Persistent climate-change concerns, volatile energy prices and a growing awareness of technological advancement in energy are leading consumers across the globe to reconsider their roles in the electric-power value chain. Influenced by their experiences in other industries, they are willing to assume new roles and become more involved with providers and technology. At the same time, substantial increases in investments in utility infrastructure are likely being driven by global demands for climate-change mitigation, the need to support aging networks and the use of government stimulus plans for strengthening weakened economies. For energy and utility companies, this presents a historic opportunity to encourage new, mutually beneficial behaviors and create business models to meet new consumer demands.
IBM’s 2007 report, Plugging in the consumer: Utility business models for the future, explored the radically changing relationship between consumers and energy providers. Even during the global economic downturn, progress has continued along the two dimensions shaping these changes: technology advancement and consumers’ desires for more control.
To continue research about consumer expectations of energy providers, a second survey was launched in the fall of 2008. The 2008 Global Utility Consumer Survey found that the major influences on consumers’ decisions about taking control of their energy experience haven’t changed much: Respondents still believe energy prices are more likely to rise than fall, and a strong majority value environmental considerations in their choices of products and services—although economic pressures have made them less likely to pay premium prices to meet their goals.
These combined survey findings strongly suggest the historical view of customers as like-minded isn’t sustainable, and it’s already outdated in most places. As a result, successful utilities will plan now to understand and encourage new consumer behaviors that will be important in the future industry environment; invest in customer analytics and segmentation to assess the current consumer base and lay the foundation for continual reevaluation; and initiate a program to analyze enhanced and new customer interactions that will take place over a more dynamic and data-rich network.
Generation, network and metering technologies available today provide tremendous opportunities to improve capabilities and convenience for residential and small business customers. Realizing this potential, however, requires shifting emphasis from utility-controlled decision factors to consumer-driven ones.
To understand and encourage beneficial new consumer behaviors, energy providers increasingly recognize that technology evolution and increasing consumer control are pointing to the emergence of four industry models (see Figure 1). As described in the 2007 report, those models are:
• Passive Persistence: Traditional utility market structures still dominate and consumers either accept or prefer the historical supplier-user relationship;
• Operations Transformation: Some combination of grid and network technology evolves to enable shared responsibility, but consumers cannot (or elect not to) exert much control;
•Constrained choice: Consumers take decisive steps toward more control, but are limited to certain “levers” (technologies, usage decisions or choices in providers) by regulatory and technological constraints; and
• Participatory Network: An interconnected environment characterized by a wide variety of grid and network technologies enables shared responsibility and benefits.
Though each is described distinctly, for at least the near term the industry will be represented by various combinations of the four models in different parts of the world. Ultimately, increasing demand for control by consumers and continual improvement in technologies will result in movement of the basis of the industry to the upper right quadrant (see Figure 1)—driving the creation of entirely new markets (virtual and physical) and products.
Over the past two years, many consumers demonstrated at least one goal or trait associated with asserting more control over their energy usage. The features of a participatory network have tremendous appeal because they offer abundant service options and information to manage energy usage according to specific goals, such as achieving cost reductions or lessening environmental impacts.
In order to best align societal benefits, customer needs and company goals, providers must leverage consumers’ newfound openness to change, and then provide information, influence behavior and teach consumers new ways to meet their goals.
For example, increasingly common customer goals are minimizing cost and carbon footprint (i.e., estimated greenhouse-gas emissions produced by daily activities). Both conservation and shifting energy-intensive work to an off-peak time can help the customer meet these goals while directly supporting utilities’ efforts to limit peak load growth and prepare for a carbon-constrained operating environment.
In their book Nudge, Richard Thaler and Cass Sunstein promote the idea that small changes to individuals’ perspectives can cascade into major shifts in behavioral patterns for entire populations. Several of their examples concern managing energy usage, such as one utility’s visual device that glows red when usage passes a certain threshold. In just weeks, they reported, those with this device reduced their energy use by 40 percent at peak times. Since consumers have a renewed curiosity about energy and are willing to change behavior, now appears to be an optimal time to nudge consumers in such ways toward behaviors that benefit everyone.
