Courtesy of The Energy Collective, two posts on smart grids and the consumer. First, a look at the segmentation of consumers in smart grids and concludes that fully 90% of small consumers (residential and small retail) are not interested in participating in smart grid technologies (the other 10% divide into groups interested in saving the planet, saving some money, or beating their neighbors). Even though we may not agree with the author’s conclusions about the impact of financial incentives – it is thoughtful reading .
The second offers some thoughts on how to reach the apathetic 10%. While we agree with the authors conclusions that smart meters may well be the LAST application at the retail consumer level, we would argue the inherent benefit of smart markets as discussed in earlier blog posts in this forum.
As the first article notes:
“…the grid industry calls the electricity user community at the far end of the system “The Edge”. Graphically the system is frequently depicted that way with a central power producing entity surrounded by the web of transmission and distribution lines terminating in the end user community.
But “The Edge” does not imply “The End”. The whole purpose of the grid is to get electricity out there to drive industry, commercial endeavors, and our residential pursuits. In fact, the presence of our stable and reliable grid and an abundance of electricity has driven the modern economy and society in the United States.
In order to make sense of all of the initiatives relating to Smart Grid, out here at The Edge, we need to separate these consumers into two categories. The divide is not a sharp line, but roughly considers large consumers and small consumers independently. Large consumers would include industrial applications, large commercial users, perhaps large educational and government facilities. Small consumers could be thought of as residential, small retail and office facilities.
Large consumers have been leading the way when it comes to conservation, load leveling, and end-user generation facilities largely because businesses and other large institutions have been seeking ways to lower any and all costs associated with the operation of their facility. While electricity is relatively low cost, it is not free and in a capitalist market like the US, any reduction in cost can be a direct benefit to the bottom line. Many large facilities have put in sophisticated monitoring devices that automatically turn-off lights, HVAC, and other devices when such equipment is not in use. Some of these facilities have even explored the possibilities of co-generation with solar panel, wind mills or gas turbines on their property. When power is not being used by the facility itself, it is made available to the rest of the grid with some cost benefit to the owner.
Because large consumers have already moved much of the way down the path of conservation, efficiency and load leveling, and the solutions are considered to be well understood, there is considerable interest in how to engage and capture the small consumer potential in this area. Three types of small consumers were actively identified, but a fourth soon emerged as well. The first three were classed as:
- those that want to save the planet – who will reduce or shift usage without financial incentive given a means to do so
- those that want to save money – who will reduce or shift usage if sufficient financial incentive is provided
- those that want to “beat their neighbors” – who will reduce or shift usage in response to some competitive incentive
The elephant in the room, however, was the fourth class. Fully 90% of all small consumers in the US are indifferent to any incentives. In fact, the heavily touted “SmartGrid City” of Boulder, CO has had only limited direct participation from the small consumers in the community. Even so, significant benefits have been demonstrated with the improvements in transmission and distribution as well as large consumer participation. There was significant discussion about how to increase consumer willingness to participate.
First, why don’t consumers care? What’s up with the 90% that are indifferent and what can be done to capture their attention, or at least more of their attention.
Show Me the Money?
Electricity bills form a fairly small fraction of most households budgets. A report from the Bureau of Labor Statistics shows that household energy costs (natural gas and electricity) were less than 4.25% of typical household spending. If a homeowner is trying to reduce household costs numerous other areas are more costly: rent/mortgage (28%), car payments (10%), food (8.%), restaurants (6%), and recreation (6%). Energy costs are roughly equivalent to what a family spends on clothing. Consumers are far more likely to reduce in areas where little or no additional investment is required to lower costs. Eating out less often, reducing the number of cable channels, and spending less on new clothes are likely to save more money with less upfront hassle than blowing more insulation into the attic, or even upgrading a thermostat.
Trying to hit a consumer in the pocket book to get their attention would require significant increases in electricity costs. This technique will not improve what is already a tenuous relationship between government, utility, and consumer regarding electricity rates. One need only look at the reactions of consumers during the electricity price spikes in California in 2001, or more recently when gasoline went to $4/gallon.
Another concept is to introduce variable energy pricing that rises and falls with the actual costs of generating electricity. However, in order to this to work for the consumer, equipment must be installed at each home to allow the consumer to see, and manage these costs. Once again, the problem that a cost conscious consumer will look to other, more profitable ways to reduce costs will tend to limit participation in such a program.
Save the world?
So monetary incentives are unlikely to be successful. How about appealing to the altruistic nature of people? After all, much of what we’re talking about are ways to reduce greenhouse gases and other pollutants as well. Great idea! Problem? The industry is sending a very mixed message to consumers. Utilities have mixed motives as well.
