Two of the prime directives in marketing are know your product and know your customer. Landfill gas (LFG) developers know how to pull the product out of the ground, but knowing who wants this gas and how to lock up sales to these end-users is critical to a project's success.
Recent changes in the market have had seemingly negative implications for the future of landfill gas-to-energy (LFGTE) projects. For example, incentives such as Section 29 tax credits and statutes requiring utilities to purchase electricity from qualified renewable facilities (QF) at avoided costs are no longer available or no longer offer the prices necessary to secure LFGTE's place in the market and to spur LFGTE project development.
Also, today's electricity market is very different. Wholesale deregulation is lowering the price that utilities will pay for power sources - often well below the cost needed to develop renewable power projects. In addition, the incentives some states are offering to encourage different types of renewable projects, including LFGTE, are typically temporary, lasting only several years. This does little for LFGTE developers who need longer-term commitment to secure project financing.
So, where's the upside? It rests on two market forces that have combined to increase the potential for LFGTE projects: a demand for environmentally responsible energy and increased choices for consumers.
How are these two market forces working? First, residential and commercial demand for green products is growing. As the public becomes more aware of energy production's environmental impacts, these enlightened buyers are likely to encourage cleaner energy generation. People like making productive use of a local resource that otherwise would be vented into the atmosphere, contributing to air quality problems and global climate change, or simply would be wasted by flaring. Consequently, these consumers "buy green" even when it is more expensive.
In fact, recent surveys indicate that 56 percent to 80 percent of consumers polled are willing to pay more for cleaner, renewable energy sources that are less harmful to the environment (see "Enthusiasm Builds for Green Power" left). In early retail access pilot programs in Massachusetts and New Hampshire, 20 percent to 30 percent of customers who switched service providers selected green options even when they were more expensive than the alternatives.
Second, utilities and other energy providers in today's restructuring energy marketplaces are facing a new challenge - competition. Leading-edge power companies are responding to their potential customers by offering new products. Green power offerings now are available in many regulated and deregulated electricity markets.
In marketplaces that have not been restructured, more than 32 utilities offer, or are developing, green pricing programs to meet growing consumer demand. Probably the most exciting developments, however, have been in restructured markets. For example, when California's retail energy market opened to competition in April 1998, green power products became available from several companies, including cleen n green, Edison Source, Green Mountain Energy Resources and PG&E Energy Services.
Californians have been among the earliest supporters of green energy. Even in the commercial sector, for example, Toyota is buying 100 percent green power for its corporate offices in that state.
Even municipal utilities are getting involved. The Los Angeles Department of Water and Power (LADWP) recently issued a request for proposal (RFP) for renewable resources to support its planned green pricing program, and the Sacramento Municipal Utility District (SMUD) has been recognized for its long history of support for renewables.
Power to Green Power These market forces already have played a role in developing LFGTE projects in the western United States. For example, SMUD offers customers two green power options. Customers in the PV Pioneers program install photovoltaic (PV) panels on their roofs that SMUD helps to finance, install and maintain. In the Greenergy program, customers purchase green power from SMUD over their traditional wires. For an additional 1 cent per kilowatt hour (kWh), customers can purchase up to 100 percent of their power from renewable resources.
While SMUD was sold on the environmental benefits of generating power with LFG, it was not sure if its existing and potential Greenergy customers would recognize LFG as a viable renewable in the same category as solar and wind power.
In October 1998, SMUD and the U.S. Environmental Protection Agency's (EPA) Landfill Methane Outreach Program (LMOP), held focus groups from which they found that customers like the idea of landfill generated electricity once they understand it.
Currently, SMUD provides its renewable electricity from power generated from geothermal power plants in northern California. However, that will change by summer 1999 when SMUD, working with the Sacramento County landfill, will begin offering 100 percent LFG-generated power.
