US demand response: what is making utility customers bite?

Energy suppliers are seeking the golden bullet to spark consumer interest in demand response programmes but at what cost?
Published: Fri 03 Feb 2017

In a sample study of US broadband households, 70% said they would be incentivised to change their electricity usage by a cash payment of $7 for each adjustment.

Tom Kerber, Director of IoT Strategy at Parks Associates, the US-based Internet of Things (IoT) research company that conducted the study of 5,000 households in late 2016, said the cost “is not justifiable”.

Kerber said the company did the research in a bid to find “more cost-effective ways for a utility to deliver demand response and smart home programmes”.

So what other incentive structures in lieu of cash payment can utilities draw on? In the same survey, 36% of US broadband households said they would engage in a demand response programme if offered a free product such as a smart thermostat.

While 29% are attracted by services that energy companies can offer that are potentially “more valuable” than cash, such as detailed breakdowns of personal energy use including segregation capabilities of individual home appliances.  

Consumer programmes - best practice

Kerber concedes that “consumer awareness of utility-based energy programmes has not increased substantially over many years.”

This comes despite US utilities piloting demand response and customer engagement programmes over the past two to three years.

But while take-up remains lower than most energy suppliers would like, Kerber says the sector is learning best practice in “how to incentivise consumers within the smart home”.

He cites finding the right incentive - whether a free product or service - as one way to increase programme sign-up rates.

Another is ensuring the call-to-action message is extremely clear and the sign-up process is simplified to the point of only entering an email address.

“A utility needs to make all of the friction of a customer completing endless screens of personal information go away.” And timing is everything, he says.

Smart home devices - the key to US demand response?

Although US demand response programmes are still at the testing stage, Kerber describes the national smart home market as being in an ‘early adopter phase’.

An estimated 11% of broadband households own a smart thermostat, which represents a large installed base in utility service territories, says Kerber.

This begs the question of whether to offer a ‘bring your own device’ programme.

Kerber says there are around 30-50 pilots happening in the US out of 3,000 utilities, which are helping to allay the sector’s fears of involving third parties in demand response programmes.

Parks Associates has found that consumer perception of a utility brand being associated with an external smart home technology brand is positive and the energy supplier stands to gain from cross-marketing.

Utility case study: Austin Energy

Kerber references a ‘bring your own device’ pilot that Austin Energy began four years ago.

Austin Energy, the eighth largest municipal utility in the US, has 2,800MW of peak demand, with a goal of 900MW of new energy savings through energy efficiency and demand response by 2020.

To achieve these goals, Kerber explains that the utility has transitioned from a free thermostat programme “to a new, more cost-effective, pay-for-performance thermostat demand response business model that leverages customer-owned thermostats.”

Under the programme, Austin Energy pays thermostat vendors a one-time recruiting fee and an annual fee of $30 to manage demand response events. Currently, three service providers - Alarm.com, Nexia Home Intelligence, and Vivint - are authorised to participate.

The programme includes 14 models of thermostats from six manufacturers and pays its customers an $85 rebate on the purchase of a smart thermostat, regardless of when it was purchased.

In five months during 2013, Austin Energy enrolled 4,000 thermostats with absolutely no traditional marketing by the utility, said Kerber.
“The enrollment process drives traffic to Austin Energy’s web page, making the registration a positive experience. Ultimately, Austin Energy is able to send messages, pricing signals, and critical usage information to customers through a smart thermostat and connect with these customers like never before.”

Incentivising utility customers - event

Parks Associates will host the upcoming Smart Energy Summit: Engaging the Consumer in Austin, Texas on 20-22 February, 2017. Kerber will lead the event and will be joined by utilities including Austin Energy, as well as state and national regulators, telecom and security companies, retailers, smart home players and OEMs. For more information on the summit, go to SES2017.com.

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