Thaler and Sunstein mention another device that simply displays energy usage and allows it to be transmitted to the Internet, facilitating a sort of “conservation competition” that would benefit both the user and the provider. Linking such capabilities with Internet-based personal communications—for example, posting energy usage on a blog, Twitter, or Facebook—particularly is appealing to the millennial generation, usually defined as those born starting in the late 1970s through the 1990s. These young people are well-prepared to embrace new participatory network-enabled services. In addition to the immediate benefits, such offerings build the providers’ reputations as both aligned with the consumer and also forward-thinking technologically and socially.
In the 2008 survey, cost remains the most powerful motivator for desire for control and willingness to change behavior. Four in five consumers would change the times when they do energy-consuming housework in exchange for large savings (50 percent). This pattern doesn’t vary much by income level; those in the upper 5 to 10 percent of the respondents’ national income distribution were as open to such change as those below median national income. Even for a small discount (10 percent) for changing time of usage, about half were willing to change. These numbers were virtually unchanged from 2007.
There isn’t much evidence to suggest consumers think lower rates are in store for them; only 6 percent believe that over the next five years, their bills will increase more slowly (or decrease more rapidly) than their usage, while over half foresee the cost increasing roughly at the same pace as usage. Forty percent expect to see their bills increasing more rapidly than their usage—or not decreasing as much as any reduction in usage.
Overall, 2008 respondents have a slightly more pessimistic view of the next five years than those in 2007, mostly because of expected increases in consumption than any apparent change in perspective stemming from energy-price surges in the summer of 2008. Two-thirds expect to see their bills increasing over the next five years, versus 59 percent in 2007; however, in 2008, 38 percent expect usage to increase versus 30 percent in 2007, so the differential between the two years’ numbers is the same.
With the prevalent feeling that energy prices will move inexorably upward, and with awareness of smart meters growing, more than 90 percent of respondents indicated they would like to have a smart meter and tools for managing their usage, with 55 to 60 percent of these respondents willing to pay a one-time or monthly fee for that capability. Consumers largely are indifferent to which form this control takes. The percentages wanting this service via a dedicated control panel, a home computer interface or a smart meter automatically controlling devices are essentially the same, although there are some differences across age groups.
The emphasis on climate change is as strong now as with consumers in the 2007 survey. It’s also fairly consistent across an expanded group of countries. For 10 of the 12 countries, between 65 percent and 75 percent of respondents stated that environmental factors are “important” in purchases of non-energy products. Only the Netherlands, at 64 percent and Canada, at 78 percent, fell slightly outside that band.
The availability of renewable energy programs in response to this demand for more carbon-neutral products remained about the same year to year. Across the core-group countries, the percentage reporting that they didn’t have renewable power programs available dropped from 21 percent in 2007 to 16 percent in 2008. Rather than increasing the percentage of affirmative responses, however, most of the movement was to the “don’t know” response—up to 50 percent, from 46 percent in 2007. Responses of the expanded-group countries were consistent with those in the core group (see Figure 2).
According to industry experts in some of the countries surveyed, the high level of “don’t know” responses in part reflects doubts in some countries about the veracity of green-power claims. Still, if to a larger extent these customers truly cannot answer that question, this could indicate a valuable opportunity to improve communication with customers in countries with significant renewable resources and high participation levels.
The impact of the global economic downturn of 2008 clearly is competing with the environmental concerns of consumers. Across the core-group countries, the number of consumers paying a premium for green products and services is down 20 to 30 percent (see Figure 3). This change in spending patterns also seems to influence perceptions of green-power options among consumers from core group countries who don’t have (or are unsure if they have) green-power options. The percentage of these respondents who say they want green-power options is down slightly, from 85 percent in 2007 to 78 percent in 2008. But during that one-year period, the percentage of those willing to pay an additional 20 percent or more monthly dropped by nearly two-thirds, from 16 percent to just 6 percent (see Figure 4).
The percentage of those with green-power options who actually buy them remained about the same, however. This isn’t surprising, given contractual commitments, significantly higher prices for non-renewable fuels in the past year (which eliminated some of the cost differential between standard and green power), and the overall commitment to the environment expected of buyers of green power.
Still, prudence in launching new green programs may be wise until the global economy is in recovery. Extended recessionary conditions or further deterioration in consumers’ incomes might suppress acceptance of higher-cost programs until conditions improve.