Farther north, the member utilities of the Pacific Northwest Generating Cooperative (PNGC), Portland, Ore., also have initiated a successful green pricing program based on LFG-generated electricity. Because it already had developed a LFGTE project at the local Coffin Butte landfill, PNGC considered offering a green energy product. [See "Rural Communities Renew Interest in Green Power," World Wastes, August 1998, page 10.]
To determine the size of its potential green customer base, as well as the amount customers were willing to pay for green power, PNGC conducted market research. Once convinced that the market was strong enough to support green power, PNGC and LMOP hosted a green pricing seminar to provide PNGC member utilities with a fundamental understanding of green power products, program structures and mechanisms.
Today, several of its member cooperatives offer a green power option. As participation in the program continues to rise, PNGC is considering adding another generating set at the Coffin Butte landfill.
Selling LFGTE as a Resource Once consumers and utilities understand that LFG is a green power resource, they are receptive to it. The key to broadening the market for LFGTE projects is to educate both consumers and power companies on the advantages to using LFG.
For example: LFG is an eligible renewable resource for green power programs. Historically, LFGTE projects have been eligible renewable resources under the Public Utility Regulatory Policy Act's (PURPA's) QF status. More recently, LFGTE has been listed as a certified renewable with the California-based Center of Energy Efficiency and Renewable Technologies, and with many state agencies, such as the California Energy Commission.
* LFG energy is cost-effective. Both power generators and LFGTE project developers can make a profit from the sale of LFG as green power. On a level kWh basis, LFGTE projects usually generate electricity for less than the cost of other renewable resources - averaging 3 cents to 5 cents per kWh (before incentives).
* LFG is a reliable, available energy source. More than 200 successful LFGTE projects operate in communities nationwide with capacity averaging more than 85 percent. Also, LFG energy doesn't depend on weather like some renewables. This allows its full capacity to be counted toward a generator's reserve margin, thereby claiming a higher price.
*LFG is a universal energy resource. Landfills often are located close to dense populations, and therefore load centers. The EPA estimates there are more than 500 U.S. landfill sites that could generate energy cost-effectively. Project start-up times are short - less than one year - because sites are available and the technology is proven. As a distributed resource, LFGTE may avoid or reduce transmissions costs, help alleviate line congestion and bring value-added benefits to power generators.
*LFG offers new project opportunities. Many consumers want their green power dollars to help develop new renewable energy resources, projects that will displace conventional capacity. LFG energy offers opportunities for energy providers who want to add new renewables.
*LFG helps the environment. LFG reduces the direct environmental impact of landfills from greenhouse gas and volatile organic compound (VOC) emissions. Also, by offsetting system power, LFGTE displaces CO2 as well as other emissions from conventional power sources.
Ultimately, the success of selling LFG hinges on knowing your product and its customers, a process that includes recognizing the local market potential, and educating power providers and their customers to this viable, renewable energy source.
Ultimately, your job will be joining the power of LFG with the power of marketing to help create a cleaner world.
Mary Schoen is with the U.S. Environmental Protection Agency's Landfill Methane Outreach Program. Steve Fine and Marcia Gowen are with ICF Consulting Group.
Electricity consumers want, and are willing to pay for, green power from renewable energy sources, according to recent surveys. Some indication of these attitudes include: * 56 percent to 80 percent of national survey respondents said they are willing to pay from 2 percent to 30 percent more for renewable energy (Farhar 1996).
* Incremental price premiums for green power range from 5 percent to 20 percent over the current electricity retail price (Holt 1997).
* When conducting green power focus groups in Baltimore, St. Louis and San Diego in 1997, the U.S. Environmental Protection Agency's (EPA) Landfill Methane Outreach Program discovered a high demand for renewables among consumers but an extremely limited understanding of landfill gas (LFG) as a renewable green power option.
* Participants of recent residential and commercial/industrial focus groups co-hosted by the Sacramento (Calif.) Municipal Utility District and EPA showed great enthusiasm for LFG over other renewables as a preferred green power source (EPA 1998).