3 Best Practices for Utility Demand Response and Energy Efficiency Program Design

This audio was created using Microsoft Azure Speech Services

// In my last post,  I went through some of the drivers that prompt utilities to implement demand response (DR) and energy efficiency (EE) programs, and why it’s important to keep those drivers in mind when designing the program. In this post, I’ll offer three best practices in terms of program design that’ll help ensure the success of a DR or EE OJP0012533program.

1. For best results, have a portfolio

Your needs will change with the seasons, so it’s best to have not just a single offering but a portfolio of programs that enables you to have lots of customer engagement.

Customers have a wide range of wants and needs when it comes to participating in programs like this. Some want lots of information and engagement; others want none or just the basics. For those customers who want lots of engagement a thermostat or a behavioral program may be a good fit. If they want less engagement, a load control switch on their AC or water heater may be a better fit. Utilities benefit by encouraging a wide variety of customers to participate.

Having a portfolio also helps a utility address changing needs, from AC to water heaters. If your programs address a variety of end uses you get the benefit of being able to engage with customers in different seasons, for different lengths of time and in ways that address their varied desires. Different strokes for different folks, basically.

2. Opt-in for scale, opt-out for savings

Utilities also have a couple of options for how to get customers to participate in their programs. Opt-out means the program applies to everyone, unless they specifically take steps to opt out of it. While that approach will certainly get you more participants, on a per customer basis they typically don’t produce much in the way of savings because they’re not as invested as people who choose to be in a program. But even small savings from behavior changes spread over a large customer base makes a difference. Just keep in mind that it’s not realistic for most utilities to consider an opt-out program that includes equipment such as a thermostat or an AC cycling switch.

With the opt-in model, on the other hand, because customers specifically decided to join the program in exchange for whatever incentive the utility offers, they are more likely to take steps that save energy. A white paper by the Garrison Institute cites the example of C3 Residential, a program offered by C3 Energy. It used direct mail and digital marketing to encourage participants to sign up via a web portal, set a goal and take a pledge to meet that goal, in exchange for a reward. After piloting the program in several states, the program produced savings of almost 6 percent per participant, with a conversion rate of 25 to 30 percent of all recipients of direct mail ads. That’s impressive indeed.

3. Know when to push – and when to back off

That said, you do need to keep in mind that customer goodwill is a consumable resource. Every DR event has the potential to fatigue a customer if they are not bought into the value of the transaction. If a customer values comfort disproportionately higher than their program incentive (monthly cash back or a free thermostat), they will have less patience for repeated events even if they experience only minimal inconvenience. Clear communication of expectations is important.

Clear communications are also important for EE programs. Research conducted by The Shelton Group shows homeowners have very high savings expectations for relatively small energy efficiency investments. Americans expect their utility bill to drop in half if they invest $4,000 in energy efficient home improvements. If you incessantly inundate your customers with offers that fall short of their expectations, you are likely to get some negative feedback.

Be careful not to over do it; clear communications is not the same as a lot of communication. A story a friend told me about his lawn care company comes to mind. They’ve been fertilizing his lawn for about a year now and doing a great job – the dandelions are gone and the lawn is nice and green. But he can’t stand how the company’s customer service people repeatedly call, trying to upsell him on one thing or another. The last time they called, he told them they needed to stop or else he’d just cancel altogether – even though he really likes the basic lawn service. And I think he meant it.

While it is easier to see the pitfalls of over-using a DR program, it’s just as troublesome to under-use your programs. If a customer is enrolled in a DR program that hasn’t been used by the utility in 2 years, two related things happen. First, a customer becomes accustomed to receiving an incentive for zero actions. Second, when an event does happen he is unhappy, especially if he can’t crank up his air conditioner. Programs need to be exercised to remain strong and healthy. So be a bit selective and by all means make sure you communicate expectations ahead of time.

Tags: , , , , , ,