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3 Ways for Utilities to Encourage Customers to Improve Energy Efficiency

Energy providers are in a unique position in the marketplace in that they want customers to use less of their product. Yet, encouraging them to do so can be a challenge. When customers use electricity, they’re thinking about the task (use a computer, wash clothes, watch TV) they want to accomplish, not the source that’s allowing them to do it. So, what’s the best way to persuade them to change their behavior? There may not be one answer to that question, but there are several options utilities can experiment with to find out which work best for their market.

Moral Suasion

The simplest way to try and get customers to change their behavior is to ask them to do so. Of course, there are many arguments to be made for reducing energy use, including emergency response, reduced energy supply, or minimizing pollution. But, while this tactic can be effective in the short run, it rarely leads to long-term results.

Pricing measures (see below) are typically more effective, but can be difficult to implement. So, utilities must rely on “non-price incentives [to] deliver useful, moderate changes in energy use over a short run,” according to Koichiro Ito, an assistant professor at the University of Chicago Harris School of Public Policy and author of a recent study conducted in Japan that investigates this phenomenon. Ito is quoted in an article published by the Energy Policy Institute at the University of Chicago (EPIC).

Peer Comparisons

Because customers may not always be responsive to simple requests for a change in behavior, utilities can try giving them an additional incentive, and one great motivator is competition. Energy providers can send customers information about their energy use compared to that of their neighbors, along with prompts to improve their “performance.” Some systems even incorporate gamification, in which customers get energy efficiency challenges, surveys, and rewards.

However, there’s a fine line between “energy shaming,” — i.e. making customers feel bad about higher energy use — and “energy empowerment,” so providers need to be careful about the phrasing of these communications. Making the message more about “helping the community and the environment,” and less about “doing better compared to others” can help, as can offering tips for more efficient energy use during peak times.

Variable Pricing

Variable pricing is perhaps the best method for prompting customers to change their habits around electricity use. The idea is to reward or penalize customers based on their behavior. Say the provider wants them to wait until off-peak hours to run appliances like dishwashers and washing machines. Lower pricing can be used during those times, so customers save money if they follow the provider’s requests. Conversely, the company can set up peak hour pricing that’s more expensive than off-peak.

According to the EPIC article, “Households that received…messages encouraging conservation reduced their electricity use by 8 percent, but they quickly resorted back to their usual habits.” Meanwhile, “Those who experienced a hike in the price of electricity during peak hours reduced their electricity use by as much as 17 percent, and the effect is much more sustained over time.”  

Even with pricing, however, immediate results shouldn’t be expected. According to Robert Walton at Utility Dive, the benefits from this strategy can take some time to show up, as “the push towards time-of-use rates is a gradual change, and a big shift for utilities and customers who for decades have largely paid a single rate for their electricity, whether at peak time or the dead of night.”

To get customers to use energy more efficiently, energy providers should try each of these options, and not necessarily in isolation. For example, moral suasion can be used in conjunction with variable pricing, so customers know that, if they implement efficiency measures into their routine, they’ll be getting the dual benefits of helping the community and the planet, and saving some cash.  

Karen Marcus's picture

Thank Karen for the Post!

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Kathy Kuntz's picture
Kathy Kuntz on Aug 21, 2018 7:18 pm GMT

Humans aren't rational. While variable pricing sends a signal, many of us are too busy with life and work and family and social media to notice those signals. As more and more Americans auto-pay utility bills it's unlikely most folks will even see this signal.

Yes, it's good to experiment with pricing but let's also experiment with all of the behavioral strategies that we know work based on decades of social science research. Peer comparisons are powerful but clear social norms - think benchmarking - can be even more powerful. And instead of talking about saving let's talk about reducing waste because humans don't like loss. (If you send the utility 2x as much as I do that's your loss, buddy.)  People also need evidence that their efforts matter - which means clear feedback coupled with clever framing. There are lots of strategies that will work - if we remember that we're aiming to influence humans, not robots.

Bob Meinetz's picture
Bob Meinetz on Oct 4, 2018 4:05 pm GMT

Well stated, Kathy. The trend is consistent with a general one which seeks to shift burdens traditionally associated with doing business from seller to buyer:

  • The warranty which used to accompany most products has become a “service contract”, available for a fee.
  • Customer service by trained reps has been replaced by limiting options and using slower, interactive automated voice response systems.

Similarly, utilities claim to offer customer “savings” by using electricity outside of peak demand, when they’re only cost-shifting their responsibility to provide sufficient electricity to the customer, as a cost in convenience.

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