How to Engage With the Consumer when Designing a Dynamic Pricing Approach

End-users should be the starting point for designing Dynamic Pricing Approaches in order to change household energy consumption behaviour.
Published: Sun 22 Jun 2014

If end-users own the information from their metering devices, they are more likely to take an active part in the smart grid. There are already a number of examples where information from metering devices is owned by end-users and not by the Distribution System Operators or retailers. If consumers have more control over their data, it could prove to be a very valuable commodity and they may start engaging in ways we cannot yet imagine.

This is according to Dr Ruth Mourik, founder of DuneWorks which is a research and consulting firm that focuses on social issues concerning sustainability and sustainable innovations. Dr Mourik will be presenting at the upcoming European Utility Week 2014. Her focus will be on how to engage with the consumer when designing a dynamic pricing approach.

Some of these issues are also discussed in our recent webinar, Quantifying the Potential of Behavioural Energy Efficiency in Europe.

Individual approach is best

Dr Mourik explains that the first thing to understand is that traditional dynamic pricing approaches consist of three standard elements: the pricing mechanism; supportive technology and feedback. She adds that more customer engagement is needed.

She adds that one needs to be innovative and dare to acknowledge that a 'full court' approach (basically a one-size-fits-all approach that uses as many technologies and feedback options as available in order to reach as many different people as possible) is unlikely to deliver the cost-efficient approach for the future. A one-size-fits-all approach reaches a maximum of 30% of end-users, with very different responses within this 30%. If the aim is to also reach the remaining 70%, a differentiated, tailored and individual approach is needed.

Gain insights to benefit

In addition, developers of both technologies and propositions for dynamic pricing could benefit from the following insights:

  • The theoretical load shifting and reduction potentials tell us little about the actual occurrence of the shifting and reduction. That depends on the end-user. Lifestyle had a strong influence on the actual occurrence of shifting or reduction behaviours and as such dynamic approaches should take account of lifestyles.

  • People are not motivated by pricing incentives only. Environmental motives, "the desire to contribute", control, comfort, ease and wellbeing are important motivators as well. Make sure to find out what motivates them and tailor your proposition to that.

  • So, different end-user and or lifestyle segments need different tailored interventions consisting of a specific combination of dynamic pricing mechanism, technology and feedback.

  • Time of Use interventions target habitual behaviours. Critical Peak Pricing and Critical Peak Rebate focus on conscious and less frequent behaviours. Make sure your proposition takes account of the behaviour you want to change!

  • End-users highly value easy aids such as calendars, magnetic stickers and detailed frequent energy bills. Help them remember!

  • A tailored approach and voluntary participation are also very important to avoid (feelings of) discrimination (and consequently sabotage).

  • Focusing on load shifting only creates the risk of overall load increase. If, for instance, the off-peak price is too low compared to the peak price, this can create an increase in consumption as some pilots demonstrate.

In conclusion, Dr Mourik says that she is keen to get a sense of how much the end-user is being viewed as a starting point by smart grid actors, and how at the European Utility Week. She adds that the conference is a great opportunity for attendees to learn from each other and it is this learning which will pave the way forward in this uncertain transition.