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Energy & Grid Management
Sayonsom Chanda
Sayonsom Chanda
 · Posted in Energy & Grid Management

Six Things Utilities Must Consider While Marketing Energy Efficiency: PACMAN Model

The consumer perception of energy efficiency has two components:

(1) Upfront investment in expensive appliances or weather-proofing their homes that need upfront investments.

(2) It may or may not reduce the energy bills monthly by any certain amount. Thus, the value of investing in new appliances isn't clear.

These two factors influence consumers to continue to use older, less efficient home appliances. It also leads them to use sub-optimal methods (aka 'hacks') to seal the chilly draft in their homes during winter.

Utilities have a significant opportunity to defer capital investments by enabling their customers to be more energy efficient. It sounds counterintuitive that utilities want to "sell" less of their products and cut down on their revenues. Energy efficiency helps them save capital investment on expensive peaker plants. "Energy Efficiency Programs Improvement Act of 1990" encouraged regulators to work with utilities to design programs that'd improve the energy efficiency of individual residential households. 

As the population and economy grow worldwide, cutting down energy bills at one home is compensated by growth in other business areas. Energy efficiency frees up utilities existing resources to be available in more profitable revenue streams. Such as serving industrial customers or enabling more electric vehicles.

As the price of natural gas soars, utilities have a big incentive to encourage incremental energy savings and peak demand reduction among their residential customers. Utilities can achieve this through a combined strategy of energy efficiency and demand response programs. 

It is essential to note the difference between demand response and energy efficiency. Demand response seeks to minimize peak consumption ("kw") at strategic times of the day. At the same time, energy efficiency is concerned with reducing overall "kwh" – the units at which customers are billed.

Post-COVID 19, consumers' preferences, energy needs, and energy use behavior is evolving fast. Work-from-home has modified traditional load profiles. In many instances, our new work-from-home habits have increased homeowners' energy bills. These new normals open new segments for marketing energy efficiency programs. However, in modern times, for new energy efficiency programs to yield maximum return on investment for the Utility, they need to be tailored to the customer they are serving.

Utilities need scalable frameworks that work with their existing systems of records, billing systems, and customer relationship management systems. In this article, we introduce a framework called PACMAN. PACMAN is derived from the first initials of its core components - which can help utilities demystify the ever-evolving needs of the energy consumer.

The six components of the PACMAN model are as follows:

1. Price sensitivity: In theory, price sensitivity is a measurement of how much the price of a particular product modifies the customer's likelihood of buying it. In the case of energy use, price sensitivity also has a significant role in whether everyday people will participate in the energy efficiency programs being rolled out by electric utilities. While utilities are keen to defer capital investment through peak demand management, customers are concerned about minimizing their energy bills. Energy costs are rising across the world, especially in North America. Spurred by the rise in natural gas prices and Utility's prudent and public interest investments in modernizing the power grid - electricity rates have been growing annually by 4% nationwide. Also, according to EIA, electricity rates are up by more than 15% in New York, Hawaii, and Florida. However, the perception of rising energy costs varies by the household income level and economic environment. Energy customers impacted by the fast-approaching recession - are more likely to be interested in energy efficiency solutions to reduce their monthly bills than those doing well. Thus, knowing the customer's stake in the economy and their price sensitivity towards energy will help utilities develop compelling collaterals. Customer-specific marketing materials for energy efficiency are more likely to appeal to customers who are less price-sensitive to energy costs. So, as a first step, utility companies can develop a price sensitivity model on top of their rate-class or billing classification by preparing surveys. Then, utilities must channel their data scientists' time to study survey responses. That can be designed and delivered when the Utility notices economic shifts or feeder-specific changes in energy consumption.

2. Awards: Humans are dopamine-driven social animals. We are lured and hooked by signs of little progress. This psychological foundation has been commercially successful for many other industries - such as personal fitness. Thus, designing personalized energy efficiency strategies is possible by developing more customer-facing tools than utilities have traditionally. Utilities must innovate in designing scoring and reward systems for customers actively participating in energy efficiency programs. These innovations should make their energy efficiency successes more tangible immediately. It might include showing progress bars or enabling social sharing - as an extension of their Billing system or as a part of the Utility's mobile app. Such gamification techniques have powerful habit-inducing capabilities that appeal to people, especially those customers who are less sensitive to rising energy costs.

3. Community engagement: Being fundamentally tribal animals, humans respond more favorably to a call to action as a community than as individuals. Thus, utilities can focus on energy efficiency for whole communities, not just households. Several large businesses have green building certifications or LEED plaques prominently displayed at entrances. They are a good indicator of the companies' intent and priorities - as far as being energy efficient.

