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As utilities, regulators and other market actors face increasing pressure to dramatically ratchet up energy efficiency and demand response programs, a new buzzword, behavior, is fundamentally changing the approach to energy efficiency. Behavior strategies, often grouped with close cousins marketing, education, outreach, conservation and market transformation, offer the promise of dramatically increasing the reach, cost-effectiveness and verifiability of energy efficiency investments. By combining the insights of behavioral science and consumer marketing with advanced technologies, changes in household energy use patterns and purchases of energy efficiency products and services can be strongly affected.
The interest in behavior comes at an opportune time. Government-mandated energy efficiency goals are placing utilities and regulators in a tough spot. Not only must they reach higher energy reduction targets, but they must also do so in a cost-effective and verifiable manner. Currently, 18 states have some sort of Energy Efficiency Resource Standard (EERS) in statute, and many more are in the process of passing an EERS or have structural equivalents. In addition, federal energy and carbon legislation may pass this year that will extend an EERS to remaining states, potentially saving $170 billion in energy costs.
In many states, utilities receive direct incentives, both carrots and sticks, to meet their EERS goals. And in states where utility decoupling is being applied (e.g., California), utilities will only make excess profit by exceeding energy efficiency goals. In such an environment, the normal approach to energy efficiency just won't do. Behavior offers a path to scaling energy efficiency, especially in the residential sector, with some experts estimating that we can reduce 20 percent or more of our nation's energy use through behavior strategies.
But with the exception of programs that offer free CFLs (hard to beat that price!), it is challenging to find rebate programs that offer extremely attractive benefit-cost ratios. It simply takes too much money to effectively change purchasing decisions, as energy use is relatively inelastic. Consumers will respond to price signals, but they have to be fairly strong, especially since other market failures such as the landlord-tenant disconnect and uncertainties in length of occupancy can further disincentive investments in energy efficiency.
In addition, PTEM programs often have trouble meeting increasingly strict measurement and verification (M&V) standards. There are essentially three ways to approach M&V, none of which are mutually exclusive. The first, billing analysis, is generally preferred wherever possible, because actual savings, assuming an appropriate control group is used, can be accurately measured. The second, engineering studies, use advanced building modeling algorithms to estimate energy savings from improvements to a specific home or building. The third M&V method, which the majority of rebate programs rely upon, is generally referred to as 'deemed savings'.
The deemed savings approach makes a variety of assumptions related to the benefits of installing a particular technology. So if customers are offered a $100 rebate on an energy-efficient air conditioner, a set of deemed savings assumptions will be employed to estimate the marginal energy savings, both total and peak, that accrue from that rebate. These assumptions generally include the engineering specifications of the air conditioner, the efficiency of the unit that is being replaced, the manner in which the air conditioner will be used, the expected performance of the new air conditioner across its useful life, the estimated useful life itself, and the likelihood that the customer would have bought the air conditioner without the rebate.
Different assumptions are made for each product and for each region, with sometimes wildly different deemed savings estimates. And so despite the great deal of time, expertise and money that goes towards creating deemed savings estimates, regulators are often reluctant to rely on them, creating constant acrimony on the public benefits generated by ratepayer-funded energy efficiency investments.
In contrast to the PTEM approach, behavior-based strategies focus on non-financial leverage points that affect consumer decision-making. In addition, there is no distinction made between operating behavior (e.g., turning off the lights more often) and purchasing behavior (e.g., purchasing CFLs). This is important since most experts agree at least half of actual energy use is dependent upon operating behavior, rather than the specific technologies being employed in a home. In fact, some researchers have found a 3x energy variability in identical houses and 4x variability in apartments across cultures.
There are a variety of approaches that leverage behavior, but best practice combines the following elements, all of which focus on what motivates real people:
- Personalized Information. People don't want generic tips, they want information that's customized to their own situation, both in terms of costs and benefits. Hardware, software and in-home energy audits can all play a part in communicating actionable information to the consumer.
- General and Specific Commitments. People must make both general commitments (e.g., I will reduce my energy use by 20 percent) in addition commitments around specific actions (e.g., I will unplug my appliances). Psychological studies across a variety of subjects have demonstrated the importance of commitment, and energy efficiency is no different. And if these personal goals are part of a broader community, state or national goal, all the better.
- Social Pressure. People tend to do what their friends, peers and neighbors are doing. So when it comes to managing home energy use, it's no surprise that keeping up with the Joneses is a powerful motivator. That compact fluorescent bulb may not seem so bad once all of your neighbors have installed them. And if you know that all of your friends are actively reducing their energy use, you're much more likely to do so yourself.
- Constant and Contextual Feedback. People love to know how they're doing, Americans especially. But with only monthly energy bills, it can be difficult for the average consumer to feel the feedback between their actions and any resulting benefits. Bill analysis, real-time monitoring and other forms of feedback communication go a long way towards influencing household energy behavior, both in terms of peak demand and total energy use.
These elements can be integrated into almost any energy efficiency program, or can be utilized to form new programs that focus exclusively on influencing behavior. And they can utilize a variety of technology and communications strategies, ranging from advanced hardware and software solutions to community marketing campaigns that leverage local volunteers.
Of course, program administrators and energy efficiency experts have long known that behavior is an important aspect of any energy efficiency program. But only recently has behavior begun to be accepted as the primary lens with which to view energy efficiency. A recent Behavior, Energy and Climate Change conference attracted a record turnout, with utilities, academics, technology providers and other market actors coming together to discuss ways that behavior can play a role in solving the intertwined energy and climate crises. This interest is part of a larger behavioral renaissance in academia that focuses on actual decision-making processes rather than assumptions about "rational" human behavior.
Perhaps more importantly, technology has advanced to the point that the benefits of behavior strategies can be accurately measured and tracked. In-home feedback technologies, online energy analysis software, and web 2.0 social media tools can all track the type and impact of behavior changes at the household level. When combined with grassroots marketing, education, and outreach strategies, these technologies can deliver verifiable, reliable energy savings at much more attractive benefit-cost ratios than traditional rebate programs. Instead of focusing on the means, with separate marketing and program implementation costs for each energy-efficient product and service, behavior strategies focus on the ends, remaining neutral as to the means (product purchases, lifestyle changes, etc.) that lead to the reductions. Incentives can still be an integral part of a program, but they are approached from a marketing, not marginal price, perspective. A sale at a furniture store would not be very effective without loud marketing announcing slashed prices, and energy efficiency is the same. Rebates and other incentives are just one part of a larger strategy to get people's attention.
Measurement and verification (M&V) can also be much more accurate in behavior programs. Rather than attempt to estimate the effect of specific rebate programs, large-scale data analysis is employed to measure aggregate reduction effects. Taking into account weather-adjusted billing information and a robust control group (usually neighbors that have not had a behavioral intervention), reliable savings estimates are generated that can be easily updated on a monthly or quarterly basis. Measures taken can be determined by real-time or post-facto survey data, with various statistical tools determining the relative importance of each measure.
So behavior strategies can be more effective, cheaper and verifiable than current approaches. All it takes is a little bit of creativity in melding new technology with existing program infrastructure. You might even say that behavior is the iPhone of energy efficiency. Both leverage advanced technology, but the real insight lies in the relentless focus on consumer behavior. Understanding how people think and act is imperative to any consumer venture, whether it is the design of a cell phone or the development of an energy efficiency program. And so these days, no utility or program administrator can afford to ignore behavior, especially as more aggressive energy efficiency goals are instituted at the state and national level.
Part II of this article will discuss examples of how behavior can be deployed to maximize your energy efficiency investments.