidebar, an illustration of some ways to measure marketing expenditures and the difficulties 

inherent in some metrics. We begin with what is known about how much programs actually 

spend on marketing and program administration. The data is somewhat sparse because of 

inconsistencies in program data tracking. 

Green Pricing Program Marketing and Administration Expenditure Data

Annual data reported to NREL by green pricing program managers show a very wide range of 

marketing and administration (M&A) expenditures.

10 Budgets for marketing and administration

of green pricing programs are a function of several factors: the size of the utility service area; the 

media markets encompassed within this area; and certainly, not least, the utility’s commitment to 

and goals for the program. The goal of some utilities is only to offer the option of buying green 

power, so marketing is deemphasized. Figure 1 shows average M&A expenditures for five 

different size categories of utilities, based on their eligible customer base.

11

 10 At present, these data sets are among the only, if not the only, aggregated data on marketing costs in the green 

pricing industry. 

11 In reporting these data, utilities were offered the choice of providing actual expenditure figures or choosing a 

range within which they spent for M&A, such as 0 to $10,000 of M&A expenditure, $10,000 to $50,000, $50,000 to 

$100,000, etc. Most programs chose to identify a range only.
5

 Source: NREL 2009

Figure 1. Average marketing and administrative expenses (gross) in 2008, by size of eligible 

customer base

Whether expressed in absolute terms or as a percentage of program revenues (Figure 2), 

marketing expenditures vary widely among programs. Although it is among the most common 

metrics, expressing expenditures as a percentage of revenues is somewhat problematic, because 

it is easy to overlook the fact that a lower expenditure percentage may be as much a function of a 

relatively high premium and high program revenues (the denominator in the equation) as the 

marketing expenditure itself (the numerator in the equation). The wide range in marketing 

budgets supports the notions that the industry lacks clear agreement on benchmarks and that 

appropriate levels of expenditure depend on the circumstances specific to individual programs. 

 Source: NREL 2009

Figure 2. Median marketing and administrative expenses in 2008 as a percentage of green 

power revenue

$28,125 $23,700 

$80,310 

$192,690 

$258,750 

$8,933 $17,786 

$48,113 

$75,231 

$177,125 

<25 

(n=14)

25-100 

(n=15)

100-500 

(n=14)

500-1,000 

(n=14)

>1,000 

(n=12)

Eligible Residential Customer Base (thousands)

Marketing Expenditure Administrative Expenditure

49.4%

22.0%

11.3%

37.6%

15.7% 16.5% 15.4%

6.8%

14.7%

10.6%

<25 

(n=14)

25-100 

(n=15)

100-500 

(n=14)

500-1,000 

(n=14)

>1,000 

(n=12)

Eligible Residential Customer Base (thousands)

Marketing Expense as % of Rev Admin Expense as % of Rev
6

Another metric that can be used to measure marketing expenditures is gross expenditure divided 

by the total green power (in kWh) delivered.12 Figure 3 shows average marketing program 

expenditures per kWh of renewable energy sales among utilities of various sizes, from those 

serving fewer than 25,000 customers to those serving more than 1 million customers. The 

average marketing expenditure for green pricing programs ranged from 0.08¢ (8/100ths of a 

cent) to 0.18¢ (18/100ths of a cent) per kWh of green power sold. Though all metrics have 

limitations, this metric has the advantage of integrating program outcomes with marketing 

expenditure.

Figure 3. 2008 average marketing expenditure (cents) per kWh of green power sold, 

by size of utility

By using these data to form conclusions about program expenditures, some caveats should be 

considered. Programs’ data collection methods and proficiency tend to be inconsistent. There is 

no single set of accounting definitions to which programs adhere. Some programs do not collect 

these data at all, and some collect but have not reported it to NREL. In addition, there is likely an 

inherent “survivorship” bias, or tendency for programs to under-report data showing poor results 

or high acquisition costs. Several programs either have no budgets or rely on broader utility 

marketing budgets for some or all of their marketing expenditures and/or labor costs. In such 

cases, these costs are paid for by all ratepayers rather than solely by program participants, 

resulting in a lower reported expenditure. The recent increased scrutiny on these data suggests 

improving and standardizing accounting and collection practices.

With this empirical marketing data in mind, we now turn to a discussion of the major criticisms 

of green pricing marketing expenditures. 

 12 The virtue of this measurement is that it “levelizes” the data, adjusting for utility size.

0.12 

0.15 

0.08 

0.16 

0.18 

-

0.02 

0.04 

0.06 

0.08 

0.10 

0.12 

0.14 

0.16 

0.18 

0.20 

<25 

(n=14)

25-100 

(n=15)

100-500 

(n=14)

500-1,000 

(n=14)

>1,000 

(n=12)

Expenditure (cents) per kWh

Eligible Residential Customer Base (thousands)
7

Common Criticisms 

In this section, we identify and analyze major areas of concern regarding the marketing and 

overall performance of green pricing programs. We present the following four common and 

related criticisms, along with considerations helpful in evaluating their merit: 

1. Green pricing programs spend too much on marketing.

2. Marketing expenditures serve private, not public, interests.

3. Green pricing programs do not result in new renewable energy development.

4. Public disclosure is poor and programs are not transparent enough.

In general, market participants have recently become more cognizant of these issues. This paper 

aims to identify issues for which the market is seeking solutions. Because solutions to many of 

these issues are generally program-specific in nature and a subject for market participants and 

regulators, suggestions are made but the evaluation of specific solutions is beyond the scope of 

this paper. 

Common Criticism No. 1: Green Pricing Programs Spend Too Much on Marketing

The core criticism highlighted by some industry observers around the country is whether 

programs simply spend too much on marketing. This question is actually complex, contextual, 

and multidimensional. Optimal expenditures depend upon the individual program design, the 

goals of the marketing campaign, and the goals of the regulatory body in approving the program. 

Some degree of marketing is needed to inform customers that they have the option to participate 

in green pricing programs; without participants, programs cannot succeed by any measure. But 

what level of marketing expenditures is appropriate? Have programmatic goals been achieved, 

and have they been achieved cost effectively? A meaningful response depends upon one’s view 

of the nature of the green power product. Is it in fact a product at all, so that the goal of 

marketing is a sale, or is it a good cause that benefits society, so that the goal of marketing is 

public education and support for renewable energy? Or is it both of those things, with the 

balance between the two depending on the individual program, why it came into being, and what 

it is trying to accomplish for its constituents?

Below, we discuss these fundamental questions about the nature of the product, along with other 

aspects necessary for a given program to consider in making its own evaluation about an optimal 

level of expenditure. We begin with an examination of the relationship between spending and 

program success, the unique expenditures associated with the first year of a program and the rest 

of the start-up phase, and the return that should be expected on marketing investments. 

