(August 2011) Economic consultant Michael Rosenzweig challenges Constantine Gonatas’s proposal for ensuring FERC’s demand response rulemaking achieves its objectives. Also, Juliet Shavit...
Smart Grid: A Customer Challenge
Consumers hold the key to technology’s benefits.
generate more reliable forecasts of probable smart-grid benefits than those that fail to understand these characteristics.
The adoption process is made up of five stages that describe how individuals in different segments are influenced to adopt a course of action or innovation: 1) Knowledge—exposure to basic information about actions available to residential customers to take advantage of the smart grid; 2) Persuasion—involves how individuals in different adoption categories are influenced to take interest in information; 3) Decision—whether to adopt or not; 4) Implementation—what energy device or program individuals use; and 5) Confirmation—what individuals commit to sustain (and what is abandoned).
Managing these stages, customized for each segment, will help utilities accelerate participation in their smart-grid programs. Because some segments ( e.g., late majority) will require higher touch approaches than others ( e.g., innovators), customizing approaches also will help reduce program costs.
The smart-grid benefits utilities actually can achieve will depend on two factors: the rate of adoption and the magnitude of coincident and non-coincident peak-load reductions they can achieve. Key will be developing program strategies for each adoption segment that stimulate rapid and stable participation.
Consumers in the various adoption categories, however, don’t respond equally well to motivation and capability development or passive and active efforts. There’s a range of potential program decisions to be made and different adoption categories might appeal to varied consumers (see Figure 1).
Many smart-grid-related program ideas and designs provide examples of these points that allow speculation as to how segments might be engaged (see sidebar “Smart Rate Designs”). But while pricing strategies sometimes are hailed as another way to shape consumer behavior, complexity likely will limit participation and often might generate significant regulatory concerns. Key however, is to recognize that utilities should approach pricing by providing options that naturally will appeal to different segments (see Figure 2 and also see sidebar “TOU Pricing Strategies”).
Special rate programs are difficult to design and can lead to unexpected results for consumers. For example, when Puget Sound Energy introduced a simple two-tier rate structure that it touted could help households save money, the program in fact increased bills, despite changes in behavior. 9 Again, understanding how information and persuasion will drive decisions to participate is important in shaping realistic expectations and program designs.
The better utilities understand the characteristics of adoption segments and tailor smart-grid demand-side management (DSM) programs to meet their needs, the more durable and widespread the results are likely to be. Regulatory support will be important if a variety of pricing and program options are going to be used, though this will be important to maximize participation and retention over time. This is not a situation where a one-size fits all approach is likely to be effective, especially in the long run. Also, utilities might need to be incented in different ways so they truly see a benefit in long-term load reduction.
Finally, the evolution of consumer programs in support of a smart grid will require a number of changes within utilities themselves, not just a set of new incentives. Customer-service representatives,