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28/02/2013

Facebook to promote energy savings

The subject of progressive energy tariffs is widely discussed. Question is what the impact of this type of tariff is on an individual's energy consumption. To provide some background to the topic, let's have a look at California, where progressive electric tariffs have been implemented for 30 years. Was there really an impact on energy efficiency? How can we encourage customers to have a smaller and better energy usage? An innovative response is under development: Facebook is about to offer an application to create social competition on energy. Marketing effect, gadget or educational tool?

In California, progressive tariffs have had a mixed impact

Along with Japan and Mexico, California implemented progressive energy tariffs in the eighties, in a context of difficult supply that would lead to unfair and unbearable power prices for lower incomes.

Evolution of tariff bands in California (PG&E) Evolution of tariff bands in California (PG&E).
In 2007, the State of California decided to increase the penalty again with two objectives: do not increase the lower tariffs and incite a lower consumption. Following this change, the research institute of the prestigious University of California Berkeley examined the consumers' behavior in times of progressive increase. Two impacts of the tariff were studied.
First, are the tariffs social? The answer is yes: the energy bill of lower income families decreased by about 17% with progressive tariffs . This is due to a housing uniformity that enables easy identification of energy wastes when electric consumption is higher than average.

Second, are consumers' behaviors changing towards higher energy efficiency? Here, the answer is no; according to the study of researcher Koichiro Ito of University of California Berkeley, most of the population does not understand the progressive tariffs . In fact, the price of the first electric block has been reduced. Therefore, a significant amount of Californians with power consumption above 130% of their allocated total ended up having a lower energy bill. For Koichiro Ito, it is essential to inform consumers in a more educational way, to enable them to understand the tariffs and eventually reduce their energy bill.

Informing, a key for savings

Californians have understood since the early 2000's the potential savings associated with better information towards the end consumers. After being pioneers in the smart-grid technologies, they invested again in 2006 so that 9 million smart meters could not only provide live information to the electric grid operators, but also inform consumers about their real-time energy usage.

The first experiments showed that behavior of consumers improved when they were informed. In 2011 in Iowa, 800 homes participated in a survey conducted by IBM and the Town of Dubuque. One quarter of these homes were connected to on online portal that provided their consumption, along with their ranking compared to similar houses (size, location...). This high participation is encouraging because the rate of connection of American homes to their energy provider's website is usually only 6%. The main drive that enabled this success is probably the social comparison, especially being able to see that others are doing better on a financial or environmental side. This peer pressure leads to results: participating homes reduced their energy consumption by 11% after a few months, by identifying wastes and trying to respect their predefined base volume.

To ease access to the energy data, Opower, an American start-up founded in 2007, seems to have found relevant solutions. They patented numerous algorithms enabling them to analyze and precisely compare housing sizes and similar situations, and then to provide advice to the users. The analysis is sent through regular mail to reach a higher part of the population, including persons with no internet access. In the end, 70% of the consumers read the reports and acted to reduce their energy usage .

And it does work! Partnering energy suppliers are observing a drop in consumption of 2.5% on average for the total of their clients, which allows them to have a better satisfaction rate through reductions of rising energy bills . Beyond this improvement in their customer relationships, energy suppliers benefit from higher flexibility to incentive clients to reduce their consumption when necessary (peak loads). Even if the energy volume goes down, suppliers increase their profitability by better knowledge of the total volume and reduced need for expensive and carbon intensive peak electric facilities (fuel, gas...).

However, consumption drop remains too low compared to the IBM survey in Iowa. It is thus necessary to increase the motivation of the consumer through comparisons more precise and local. This is the challenge of a high scale experiment from Opower.

Social networks, an innovative stimulus

In April 2012, Opower partnered with Facebook to create an application with 16 American energy providers. The goal is to reinforce the visibility of the personal energy data provider and to increase motivation between consumers, through social competition. To reach this goal, they will enable the display of energy performance on the profile of willing users. In addition to the social challenge, the application will have all the functionalities of the previous experiments: consumption graphs, advice, energy tips... These functionalities enabled American consumers to save 175 million dollars on their energy bills since its creation in 2007.

Even if the technology to develop this service seems straightforward, it needs large communication of smart-meters. It does demonstrate, however, that there is an important need for improved interaction between clients and providers. This innovation could improve the acceptance of smart grids that have been experiencing increasing difficulties these past years.

Home page of the Facebook - Opower application Home page of the Facebook - Opower application.
Behavioral changes: constraints or incentives ?

The underestimation of behavioral changes is a European syndrome. Indeed, several countries in the EU started to develop smart-metering, like France, the UK, Spain, Sweden, Germany and above all Italy, where 27 million consumers have smart-meters . Nevertheless, none of these countries developed a large-scale system of information and advice towards the consumers. It was only in March 2012 that the European Council required European smart-grid projects to set up a user interface.

France could then become the European leader in information systems and advice to the consumers. Promising projects, such as Greenlys and Nicegris, are in development stage, with the ADEME support, to test French smart grids. This large scale pilot project will test the potential savings associated with smart-meters, with home automation systems, with local generation of energy... It is through such projects, and incentive tariffs, that the objective of energy efficiency can be reached. Indeed, the California experiment showed that without proper information, the consumers are facing energy tariff increases helplessly.

Sia Partners

1 comment
Lizzete le 07/01/2015 am31 03h06

I think I could call myself a seairl switcher . I have tried 5 of the big 6 cartel which over time seem to be much of a muchness with little if any real difference in price, and all exhibit intermittently poor customer service.Once you've got onto the monthly direct debit payment method and unravelled the multiple tariff, variable standing charge marketing rip off you've got things as good as they are going to get. Whoever you buy from prices are still exorbitantly high and ever increasing at well above the normal inflation rate.I'm surprised so many still believe this privately owned free market approach offers any real competition, and also believe that switching from supplier to supplier is some universal panacea to low prices. In my experience over several years it's not.This constant bombardment of advice we get to switch and save is tinkering around the edges of a very broken supply system. Even Which go on about switching every ten minutes, and should know better. Once you've moved off the standard tariff things don't get much better whoever you go with.To my mind the answer to control of a part of national infrastructure is to re-nationalise with the brief of the top man to meet targeted price reductions on an ongoing basis. I'd happily pay him big bonuses for real success.As a backup I'd also form an independent overseeing body to see that targets are achieved with the powers to replace top management if they fail.Better than a shareholder owned approach where the only objective is to make ever increasing profit through confusion tactics thought up by clever marketing departments.That's what we have now.That's the minefield we have to navigate through just to stay warm in the Winter at anything like affordable prices.We need a major game change.We need to attack the disease rather than trying (and failing) to treat the symptoms with the magic pill of switching, which it's not.Posted 12 June 2013 at VA:F [1.9.22_1171]1 - 1

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