Relationship between Marketing Expenditures and High-Performing Programs

In evaluating the perception that some programs spend too much on marketing, the relationship 

between spending more and getting more customers to sign up must also be understood. 

Historically, the top-performing green pricing programs have been among the top spenders on 

marketing. For example, in 2006 the programs that sold the most renewable energy and garnered 

the greatest participation generally spent more on marketing, in absolute terms, than other 

utilities did. Figure 4 shows that the top performers for that year, defined as those that were 

among the top 10 programs for customer participation, green power sales, or customer 

participation rate, are overrepresented among utilities spending the most on marketing.
8

Figure 4 shows that more than half of programs spending more than $100,000 per year on 

marketing were in the top 10 in at least one category, compared with about 14% of those 

spending less than $100,000 per year.13

Over the years, sales and participation have been concentrated in the hands of a few programs. 

While the vast majority of programs have struggled to reach 2% residential penetration in their 

first five years or more, top programs that tend to spend more on marketing often surpass 5% in 

the same period. Industry observers have long noted that stronger performance has been made 

possible largely with dedicated and effective marketing, with the following additional qualitative 

factors also playing decisive roles in generating participation (Bird et al. 2008, Bird et al. 2009):

• management support and internal champions within the utility,

• effective program design and implementation, 

• product quality and other program benefits, 

• the point in time one is studying and the popularity of renewable energy in popular 

discourse,

• the age of program, and

• a utility customer base pre-disposed in their demographics and buying behavior to 

support green power, such as residential customer segments that demonstrate 

environmental concerns or awareness (Friedman 2005, Bird et al. 2008).14

 13 Although the 2006 result provides some evidence that spending more on marketing is effective for generating 

sales and participation, data for 2007 and 2008 were inconclusive on this point. It is also important to realize that in 

two of the three top performing categories (sales and number of participants), large utilities may reach top performer 

status simply by virtue of their size, which could also account for greater marketing expenditures.

14 The E Source Green Energy Service identified customer segments in the PRIZM NE customer segmentation 

system, owned by Claritas Inc., that were more likely than other segments to buy green energy, based on a statistical 

confidence level of 95%. This analysis was based on a comparison of green pricing participants with nonparticipants. PRIZM NE is a system that categorizes every U.S. household into one of 66 segments based on their 

age, gender, income, media, purchasing, and other habits. For more information, see Friedman 2005 and Bird et al. 

2008. In addition, as noted in Holt and Holt 2004, the overall lack of improvement in participation rates results from 

a number of factors, including a lack of customer awareness of the green power program ... and varied levels of 

interest among utilities in marketing and promoting the program. 
9

Figure 4. Utility expenditures on marketing, total number of utilities providing data to NREL,

compared with top performing utilities providing data for 2006. For that year, more than half of 

programs spending more than $100,000 per year on marketing were in the top 10 in at least one 

category, compared with about 14% of those spending less than $100,000 per year.

The variables that contribute to participation and growth are numerous. In examining the 

longitudinal data reported by the same set of programs from 2004-08, there was no discernable 

correlation that would indicate that marketing expenditures alone are the primary determinant of 

program growth. In other words, we observed no pattern showing that a program spending more 

in a given year resulted in more residential sign-ups, or that spending less would result in fewer. 

The data is insufficient to form firm conclusions, and there were several examples of significant 

changes in spending from year to the next that was not reflected in the number of sign-ups.

Although a trend or pattern cannot be discerned from reported data, individual examples 

certainly can. In these, it is difficult if not impossible to separate out the amount that is spent 

from the decisions and strategies supporting that marketing expenditure. There are several 

examples of dedicated, sustained marketing efforts yielding sign-ups. In the 1990s, Xcel saw 

strong small business participation through the support of Western Resource Advocates (then the 

Land and Water Fund of the Rockies) sustaining an effort to promote the program among that 

sector. The We Energies program grew significantly in 2005 and 2006. Expenditures increased 

for 2006, which allowed the program to do three direct mail residential campaigns and one direct 

mail business campaign, which resulted in an increase of 26% in residential customers and an 

increase of 67% in business customers that year. In 2009, the Puget Sound Energy program is 

taking a similar trajectory through focused and diverse marketing.15

 15 In examining percentages of programs in this category of anecdotal examples of marketing paying off, there are 

more examples among programs marketed in partnership with REC marketers.
10 

Hybrid Nature of Green Power: Charitable Contribution or Product?

In determining optimal levels for programs to spend on marketing, it is helpful to appreciate the 

ambiguity in the nature of the green pricing product and premium. Is the premium a payment for 

a product or a donation supporting a cause? Customers are purchasing a product, in that they are 

paying for a specific quantity of renewable energy to match their electricity consumption. Yet 

green pricing programs bear important similarities to charities in two major respects: the view 

that they do not convey a tangible personal benefit to the consumer16 and the messaging used to 

promote them. 

The similarities to charitable organizations are significant in that green pricing programs may 

well be facing more scrutiny because of those similarities. Companies selling products and 

services are rarely scrutinized on this basis. More often, marketing is seen as a support to product 

quality and, at least potentially, the ability to “grow the pie,” or sell more product. 

In the case of green pricing programs, if more marketing expenditure results in greater demand 

for renewable energy or in greater program participation, should that reduce the importance of 

the question of how much was spent on marketing? The answer to that question depends upon 

green pricing participation as a cause motivated by a public good; charitable 

organizations’ value is evaluated in part on how little they spend on marketing and 

administration. 

being seen 

Perhaps the most significant basis for the comparison to charities is the fact that few known 

commercial products, fair-trade coffee and sustainably harvested timber are among them, are

sold for profit while bestowing only a public benefit. Sustainably harvested timber is not 

materially superior to conventionally harvested wood, but confers ecological (public) benefits in 

the production process (Wiser et al. 2001). However, most products bestowing a public benefit 

simultaneously provide a perceived personal benefit. For example, organic food is sold for profit, 

and like green power, its purchase is often motivated by societal values such as reducing reliance 

on pesticides that can have harmful effects on wildlife. But because the product also bestows a 

tangible, or perceived, personal health benefit to consumers, we would not conclude that the 

societal benefit is the driving reason for the purchase. 

