FERC’s new rule on compensation for demand resources tips the market balance toward negawatts. Arguably the commission’s economic analysis is flawed, and the rule represents a covert policy...
Making Efficiency Cool
A new business plan for capturing big saving.
as falling short of efficiency goals. Indeed, utility shareholder penalties are at the ready in several states, to be applied by regulators against inadequately performing utilities. Ultimately, utilities can be cut out of the game completely, replaced with third-party administrators.
Listening to Customers
Too many customers are unconcerned about efficiency. To even come close to the numbers tossed about by political and regulatory leaders, many more Americans must come to embrace—enthusiastically—a current or retuned efficiency value proposition.
In the Efficiency v.1 world, we’ve been told any business or consumer can cut utility bills and help the environment—simultaneously—by buying efficiency. The problem is, for many Americans these twin benefits are perceived to be too marginal.
A Wall Street Journal article pointed out that customers may not be motivated by the value proposition that participating in efficiency programs can save money since savings often are minimal. The article illustrated the experience of Lori Villarreal of Sherman, Texas, who purchased two $359 Kohler-brand dual-flush toilets and two water-efficient showerheads that range from $75 to $100. In the end, her savings were very small; in January and February, she saved just $2 and $5 compared to the same period in 2008. 6
Customer apathy is reinforced at all three stages of the efficiency-purchase decision. In the first stage, before a purchase, a customer can find it hard to visualize efficiency. After all, efficiency is an elusive abstract term and just one of many attributes that a customer considers when purchasing an electrical device, rarely the most consequential.
A further complication is that efficiency can have a negative connotation in American culture, implying a kind of humorless frugality or abstinence. Business models encouraging Americans to live large or enjoy guilty pleasures are more commonly successful. As Chu has observed, a $1,000 investment significantly would increase the efficiency of the typical home, “but the American consumer would rather have a granite countertop.” 7
The second stage, the efficiency purchase itself, is fairly uneventful; almost nothing changes. The customer has little to point to, to signify and celebrate a purchase. And in the third stage, after purchasing efficiency, few customers eagerly will rip open and proudly look over the monthly utility bill. Unlike the neighbor’s rooftop solar panels, the efficiency customer’s good deeds start out remarkably inconspicuous and fade from memory over time.
Lack of excitement begets lack of excitement, sidelining one of the most potent of marketing tools, word-of-mouth recommendations. In the Efficiency v.1 world, businesses and consumers hear too little excitement about positive efficiency experiences from fellow businesses and consumers.
Breaking down and analyzing the efficiency-purchase decision, the BEB will recognize the diminishing returns of a supply-centric approach and instead go demand-centric to meet aggressive efficiency targets. But making this leap means embracing the differences between legacy programs and Efficiency v.2 (see Figure 1) .
Legacy programs took the first critical step in ensuring widespread availability of efficiency products and services. And these programs succeeded, making efficiency less expensive and less of a hassle to buy. The next generation is about revolutionizing how businesses and