Following a short stint in advertising, I have continued to periodically check out Advertising Age for articles on demographic and social trends. One that recently caught my eye was “The New Wave of Affluence.” It says volumes about the new conditions that utilities and earnest energy policy makers face as they envision a future of smart grids, gleaming solar panels, shiny electric vehicles, and handsome zero net energy homes. The market for these green products is going to be narrower than hoped because of the shrinkage of the affluent class. A new $200,000 annual income threshold for defining affluence in America was found by the ad agency Digitas, according to Ad Age. That’s up from the previous marketing target of $100,000. Fewer than 9 million of the nation’s 154 million workers fit the new affluence parameters. That’s about 6 percent, except for some 5.4 million Gen Y households with annual incomes in the $100,000-$199,000 range. The paper says they’re likely bound for affluence once they turn 35. Lump them in and fewer than 10 percent of the population can be considered affluent and have ready access to the credit needed to make major green energy purchases. This translates into a diminished golden market for solar panels, electric cars, home area networks tied to smart meters that can save energy, and all of the other green, high-tech gadgetry energy and environmental policy makers are counting on to reduce greenhouse gases and energy use. The 30 million once considered affluent--those with incomes of between $100,000 and $199,000--were wiped out the by the financial crash. They’re dead players, meager members of the new strapped middle class, who often can’t even get a liar’s loan. They consist of Baby Boomers who can barely afford to retire and Gen Xers whose careers have dead ended, leaving them to fret about how to send kids to college and cover rising health care deductibles. Many are over-extended, even underwater. The other 115 million, call them the working class, were never part of the green product target market. Many can barely pay their utility bills, much less contemplate installing a solar rooftop or energy management system. Take the city of Los Angeles. About 20 percent of its 4 million residents are poor, while hundreds of thousands of others juggle bills as they struggle to make ends meet. As a result, the Los Angeles Department of Water & Power estimates it’s losing $14 million a month on “under collections” and faces an uphill struggle to get a rate increase. More and more of the state is looking like Los Angeles, which can be seen as representing the new residential demographic landscape for California energy policy. Consider business customers. They consist of many small companies in about the same shape as the once-affluent residential customers and many large business customers who still have access to financing. They even may be sitting on piles of cash as they look for the winds of potential growth opportunities. These companies largely are focused on cutting costs to maximize profits amid a sluggish market due to continued consumer distress. Perhaps the leading example is Wal-Mart. Energy industry players may notice it has suddenly become active in energy policy proceedings at the California Public Utilities Commission. No surprise for those familiar with Edward Humes’ new tome, Force of Nature - The Unlikely Story of Wal-Mart’s Green Revolution. It shows how Wal-Mart has figured out how to save money by going green. Now, consider that distributed generation technologies are increasingly competitive with grid-based power. CalTech applied physics professor, and thin film solar development leader, Harry Atwater, points out that the price of photovoltaic technology has plummeted exponentially to where it now provides energy for between just three and four times the price of coal power. Consider too the opportunities to generate onsite power with the new “Bloom Box” fuel cells, small-scale wind turbines for vacation homes, and microturbines. Add it all up--demographics, economics, and technology--and the emerging picture is of a whole class of businesses and consumers who are capable--and increasingly ready--to simply withdraw from the grid, for all practical purposes. The combination of distributed generation technologies and energy efficiency measures is ready to create the zero net energy environment long discussed, but only for those who can afford it. Given the prospect, companies like Wal-Mart and affluent individuals--able to open their checkbooks to elected officials--are beginning to use their political clout to push the policy changes needed to escape from the grid. It’s a substantial dilemma for policy makers. As the affluent withdraw from the grid by installing the new technologies, utilities will experience stranded costs and a weakened customer base. Utilities face the prospect of becoming a power provider of last resort, serving retirees on fixed income, strapped middle class consumers, poor people, and small and medium-sized businesses with limited access to the capital needed for state-of-the-art energy technology. The first choice is to tack exit fees and extensive backup service charges onto the affluent households and businesses as part of the cost of their apotheosis into the green energy nirvana. That’s the equivalent of a “soak the rich” policy. The second approach is to raise rates for the other 90 percent of customers who already have been shut out of the green market as they see higher energy bills at the electric meter and gas pump consume more of their stagnant or even shrinking income. That’s regressive. The third possibility is to simply let the utilities lump it by keeping a lid on rates. This would amount to kicking the can down the road. It may work for a while, but eventually will make the grid more decrepit and unreliable. Utilities will become less attractive investments and find it increasingly difficult to raise capital. A fourth way is needed that masters the problem of restoring financing for the middle and working class so they too can enjoy the fruits of the new green energy technologies, while positioning utilities to become a top notch backup power system. Enter AB 750, a bill by Assemblymember Ben Hueso (D-Chula Vista). The measure, which has passed the Assembly, would set up a task force to study how to create “a state bank receiving deposits of state funds” to “strengthen economic and community development, provide financial stability to individuals and businesses, reduce the cost paid by state government for banking services, and provide for excess earnings . . . to supplement General Fund purposes.” A state bank could open a new avenue of financing to help head off a potential energy divide in which an increasingly small number of affluent residents and corporations enjoy the best technology and the rest of the state is consigned to increasingly expensive or unreliable grid service provided by utilities under financial duress. A state bank can help fill the void in the wake of the financial crisis and give people the credit they need to become part of the green energy revolution.