Some utilities have marketed programs as charitable contributions that are, in some cases, taxdeductible,17

 

16 Some green power products offer consumers tangible personal benefits in the form of hedging against future fuel 

price increases; they might also offer discounts at participating retailers or other types of promotions. See also Wiser 

et al. 2003.

 but the industry has more typically framed green power conceptually as a product, a 

quantity of renewable energy that matches all or part of a consumer’s electricity usage. By 

allowing tax deductions in some cases, the Internal Revenue Service has treated the premium as 

a charitable donation, recognizing the educational purpose of such programs and the public good 

they provide. Although the donation-based program design has lost favor in recent years, the fact 

that some programs have been structured as nonprofits underscores the similarity of the product 

17 For example, NC Greenpower, a program that is offered to utility customers throughout North Carolina, offers tax 

deductions for “contributions” to the green power program. For more information, see 

http://www.ncgreenpower.org/signup/online_contributions.html. 
11

to a charitable cause. Of the more than 850 U.S. green pricing programs, about 15-20 call 

themselves “contribution” programs.18

In its peculiar hybrid nature, the green pricing premium could be compared to a donation to 

public radio. Green pricing program participants “buy” the product for their neighbors, not just 

for themselves. They pay for an asset that inures to the benefit of all ratepayers and to the utility, 

in the form of environmental and other benefits. But unlike charities, green power consumers 

buy a product tied to specific quantities based on the amount of energy they use rather than what 

they can afford or wish to contribute. And like public radio, marketers work to make a 

connection in the users mind to specific amounts of consumption to underscore the distinction of

charities or cause marketing and the value of the product.

The second factor giving rise to the comparison between voluntary renewable energy programs 

and charities is the similarity in messaging, with its emphasis on doing the right thing, making a 

difference, and issuing a call to action for both future generations (the legacy message) and the 

environment. This ambiguity between for-profit and nonprofit messaging is somewhat unique to 

the green power industry. Similar to charitable organizations, green pricing programs typically 

craft so-called “cause marketing” messages that resemble a request for a donation. Typical 

examples of marketing claims and calls to action in green pricing marketing materials include the 

following:

• a ...way to support our environment.

• leaving our family a brighter future.

• develop new renewable energy resources.

• make an impact ... on the environment.

Energy-based green pricing programs can be distinguished from charities on the basis of the 

specific amount of energy delivered to the grid. In charity, the donor gives what they can afford 

in expectation that the beneficiary will put their contribution to “good use.” The efficacy of the 

charity is judged in part on the portion of the donation spent on the “cause.” This ratio is not

always known at the time the donation is solicited. In addition, because some companies now use 

renewable energy to claim emissions reductions, it is important to understand that such claims 

are made on the basis of a purchase of renewable energy, as distinguished from a donation.

In contrast, an energy-base green pricing program typically offers a firm quantity of renewable 

energy at a firm price. The price, terms and conditions are disclosed in standardized language in 

most cases and always in the case of Green-e EnergyTM certified programs. For example, when 

programs offer a 100% usage option, if a customer on average uses 1,000 kWh per month and 

the offered green premium is 1.5 cents per kWh, then the consumer can be confident that their 

enrollment will result in 1,000 kWh of renewable energy being added to the grid at a cost of $15 

per month added to their bill. The customer can evaluate whether they perceive the offering to be 

a good value. 

 18 For more information, see greenpower.energy.gov. 
12

In the final analysis, it is only in considering the hybrid nature of green power programs that a 

balanced assessment can be made of whether marketing costs are excessive in specific cases. In 

fact, one’s view of whether programs are businesses or social causes may suggest whether the 

question makes sense. For those viewing programs through a business lens, it is legitimate to ask 

whether programs should be judged on the amount they spend on marketing and administration 

or by the amount of renewable energy they generate. It is often assumed that marketing costs are 

spent at the expense of product quality. But to the extent that marketing investment grows the 

participant base and market size, program revenues spent on marketing will not in fact result in 

less spent on renewable energy. A causal connection between minimizing the size of marketing 

expenditures in order to improve product quality would not make sense for a typical CEO, 

running a business for which marketing expense is a given, and its size is commonly considered 

a matter of business strategy. Similarly, a purchaser of a luxury automobile does not generally 

concern herself with how the company’s international marketing budget contributes to the final 

sticker price. 

Given these conflicting perceptions of green power programs, utilities may reasonably expect 

that residential consumers will have a right to know the underlying cost structure of green power 

pricing programs and an interest in minimizing marketing costs. And in some cases, it is not easy 

for utilities to predict whether the magnitude of marketing expenditures conform to the spirit of 

the green pricing plan as approved by the regulator—the FPSC had approved the Sunshine 

Energy program design before cancelling it. In a time of increasing attention on the renewable 

energy industry and public awareness about renewable energy, several utilities have moved to 

decrease marketing expenditures.

Costs Unique to the Start-Up Phase 

In evaluating program costs, it is important to consider how marketing and administration costs 

tend to decline during the life cycle of any new product launch. In this regard, green pricing 

programs are no exception. Like any business, the start-up phase is a relatively costly investment 

for which programs sometimes do not see a return for several years. 

On the other hand, it can become more costly to attract customers in the later years in the life of 

a program, after the “low-hanging fruit”—the customers most inclined to sign up—are already 

enrolled. In this later phase, some programs engage in more expensive marketing tactics, like 

direct mail or telemarketing. Program managers might do this for a combination of reasons. For 

example, they might conclude that the less expensive bill inserts or bangtails have accomplished 

what they can, they could be limited in the number of bill inserts that their program can use 

because of competition from other utility programs, or they might tailor specific messages to 

residential customer segments that have been less inclined to participate. As a result, marketing 

costs could rise again in the later years of a program. 

In the start-up phase of a business—which can be a different length of time for different 

industries—the new business has a disproportionate need to spend money on several cost 

components that tend to lessen in subsequent years. These include the following: 

• Hiring and training staff and call center representatives

• Conducting market research 

• Developing a business plan and designing the program
13

• Establishing a brand and building product awareness

• Identifying the target market and message

• Building a Web site

• Identifying and purchasing wholesale products

• Developing and creating marketing materials

• Establishing mechanisms for billing and for processing sales.

Generally speaking, the primary job of any marketing campaign is the acquisition and retention 

of customers. Data reported to NREL suggest that green pricing programs’ customer attrition 

rates tend to be low: utilities reported an average dropout rate of 6.5% in 2008; historically, the 

average turnover has been below 8% per year (see Figure 5).

19

Figure 5. Average dropout rate in voluntary green power programs, 2003-2008

As one would expect of low-turnover businesses, the bulk of green pricing marketing 

expenditures have been directed toward customer acquisition rather than retention. Low attrition 

means that the lifetime value of the average individual customer is relatively high. Knowing this, 

program administrators can spend more on customer acquisition, since they can amortize these 

costs over the expected lifetime of the customer’s participation. The result can be an even greater 

front-loading of expenditures toward the beginning of the program’s life, particularly in the first 

year. One would therefore expect program implementation expenditures, of which marketing 

costs are typically the lion’s share, to shrink as a percentage of the total after the start-up phase 

of the program. 

