Large untapped business market for green electricity

Almost a quarter of UK businesses are "very likely" to switch to green electricity tariffs, according to a recent report.1 But poor marketing by suppliers is failing to tap into this potential, and companies are concerned about the environmental credentials of the tariffs.

Green electricity has been a niche market so far in the UK. But according to a report from Finland's Vaasa University, there is "extensive untapped support" in the business market.

More than 1,000 medium and large companies which currently do not buy green electricity, including 172 UK firms, replied to a questionnaire last year. The other countries surveyed were Germany, Sweden, Finland and the Netherlands. Although a range of sectors replied, the manufacturing sector dominated.

Almost 25% of the UK respondents said they were very likely to buy green electricity in the near future - the highest interest of any country.

Of the companies across the five countries that were likely to switch, 87% saw the tariff's environmental credentials as a factor influencing their decision. While 79% cited moral considerations, an equal number identified image and PR - which the report describes as "key reasons for buying green electricity."

The companies also said that the quality of marketing was an important factor. Almost two-thirds of respondents said that one reason why they had not switched was that no supplier had offered a green tariff to them.

"There seems to be a belief by many electricity companies that if they produce green electricity, businesses will come and find them," the report says. "For the most part this could not be further from the truth."

Over 85% of UK businesses were interested in knowing more about green electricity, but 30% "had not even seen green advertising," the survey found.

Companies' decision making processes are "complex and time-consuming," often involving the managing director. Approaching firms personally and at the right time is crucial, the report says.

Suppliers' marketing initiatives were less important for companies across the five countries that were unlikely to switch. 60% of these firms cited the price premium of green tariffs as a factor influencing their decision not to switch.

"There is no point trying to sell expensive green electricity to highly price-sensitive businesses, nor any point trying to sell at minimum price to businesses which are for some reason less price sensitive," the report notes.

The survey did not ask about fiscal incentives such as exemption from the climate change levy, but a small proportion of UK respondents mentioned it, said the report's author Philip Lewis.

"The levy exemption doesn't make green tariffs cheaper [than standard tariffs], but it makes the premium minimal enough to make it acceptable to finance directors. Firms can justify extra cost as marketing spend," he said.

Almost three-quarters of the UK firms were concerned about the "environmental quality" of green tariffs, preferring electricity from solar, wind and hydro to that from biomass and CHP.

The report does not address whether the tariffs result in renewables generation over and above that required by national regulations such as the renewables obligation. Friends of the Earth has concluded that Unit[e] is the only truly business tariff in the UK which provides this "additionality" (ENDS Report 332, pp 32-33 ).

Almost 34% of respondents said they do not trust environmental labelling, and 44% admitted that they did not know enough about the labelling schemes.

"Labelling is intended to instil confidence in consumers, but instead often only serves to instil yet more confusion and mistrust," the report notes.

"There are too many contradictory labels, too poorly communicated with a lack of officialness and transparency. This appears to have led to labels tending to command too little respect," it adds. The UK's green tariff labelling scheme was withdrawn in November by the Energy Saving Trust (ENDS Report 334, p 32 ).

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