Utilities make money by selling electrons. Convincing their customers to buy less electrons to save the planet makes little sense to the electricity generators. They’d LIKE to see consumers using MORE electrons, just doing it a little more consistently. In addition, the utilities want to sell themselves as good guys. Afterall, they are eventually going to want rate increases to pay for all the good things they are doing. So, most utilities are spending a great deal of time and money convincing the public (and the rate-setting commissions) that they are spending a great deal of time and money investing in methods of generating electricity that are GREEN and CLEAN.
If the same people then try to turn around and convince consumers that REDUCING their usage of electricity is going to reduce the generation of nasty pollutants, the consumer is left with a mixed bag of stuff. Many will simple ignore all of the messages.
Beat the Joneses?
OK, let’s add people to that third group, the competitors. The U.S. is famous (or infamous) for its one-upmanship culture. If my neighbor has two cars, I need two cars AND a motorcycle. It is part of the problem with the excesses in our culture today. We don’t buy what we need, we buy what we perceive we need to KEEP UP with our neighbors and friends.
Once again, the ability to sell this concept falls apart. Part of the fun of the whole one-upmanship is the ability to show off. Unless we put outside indicators of electricity usage on houses to allow the occupants to “show-off” their really LOW consumption, there is little likelihood of success. Some folks will enjoy beating the curve on the Internet and demonstrating their electricity skills, but the kick of “show and tell” just isn’t there.
The second article notes:
“…Fully 90% of small consumers (residential and small retail) are not interested in participating in SmartGrid technologies. The other 10% divide into groups interested in saving the planet, saving some money or beating their neighbors. When looking at how to reach the 90% that remain apathetic, I concluded yesterday that much of the status quo efforts in this area will not work, or will not work as intended. It’s easy to say something can’t be done, but much harder to suggest ways that might be more effective at accomplishing the goal.
One of things that struck me in all of the discussions during GridWeek was the interesting opportunities for innovators and entrepreneurs to engage the small consumer. There has been much focus on “SmartGrid” meters as the absolute baseline for all new applications for consumers. I argue that this is NOT the case and, in fact, a smart meters may well be the LAST application at the retail consumer level.
Currently, the meter sitting at each house is owned by the utility. To upgrade to smart meters capable of some of the more complex interactions between end consumer and utility is a fairly expensive proposition for the utility. Today, where it is available, most utilities are operation strictly on an “opt-in” basis. The utility has some upside for installing smart (or at least not completely stupid) meters if, in the exchange, they can convince the consumer to reduce usage during peak hours. But sending trucks to individual homes scattered across their service areas is inefficient and costly. As more people decide to participate in such programs, those trucks and service people will make repeated calls into the same neighborhoods.
Conversely, installing expensive smart meters in a wholesale fashion in neighborhoods if 90% of the homes will not take advantage of, or participate in load shifting programs is a costly inefficient use of limited resources on the utilities part as well.
For the most part, people expect savings associated with such an upgrade. This makes the whole effort a questionable cost-benefit analysis for the utility. How much are they gaining by putting in more expensive meters? How much does it cost? Consistently the rate setting commissions have been reluctant to allow utilities to venture into time of use based rates, especially for residential consumers, unless it is an “opt-in” basis. Making the wholesale installation of smart meters not cost effective unless the government subsidizes the entire effort. I think that money is better spent elsewhere.
Considering lessons learned from pioneering technologies in the past, let’s look at more interesting entrepreneurial opportunities at the residential consumer level. To cite examples of market creation in MY lifetime. Let’s consider PC’s, microwaves, cell phones, laptops, DVD players as technology disruptions that have quickly expanded. In some cases, there was “no market” and “no need” for these technologies when first introduced, and yet today some of these appliances are almost considered standard in most homes.
One way to begin to bring consumers into the market is to promote devices that can be retrofitted to current appliances and meters to observe home consumption. A multitude of online store offer such packages at various price levels. More consistent advertising and advocacy for such devices and demonstrated savings associated with their use will expand the application more widely. The penetration into the home market is still limited, but expanding.
An interesting idea that is being developed is a video game that has a character that gains strength as the home reduces energy usage. One presumes that such a game would come with a device to measure and transmit usage. The idea that teenagers and other gamers might start turning off all other lights and appliances and run the software on the most efficient systems possible delights me.
As PHEV’s or even just EV’s begin to come into the market, it would be a wonderful opportunity to provide purchasers with some options regarding these vehicles. A sensor/timer device that will only charge the car during non-peak hours, or a package offering that would allow the utility to use the battery during high peak load and provide the consumer with cost incentives could make such vehicles more attractive and more cost competitive.
The need for smart metering can wait until market penetration of these more mundane devices has reached a level where a smart meter system can make economic sense for both the end consumer and the utility.”
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