The start-up burden comes with an added dimension for new products that are unfamiliar to the 

public. Over the history of a green pricing program, an administrator faces the dual challenges of 

eliciting the sale of a novel product and educating the customer base about a complex and often 

confusing subject. Like most of the other cost burdens, the heaviest burden of basic consumer 

 19 There is likely inconsistency in the way that billing systems record dropped participants. In most cases, systems 

would not include participants that change addresses within a service territory, but there are some cases in which 

such customers are included among dropouts from programs. 

6.8%

9.7%

5.5% 5.9%

7.53%

6.53%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2003 2004 2005 2006 2007 2008
14

product education also belongs in the start-up phase. For example, when the Toyota Prius was 

first marketed, a new local Toyota dealer would have had to build a brand for itself, even as 

Toyota was educating the customer on hybrid vehicles. New green pricing programs did not have 

the benefit of a national manufacturer building public understanding of a new product, and so 

had this dual obligation during most of the history of the product (at least up until what some 

consider the “tipping point,” if not in program participation, at least insofar as the increase public 

awareness of and political discourse about renewable energy, in 2007 to the present). Consumers 

will not buy a product if they do not understand its function or value; so, in the product-launch 

stage, early market entrants incur expenses that second- or third-generation entrants typically do 

not. In large measure, hybrid vehicles offered later by other companies will need to establish a 

brand but without the cost of basic product education.

In theory, green power programs have been in this start-up phase for most of their existence, 

since median participation levels have remained below 1.5% of residential customers. If they

could build a critical mass of interest and emerge from start-up, they might be able to devote a 

progressively smaller share of revenues to marketing. The dual perceived burdens of building a 

brand and educating consumers is particularly acute when participation remains so low. 

We examined marketing expenditures across the first three years of a subset of 15 programs. 

These figures are shown below for the 15 programs that consistently reported marketing 

expenditures across their first three years of operation.

20 As shown in the data, regulators and 

new program managers should expect significant first-year up-front costs. Mean marketing 

expenditures fell from $175,318 to $62,036 in the first three years of program operation 

(Figure 6).

 20 All data as reported to NREL. All 15 programs were launched in 2003, 2004, or 2005. These 15 programs are of 

widely varying size, serving residential bases between 3,724 and 3,828,275 customers.

$175,318 

$78,319 

$62,036 

$-

$50,000 

$100,000 

$150,000 

$200,000 

1 2 3

Mean Annual Marketing 

Expenditure

Program Year, 1 through 3

Figure 6. Mean annual marketing expenditure, years 1-3
15

Measurement Problems in 

Marketing Expenditures

The programmatic marketing and/or 

administrative component of costs can be 

expressed in several ways: 

• In absolute terms: that is, an annual, or 

monthly, expenditure

• As a percentage of program revenue

• As a percentage of program costs

• As a per-net-acquired-participant cost, 

to show the effectiveness of the 

expenditure at acquiring customers; this 

is often referred to as “customer 

acquisition cost,” or CAC

• As a per-unit-of-renewable-energy 

(MWh) cost, to show the effectiveness 

of the expenditure at selling renewable 

energy

• As a dollar amount per total utility 

customers served, to show the 

marketing budget adjusted for total

utility size (as measured by number of 

utility customers). 

Each of these metrics for expressing 

marketing expenditures has its utility and 

its limitations. Regulators in both the 

Indiana and Florida cases examined 

marketing and administrative costs as a 

percentage of revenue. However, isolated 

from the other metrics, expressing 

marketing and administration costs as a 

percentage of revenue has limited utility, 

since programs with higher premiums fare 

better. Moreover, utilities need only raise 

their premium to lower their marketing 

expenses relative to revenues. 

As a metric for measuring the 

effectiveness of marketing spending, CAC 

eliminates this de facto penalty for 

keeping premiums low. Therefore, CAC 

better captures the return on marketing 

investment and allows a more accurate 

evaluation of marketing expenditures.

These data suggest that green power programs conform 

to the pattern, found generally across industries, of 

higher levels of spending during start-up. 

Customer Acquisition Costs and Return on 

Marketing Investment

In looking at what might be appropriate marketing 

expenditures, it is important to examine the results 

programs are getting for their investments. Note that 

return on marketing investment is not always an easily 

quantifiable data point. Some of the difficulties in 

measuring and evaluating marketing expenditures are 

discussed in the sidebar. 

Generally speaking, programs that reach sign-ups more 

cost effectively have by definition a better return on 

investment. This, in turn, increases their opportunity to 

support new renewable energy development faster and 

with more funds. Even if revenue neutrality or 

profitability is not a program goal, all programs must

sustain themselves economically, and they cannot do so

without sign-ups. No business can be expected to 

sustain itself without investing in communicating its 

value proposition; in many ways, utility programs are

no different. 

Programs that are focused on the product or program’s 

economic viability or those required to maintain 

“revenue neutrality” (the term often used for a program 

covering its costs via its revenues) will need to 

scrutinize their return on marketing investment and their 

customer acquisition cost. They will need to ensure that 

their marketing efforts are cost effective, and for these 

programs, cost effectiveness is a metric relevant to the 

question of whether they are spending too much. A 

simple example illustrates the point: a program 

spending $60 per new residential customer and charging 

that participant $5 per month will cover that cost after 

the first year. Since program attrition rates tend to be 

below 10% per year, the merit of that $60 initial 

investment is apparent. 

The metric that perhaps best captures these results (for residential customers) is customer 

acquisition cost or CAC, which is defined as the annual marketing budget divided by the number 
16

of new residential customers gained in the same period.21 Data reported from utilities yields a 

median estimated customer acquisition cost of $27 per net new residential customer in 2008, in 

comparison to a median CAC of $30 in 2007.22 Acquisition costs varied by size of utility, and 

we disaggregated NREL data into five categories by size of eligible residential customer base: 

fewer than 25,000 customers, 25,000−100,000 customers, 100,000−500,000 customers, 

500,000−1 million customers, and greater than 1 million customers. Median estimated 2008 

customer acquisition costs are shown in Figure 7. 

How do these figures compare with 

those of other industries? It should be 

noted that rigorous industry benchmarks 

are difficult to identify; firms are 

generally reluctant to disclose customer 

acquisition costs to avoid disclosing 

part of their business strategy. 

Nonetheless, some data are available, 

albeit from industries that expect higher 

annual revenue from customers than do 

green power programs, so the numbers 

are not directly comparable. 

In one example, Jupiter Research 

estimates that Earthlink spent $139 per 

customer in acquisition costs in 2005. 

