Tuesday, June 13, 2006

Green Power Switch: Currently Set to Off

My wife (who is currently living in Nashville) sent me an interesting offer from the TVA. Green Power Switch is a program that offers TVA customers the opportunity to "to produce electricity from cleaner, greener sources and add it to the Tennessee Valley’s power mix." Customers can pay for up to 750 kilowatt-hours of electricity, at a rate of $4 per 150 kilowatt-hour block.

This is interesting because it allows customers to express their environmental preferences apart from their demand from electricity. That is, the amount they pay for green electricity is completely separate from what they pay for the energy they consume. But this is also the reason I think it will fail, or will at least confuse customers.

Really, it comes across like this: "Send us some money. You won't get extra electricity. You just get the satisfaction that maybe we'll use the money to generate electricity in a cleaner way."

What's wrong with that? Several things.
1) This doesn't actually say that your power will be generated cleanly. It just says that they will take your money; hopefully they'll use it to generate clean technology. It's not much of a contract. The initial reaction of the skeptical, paranoid consumer in me is to think that this is just a scam so that TVA can get more of my money. That's probably too pessimistic, but it sure isn't the reaction their marketers want.

2) It wouldn't really be possible to have a particular customer's power come from green power. Individual consumption isn't tied to production like that. They're very honest about this on their site.

3) A better marketing scheme would be to charge customers a higher kilowatt-hour cost for all their electricity, and guarantee that every kilowatt hour they consume will be produced via a green method, either by TVA production or buying green power from the grid. In fact, I suspect that what they really do is take all the money that people donate and put it into a fund which they use to buy green power from the grid.

TVA says they have solar, methane, and wind sites they use to generate clean power. I would guess they already generate as much power as they possibly can from these sources, since their main disadvantage is the fixed cost of constructing the sites, not the marginal cost of operation (at least for solar and wind--I'm not sure about methane, but they're apparently getting their methane from a water treatment plant, so it is also likely at maximum capacity). Solar and wind are also dependent on circumstances out of TVA's control (daylight and windspeed), so they can't really increase power generation from those sources if many consumers enlist in the program.

This gives us two possibilities. First, they're not maximizing their green power generation, so that anyone sending in money is getting TVA to generate more green power from their facilities. But TVA is surely getting as much out of their costly investments as possible and using their green facilities to maximum capacity; to do otherwise would be both wasteful and not very environmentally friendly (why not replace a dirty kwh with a clean kwh if it is possible, indeed, almost free?). So if this is the case, then any additional green power comes from the grid. But the TVA doesn't mention buying green power from the grid on the site or in the flyer.

This is a program that's supposed to make me give more money because that way I'll feel like my electricity is cleanly generated. It doesn't make me feel that way at all. Instead it makes me feel like they're going to generate as much green power as the can with current facilities, and my donation won't have any marginal effect.*

I would nonetheless be interested in seeing data on how many people enroll in the program, and how many 150 kwh blocks they buy. It would be interesting to see how willingness to pay for green electricity differs from previous studies of willingness to pay for environmental goods. Perhaps my wife knows someone who works for the TVA...

*It might have a future effect in that it might encourage the construction of additional green facilities by the TVA. But for that to happen, a lot of people would have to contribute a lot of money to make it worth the TVA's while. And since I cannot control the actions of those other people, there is a public good problem. It's in my interest to free ride off the contributions of others and hope the new green power generation facilities get built.