However, most shops and small businesses in the US and elsewhere do not get any incentives to make their energy efficiency certifications framed or highlighted. Statistically, small shops and businesses are more visible and accessible to the general population than large corporate buildings. This way, the message of energy efficiency gets limited to a smaller population segment.

We also need to consider imparting the benefits of communicating the message of energy efficiency to the next generation, not only as a classroom message - but more universally and organically. Let's try a quick thought experiment. Consider a child who visits a neighborhood ice-cream shop weekly and notices the clean energy certification on the walls. It might intrigue her to know what that sign means, and she would be inspired to learn more about energy efficiency. Customers may not be aware of their utilities' energy efficiency programs.

Small businesses are the bedrock of our communities, not only in the US but almost everywhere globally. Since most people living in the same region end up accessing the services of the same shops and small businesses - honors and recognizing the small businesses' efforts in energy efficiency can set the mindset of many their patrons within the community. Thus, utilities should invest more in making energy-efficiency success stories more "visible" by leveraging small businesses' access to the citizens.

4. Mindset and Motivation: Unlike smartphones, energy-efficient smart homes are not discrete products. Being energy efficient often needs to consciously become a part of one's lifestyle - such as turning off the lights whenever they leave a room - whether at a hotel, home, or office. Also, energy efficiency solutions installed today - such as weather-proof windows - degrade over time, and homeowners need to be reminded about staying on top of their energy efficiency game.

People are busy in their lives. In advanced economies, energy efficiency is not as much of a concern for most individuals and households as energy availability is. Customers who are most price sensitive to rising energy costs will have additional motivations to make the most of ongoing energy efficiency incentives. However, the utilities risk losing their engagement once they have to worry all the time about scheduling their energy use or complicating their appliance buying processes. Leveraging artificial intelligence algorithms and automation - utilities can develop customer-specific "recommendation engines" - as Netflix does for movies for each customer. Or how e-Commerce websites help the customers discover the latest discounts and best prices for getting the products they want.

5. All-round availability: Utilities can develop partnerships with appliance retailers and service providers (electrical contractors, home energy auditors, insurance providers, solar installers, window, and door servicing companies) to make the customer's energy use habits to be efficient from the inception and maintain that high level of efficiency. It would enable the utilities and customers to put their energy-efficient upgrades and lifestyle on autopilot. Such intelligent automation can create win-win synergies for the homeowner, the Utility, local businesses, and the planet.

6. Needs-based incentives: Understanding the modern customer is more complex than traditional ratepayers due to market options and technological evolutions. However, thanks to smart meters - it is possible to correlate and forecast every customer's energy needs ahead of time. As of November 2021, more than 102 million smart meters were installed in the US. More than 88% of these installations have happened in customers' residences. Modern technologies can map the granular smart meter data gathered by the Utility to the consumers' spending behavior, weather patterns, socio-economic trends, news cycles - and several other signals. It can help utilities understand and even forecast the energy needs of the customer better. It would help them estimate the customer's future energy needs and suggest the best strategies to be more energy efficient.

Utilities – such as Pacific Gas & Electric – have used statistical clustering approaches to identify which "segments" of their customers have an overlap. 

Several customers have automated their bill paying. Some utilities, such as Xcel Energy, send customers a customized video explaining their electricity bills. Such video messages demonstrate how much the bill increased and what may have attributed to that increase. It is helpful and a significant step forward in improving the customer's relationship with the Utility. Utilities must track how often the consumers watch the video and how it impacts their future energy use. If utilities could also accurately forecast energy bills for future energy of the consumer, their energy efficiency products would see more adoption among their consumers.

Every customer is different and going through different phases of their lives. By understanding customer-specific needs, utilities can design incentives that express the empathy of their customers while serving their goals of peak management. Time-of-use or inclining block-based rate designs used for billing the customers for their energy use is too generic. For most expensive electric vehicle owners, the convenience of charging their car whenever they want is more appealing than setting it at the cheapest hours of the day. Thus, utilities should prioritize understanding the needs of their customers better in the coming years.

Among utility customers, investing in energy efficiencies - such as getting new windows or roof tiles, can affect their savings or other personal goals. Utilities are responsible for communicating to their customers that energy efficiency doesn't necessarily require them to invest in new upgrades with uncertain rates of returns.

The PACMAN model proposed in this article is a robust framework that utilities can use to clarify the benefits of energy efficiency to the specific customer. Customized energy efficiency programs appeal to their individual needs and improve their sense of belonging to their communities. Once customers are clear on the value, rolling out energy efficiency programs across the community will be more accessible, more popular, and less expensive for the utilities in the future.