At the high end, the research firm Gartner estimates that financial services firms spend $280 to 

obtain a new customer (Wreden 2005), and in 2006−2007, cell phone companies were spending 

an average of $392 to acquire a new customer, up from $349 in 2004, according to Bear Stearns

(McCall 2006). The same report suggests that acquisition costs of $300−$400 per customer were 

common in the cell phone industry. A report from Pyramid Research suggests that CAC can 

typically account for up to 30% of a mobile network operator's expenses (O’Shea 2006). 

DirecTV estimates that it costs approximately $550 to obtain a new customer (O’Shea 2006).

Given this cross-industry context, green pricing programs do not appear to be spending an 

abnormally high amount on marketing for the green power product.

 21 Customer acquisition cost is usually used in the context of residential customers, because the lifetime value of 

those customers tends to be fairly similar among them, unlike nonresidential customers of varying sizes. Customer 

acquisition costs may also be calculated for individual marketing campaigns, rather than on an annual basis. In 

general, the metric of customer acquisition costs can be used to compare programs without unduly penalizing 

programs with low premiums. Another common metric, marketing costs as a percentage of revenue, distorts 

marketing performance by rewarding programs that charge high premiums and thus have disproportionately large 

revenue streams.

22 Of 84 programs providing data to NREL, 48 green power programs provided adequate data to estimate the CAC. 

$22.50 $21.16 

$37.80 

$25.50 

$34.50 

$-

$5.00 

$10.00 

$15.00 

$20.00 

$25.00 

$30.00 

$35.00 

$40.00 

<25 25-100 100-500 500-1,000 >1,000

Customer Acquisition Cost

Eligible Residential Customer Base (thousands)

Figure 7. 2008 customer acquisition cost, by customer 

base size
17

Marketing Expenditures’ Role in Supporting Other Utility Programs

Some utilities report that as perhaps the most significant utility foray into marketing, green 

pricing has served to provide valuable experience to other utility ancillary programs. For 

example, Dan Drennan, the green pricing program manager of Public Service of New Mexico, 

notes that the effectiveness of using direct mail with an enclosed sign-up mechanism in PNM’s 

green pricing program provided a valuable insight to PNM’s electronic billing and payment 

program, which subsequently grew significantly using direct mail as the primary marketing tactic

(Drennan 2009).

Common Criticism No. 2: Marketing Expenditures Serve Private, not Public,

Interests

Another common criticism of green pricing programs focuses on the public and private

objectives that programs seek through those expenditures. Many programs spend money not only

to encourage sign-ups, but also to inform the broader utility customer base about renewable 

energy and the fact that the utility has made that choice available to them through the 

establishment of the program. A better understanding of the public and private interests served 

by program outreach is important to the marketing debate.

History can be illustrative on this point. The first green pricing programs were launched in the 

late 1990s during the movement toward retail electricity restructuring and its concomitant 

emphasis on customer choice. Green pricing programs were the first, and remain the only, nonprice-based differentiator for commodity electricity, the only option for a customer to choose 

electricity not as a commodity but as a product reflecting customer values. Data show that 

customers are more satisfied with their utility overall when their utility makes a green power 

option available to them.23

Yet from the outset, customers’ confusion about the product made consumer education an 

important explicit outcome sought by green pricing programs. These educational efforts have 

been supported by some regulators as squarely within the public interest, because of the 

product’s promise as a solution to environmental and other public issues, and because of the link 

between customer education and increased consumer demand and, potentially at least, new 

renewable energy development. However, a review of program marketing literature shows that 

programs generally do not sell participation on the basis of participant dollars going toward 

public education; rather, new renewable development and environmental improvement make up 

the value proposition emphasized. 

 23 In a 2001 E Source survey of customers of utilities offering a voluntary green power option, two questions were 

asked to test this correlation. The first question was, “Please tell me your OVERALL feeling toward your electric 

utility. Using a scale of 1 to 10, with 1 meaning you have a ‘very unfavorable’ feeling, and 10 meaning you have a 

‘very favorable’ feeling, how favorably do you feel about the company that provides your electric service?” A 

subsequent survey question asked whether customers were aware that their utility offered a green power program or 

voluntary option. Among customers who did not participate in their utility’s voluntary green power program but 

who did have an aided awareness of the existence of the utility’s program, 55% gave their utility either a 9 or a 10 

favorability rating, compared with only 41% of those who were unaware. This disparity showed some correlation 

but not causality; i.e., it could not be concluded that customers’ awareness of the program was the reason for their 

high favorability rating. 
18

Some notable green pricing programs’ marketing has been supported with ratepayer-funded

consumer education budgets approved by those programs’ PUCs. Examples include Oklahoma 

Gas & Electric and Public Service of New Mexico. Similarly, several state public benefits funds, 

most notably those in California and in the northeastern United States, have been used to 

promote public education about green power options. In these examples, marketing cost recovery 

was assured to the utilities by the regulatory bodies, signaling a clear regulatory intent that 

consumer education was a kind of end in itself and should not be a risk-taking endeavor in their 

view. In breaking from the long-standing mandate of least-cost regulation of energy, these 

regulators deviated from the norm by approving budgets with goals beyond those of saving 

ratepayers money. Lastly, eight states signaled their view of green pricing options as supporting 

public interest through their mandating that utilities offer these options.24

Around the country, green pricing programs vary considerably with regard to the implicit 

boundaries between consumer education and marketing, which has added to the debate about the 

role of marketing in green pricing. Not all programs enjoy the direct support for consumer 

education from regulatory bodies that the Oklahoma and New Mexico programs do. This is one 

area that could merit more attention in future conversations between regulators and green power 

program managers. 

Traditionally, green pricing marketing campaigns straddle the realms of marketing and consumer 

education, since they have the dual objectives of cultivating a strong participant base and 

educating a very broad cross section of the total customer base. Each of these objectives seeks to 

promote the demand for renewable energy. To accomplish these objectives, a variety of 

marketing strategies and tactics are employed. Marketing tactics are situational; some are more 

suited to the sales function, while others are geared toward the educational function. Some are 

more cost-effective when used in the start-up phase, like bill inserts and bangtails attached to 

billing envelopes; others, like direct mail and telemarketing, tend to work best in more mature 

phases, when the less expensive approaches like bill inserts have already been deployed 

repeatedly and an assessment is made that they have garnered the vast majority of potential signups already (Friedman 2006).

According to one REC marketing company that partners with utilities to market green pricing 

programs, a typical 1- to 2-year residential marketing campaign for a utility of 1 million 

customers might include 3−6 bill inserts to all customers, 150,000 direct mail pieces, 20,000 

conversations with customers at events and store fronts, and 20,000 conversations through call 

center contacts. These efforts carry significant up-front costs, and in green pricing programs 

involving a REC marketing company, the risk of low sign-up rates is borne wholly or in part by 

the REC marketer. These tactics are likely to receive greater regulatory support if they are 

perceived as consumer education.

Another dimension of the consumer education debate is the shift in public awareness that 

occurred with regard to renewable energy in recent years. Both the Oscar-winning documentary, 

“An Inconvenient Truth,” and the fuel and energy price spikes in recent years helped to generate 

unprecedented levels of public interest in alternative fuels and electricity. By mid-2009, new 

renewable energy portfolio standard legislation was under consideration at both the federal and 

 24 These states include Colorado, Iowa, Minnesota, Montana, New Mexico, Oregon, Vermont, and Washington.
19

state levels, and nearly one-quarter of the 29 existing state-level renewable portfolio standards 

(RPS) have been enacted since 2007.25 On the whole, awareness of and interest in renewable 

energy has reached a new level, becoming significantly more prominent in legislative and public 

discourse in recent years. Large outlays for consumer education for voluntary programs might be 

harder to justify in light of the media coverage, and the change in public consciousness is a factor 

that must be considered in evaluating the educational role of marketing dollars. 

Common Criticism No. 3: Green Pricing Programs Do Not Result in New RE 

Development

Another contentious dimension of the marketing debate is the perceived gap between what 

consumers believe they are accomplishing and what they are actually accomplishing by voting 

with their dollars. Marketing materials generally suggest or emphasize the new development 

being purchased with premiums (Figure 8.) The question concerning an appropriate level of 

marketing expenditure has arisen in the first place largely because of doubts over product 

quality, or what consumers are actually buying. This is the question of whether green pricing has 

led directly to new project development and renewable energy generation capacity. In 

mainstream national media articles, critics have accused voluntary green pricing programs of not 

contributing to new renewable development (Elgin and Holden 2008, Elgin 2007).

The issue is sometimes referred to as financial additionality. There are several different types of 

and tests for additionality, such as regulatory and performance-based. For this report, we will 

focus on financial additionality as primary, because it is widely and quite reasonably assumed

that participants choose to pay extra on their monthly bill because they believe those dollars give 

rise to new projects, whether or not they have ever heard the technical term additionality. A 

project is said to be financially additional if a program’s premiums are contributing to the 

financing of a new renewable energy project to the degree that the project would not have been 

built but for the premiums.

Financial additionality is a difficult standard to meet and, even when met, can be difficult to 

demonstrate. There are some examples in which marketers claim that project financing was 

secured substantially as a result of anticipated voluntary revenues (Barcott 2007).

26 There are 

many examples of projects supported significantly by voluntary programs: Xcel Energy’s 

Windsource program in Minnesota supports the approximately 50 MW Moraine Wind II project 

in Pipestone and Murray Counties in Minnesota. In a 2008 Minnesota PUC filing, Xcel estimated

that in 2009, 30% of the Moraine II output would be used for the Windsource program (MOES 

2009). Xcel’s Windsource participants in New Mexico have purchased all of the output of the 

660-kW Texico Wind Ranch® in eastern Curry County, New Mexico, since 2003. NSTAR 

Green, a green pricing program in Massachusetts, supports the Maple Ridge 30 MW wind farm 

in upstate New York through a 10-year power purchase agreement (PPA) between NSTAR, the 

utility that runs the program, and Horizon Wind, the developer. 

 25 See http://www.dsireusa.org/ 26 The Barcott piece cites a wind farm in Wray, Colorado, as meeting the financial additionality test. 
20

Source: We Energies

Figure 8. Example of green pricing messaging. This portion of a direct mail piece that suggests

that the program participation will make a cleaner world typifies marketing messages for green 

power programs. 

The additionality argument is somewhat technical; it is not that programs do not make a 

difference, but that the difference can be difficult to demonstrate or measure if defined as driving 

new projects. Also, it is reasonable to assume that participants choose to pay a premium based on 

the inducement of that definition of making a difference. That is likely the common perception 
21

among participants—that their money is driving new projects. Yet in practice, it is difficult to 

assert whether a given new project in the United States would not have gone forward but for 

program premiums (Gillenwater 2008a, Gillenwater 2008b).

27 Complicating the issue further is 

the difficultly in explaining to the public that they are not physically receiving renewable energy 

when they buy it.28

The likelihood of financial additionality is increased if green power programs use participant 

revenues to enter into long-term contracts, generally 10 years in term length or more, to purchase 

electricity and/or RECs from renewable energy facilities. From the perspective of developers, 

long-term contracts, which ensure steady revenue, promote more favorable project financing 

terms. From the perspective of green power programs, however, there is risk in such long-term 

forward contracting, because the level of participation is difficult to predict and because 

consumers typically make only month-to-month or one-year commitments to participate. This 

demand risk can serve to limit both the scale and the duration of investment in renewable energy. 

Green power programs deal with this risk in different ways around the country, but details are 

sparse since the specifics and duration of power contracts are largely undisclosed, under cover of 

contract. In some cases, programs that enter into long-term PPAs make a determination that 

ratepayers will at least partly support the purchase, or can, should participant premiums be 

insufficient. Other utilities are prohibited from passing excess costs on to ratepayers. This 

tension between the short-term commitments of green power consumers and long-term contracts 

desired by facilities is a persistent dilemma for utilities attempting to use voluntary premiums to 

support projects. 

There are other mechanisms, however, by which the voluntary market can support renewable 

energy development. Commonly, programs will buy energy from small-scale producers in the 

community, for example, paying consumers 10¢−25¢/kWh for PV system output. In addition, 

many programs keep premiums in reserve and use these funds to support new project 

development when a sufficient amount has been collected. And many in the green pricing 

industry argue that REC demand in the voluntary market puts a ceiling on the available REC 

supply in compliance markets, thus boosting price levels and supporting larger revenue streams 

for additional projects. At least one green pricing program administrator has indicated that the 

presence of a voluntary REC revenue stream encouraged the utility to sign longer power 

purchase agreements with project owners. As mentioned earlier, longer PPAs support better 

project financing terms for developers.

On the question of additionality, some use the analogy of organic apple farms. That is, buying an 

organic apple does not directly cause a tree to be planted or a pesticide-free farm to come into 

 27 The actual revenue stream is highly dependent upon the region, the presence of an RPS, and the nature of the 

contract. 

28 The National Association of Attorneys General issued in 1999 Environmental Marketing Guidelines for 

Electricity Guidelines, “The Attorneys General recognize that it is physically impossible to determine the sources of 

the electrons used by any given consumer. Thus, when a consumer chooses a particular electricity product based on 

the environmental attributes associated with how and where that power was generated, what s/he is actually doing is 

financially supporting the chosen generation source, not buying the precise energy generated by that source. The 

Attorneys General believe that such financial support is consistent with what consumers who prefer a certain type of 

generation for environmental reasons would seek to do—that is, direct the flow of their payments for electricity 

toward preferred generation sources.”
22

being; those decisions must be made well before a purchase, and no one asks whether their 

purchase caused a new tree to be planted. Yet some trees were planted with a forward-looking 

expectation of a future market for organic apples.29 Similarly, the voluntary market is a source of 

ongoing revenue for renewable energy generators, and, even absent long-term power purchase 

agreements, supports their bottom line. 

Evidence does not suggest that marketing has a zero-sum relationship with additionality. It is not 

clear whether more renewable capacity would be built if green power programs were more 

lightly advertised. Certainly, economies of scale and the ability of the utility to enter into longterm wholesale contracts are improved with rates of participation larger than the national 

average. Whether the nuances of these competing perspectives should be better explained to 

green pricing participants is directly relevant to the marketing cost debate. This leads us to the 

debate over program transparency. 

Common Criticism No. 4: Programs Are Not Sufficiently Transparent

One of the common criticisms related to marketing expenditures is the sense that the programs 

are not clear in their communications about what they are doing and how they are spending 

program premiums. Transparency and additionality are integrally related: the call for greater 

transparency is based in turn on the widely held perception that program participants expect that

their purchase is contributing to new development, and the difficulty market players have in 

actually demonstrating that it has. In addition, consumers may expect that their premium dollars 

will not be spent on advertising. 

In some cases, consumers must go to a utility’s Web site to search for the specific projects the 

program supports; in other cases, the information is not available. Besides this occasional lack of 

project transparency, there is a second type of transparency some advocates seek: disclosure of 

the program budget and, specifically, marketing and administration expenditures relative to 

product expenditures, or budgetary transparency (CCAP 1998).

In many instances, requiring such transparency is difficult or impossible. Yet, for the most part, 

PUCs and/or attorneys general and consumer watchdog groups have not played an active role. 

Given the recent criticisms, there is an opportunity for better communication, transparency, and 

disclosure to regulatory decision-makers in regard to budgets; and to the public in regard to 

projects. Consumers and stakeholders would benefit from knowing more about projects 

supported by, and benefits inured from, green pricing programs, since they are the first foray into 

non cost-based energy choice in the United States. 

The Green-e EnergyTM program, which has become the leading certification standard for 

renewable energy transactions in the United States,

30

 29 The apple example is taken from various public presentations of Rob Harmon of the Bonneville Environmental 

Foundation. See also 

does require a certain level of product 

disclosure for renewable energy sales, including renewable resource mix, geographic location of 

generation, purchase size, and default electricity mix (for sellers of renewable electricity). 

Green-e EnergyTM does not require public disclosure of marketing costs involved in offering 

certified sales, as it predominantly works with privately held companies that are not regulated by 

http://www.pnwlocalnews.com/vashon/vib/news/30991554.html 30See http://www.green-e.org/. 
23

a body such as a PUC. For similar reasons Green-e EnergyTM does not require that the specific 

renewable projects generating RECs sold in certified transactions be disclosed.

31 This highlights 

the issue of the desirability and willingness of non-utility and non-regulated sellers to provide 

budgetary and project transparency even if PUCs were to try to require such disclosure. These 

issues deserve more study.

The issue of transparency can be more problematic in the case of private third-party marketing 

companies partnering with utilities in the administration of green pricing programs. A growing 

but still small portion of green pricing programs are managed by third-party REC marketing 

companies (Bird et al. 2009).

32 Privately held companies could be at a competitive disadvantage 

by requiring such disclosure; in some cases, there may also be legal protections against 

compelling disclosure, depending on the reasons for which it is sought. Programs managed by 

REC marketers are represented in a higher percentage 

Often, REC marketing firms have a different profit imperative compared with independent utility 

programs not run in partnership with REC marketing companies. REC marketers also present 

regulators a unique set of challenges because of their regulatory status. At a utility, the rate of 

investment return is generally fixed on a kilowatt-hour basis. Green pricing programs are often

not designed to generate profit, and in some cases, regulators have determined that ancillary 

utility programs like green pricing should not be profitable. Yet in the case of programs that 

utilities outsource to REC marketing companies, those companies are expected to return a profit 

to owners. The introduction of such close partnerships with unregulated REC marketers in 

regulated markets has given rise to questions among regulators and consumer advocates seeking 

to ensure that participant interests are protected. 

It is perhaps easy to underestimate cost factors for REC marketing companies and assume they 

are earning larger gross margins than they are. Specifically, REC marketers take on REC price 

risks. These can be significant, given the volatility of REC markets that are subject to significant 

policy and market uncertainty. This is especially pertinent when rules set by the regulatory body 

constrain REC procurement to the service region of the utility, leading to generally higher REC 

price levels than those on the national market. REC prices vary considerably by region, and in 

such cases REC marketers are sometimes subject to significant wholesale premiums and the risk 

of higher prices if a state in which a REC marketer is partnering with a utility introduces a new 

RPS policy.

There are other forward risks surrounding REC regulation, supply, and price. Most power 

providers and utilities do not sell RECs on a forward basis in order to protect themselves against 

regulatory changes; thus, REC marketers typically work directly with developers with projects 

under construction and in the pipeline, allowing marketers to secure stable supply and provide 

long-term, meaningful support to a new facility (which addresses some additionality concerns).. 

Additionally, the fact that REC marketers do not know with certainty the number of RECs that 

they will be obligated to purchase across the term of their contract adds to supply risk. And the 

 31 See http://www.green-e.org/docs/energy/Appendix_B-National_Code_of_Conduct_Cust_Disclosure.doc 

Accessed July 22, 2009. 32 It should be noted that, overall, those programs tend to perform well as measured in their representation among 

top performing programs in NREL top ten lists. 
24

swiftly evolving regulatory framework, which could, among other things, raise RPS standards or 

redraw the boundaries of what classifies as new development, could create additional risks for 

GP programs. For these reasons, green power providers typically set the green power premium 

above the cost of RECs to insulate themselves and their REC marketing partners from financial 

risk. These premiums above the wholesale cost of green power, while not uncommon in the 

business world, have been a source of confusion for regulators. 

The Sunshine Energy program was run primarily by third-party marketer Green Mountain 

Energy Company in partnership with the utility. In the FPSC proceeding, GME likened its 

marketing expenditures and other operational decisions to those of any other private supplier to 

the regulated FPL utility, asserting that GME was protected in its business decisions by freedom 

of contract as long as the terms of the agreement under which they operated the program were 

met.33 GME argued that the company had honored those terms.

34 In sum, regulators who may be 

interested in budgetary transparency should engage in those discussions early in the process of 

planning a program, particularly where the program is being run by a REC marketer. 

 33 Although GME did not make an explicit constitutional argument in the proceeding, Article I, Section 10 of the 

U.S. Constitution states: “No State shall ...pass any...Law impairing the Obligation of Contracts... .” 34 Although they questioned why they should be obligated to a higher degree of transparency than any other FPL 

contractor , GME voluntarily agreed to a comprehensive review of program finances by Florida Public Service 

Commission Audit Staff at the company’s headquarters. The company also issued its own audit discussion paper 

and publicly released detailed financial data related to the program.
25

Conclusions

Utility green pricing programs function within a complex matrix of overlapping regulatory, 

financial, environmental, and legal issues. Regulators and program managers will continue to be 

challenged to ensure market integrity and engage more with one another on program design. An 

effective program offers a high-quality product that places a premium on the public interest in 

energy choice and green pricing participants’ interest in new renewable energy development. 

In light of recent criticisms, programs should prioritize the provision of thorough consumer 

information in multiple forms, including complete explanations of RECs, how renewable energy 

is developed and delivered, and how participant funds are spent. An effective collaboration 

among utilities, regulators, advocates and, in some cases, REC marketing companies, also 

requires an understanding of cost components that make a program successful. REC marketers 

have brought a unique set of capabilities to programs and, for the most part, have been highly 

successful in their utility partnerships. 

Where feasible, PUCs should consider the desirability of greater market, project, and, in some 

cases, budgetary transparency—or at least improving standards in budgetary tracking—to 

support larger and more accurate data sets and the ability of programs to learn from one another 

to improve results. Improved program transparency and regular communication with regulatory 

authorities may promote better understanding of the relationship of marketing activity to 

program participation and the resulting investment in renewable energy. As has been discussed, 

PUCs are limited in their ability to require transparency of private companies administering 

programs in partnership with utilities. 

Improved transparency should start with better information to program participants about what 

projects their premiums support. Better data about expenditures will help regulatory 

commissions better understand the complexities of the industry, such as the cost risks associated 

with REC markets, for which price volatility has been significant in certain U.S. regions.

Regulators should not merely gather more information about program budgets; they should 

evaluate marketing expenditures in light of the full range of their purposes and benefits.

The industry, too, could benefit by improving the consistency of these program data-gathering 

practices, and standardizing the use of metrics such as those discussed in this paper to assess 

program effectiveness and value. More work is needed in supporting program data gathering 

practices that will aid regulators in better evaluating the effectiveness of voluntary green pricing 

programs. Regulators should consider whether they should require better project disclosure and 

help make available to the public information on projects supporting green pricing programs. In 

the face of increased scrutiny, it makes sense for utilities and regulators to pro-actively 

participate in design and budgetary decision-making and continuously test the effectiveness of 

marketing expenditures in creating demand. 

Green pricing program managers and regulators share a common interest in increasing the 

demand for renewable energy as well as in bridging the gap between the price of renewable 

energy and that of traditional sources. Both of these objectives have relied on both the marketing 

and supply of renewable energy through green pricing programs. To ensure the integrity of the 
26

market, program managers and regulators should carefully measure and study the way that 

participant dollars are being spent on marketing and product. While there may be no strict rules 

dictating optimal marketing expenditures, it is clear that marketing and consumer education—

carefully monitored and understood—have an important role to play in the evolving green power 

market.
27

References

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communication, May 21, 2008. 

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42287. Golden, CO: National Renewable Energy Laboratory, October. 

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Bird, L., Kreycik, C., and Friedman, B. (2009). Green Power Marketing in the United States: A 

Status Report (2008 Data). September 2009.

Bird, L., Kreycik, C. and Friedman, B. (2008). Green Power Marketing in the United States: A 

Status Report (Eleventh Edition), NREL/TP-6A2-44094. Golden, CO: National Renewable 

Energy Laboratory, October. http://www.nrel.gov/docs/fy09osti/44094.pdf

Bird, L.; Swezey, B.; Aabakken, J. (2004). Utility Green Pricing Programs: Design, 

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Center for Clean Air Policy (CCAP). (1998). Disclosure in the Electricity Marketplace: A Policy 

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Center for Resource Solutions (CRS). (2008). “Green-e Energy” http://www.greene.org/docs/Green-e%20Energy%201-pager.pdf. 

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Elgin, B. (2007). "Little Green Lies," Business Week. October 29, 2007. 

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Florida Public Service Commission (FPSC) (2008). “Review of Florida Power and Light 

Company’s Sunshine Energy Program.” Docket No. 070626-EI. June 23, 2008. 

http://www.floridapsc.com/agendas/archive/080701cc/08070111.pdf

Friedman, B. (2006). “The Unsung Bill Insert: What Can Green Pricing Programs Expect from 

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28

Friedman, B. (2004). “Making Renewable Energy Print Materials Work: The Customers and 

Experts Speak.” E Source. December 2004. http://www.esource.com/

Friedman, B. (2002). “Market Research Survey II: Finding Green Energy Buyers.” E Source. 

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29

Appendix. Sample Green Pricing Program Marketing Materials

Figure A-1. A portion of a sample marketing piece from the Pacific Power green pricing program 

run in partnership with GME, a REC marketing company.
30

Figure A-2. A portion of a sample marketing piece from the Sacramento Municipal Utility District green 

pricing program offered in Sacramento, California.
F1147-E(10/2008)

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Green Pricing Program Marketing Expenditures: Finding the Right 

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14. ABSTRACT (Maximum 200 Words)

In practice, it is difficult to determine the optimal amount to spend on marketing and administering a green pricing 

program. Budgets for marketing and administration of green pricing programs are a function of several factors: the region 

of the country; the size of the utility service area; the customer base and media markets encompassed within that service 

area; the point or stage in the lifespan of the program; and certainly, not least, the utility’s commitment to and goals for 

the program. All of these factors vary significantly among programs. This report presents data on programs that have 

funded both marketing and program administration. The National Renewable Energy Laboratory (NREL) gathers the 

data annually from utility green pricing program managers. Programs reporting data to NREL spent a median of 18.8% of 

program revenues on marketing their programs in 2008 and 16.6% in 2007. The smallest utilities (those with less than 

25,000 in their eligible customer base) spent 49% of revenues on marketing, significantly more than the overall median. 

This report addresses the role of renewable energy credit (REC) marketers and start-up costs—and the role of 

marketing, generally, in achieving program objectives, including expansion of renewable energy. 

15. SUBJECT TERMS

NREL; Barry Friedman; Mackay Miller; renewable energy certificates; RECs; energy consumers; electricity; green 

power marketing; green pricing; renewable energy; electricity markets

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