Far too many Americans are having to choose between heating their homes to a comfortable temperature, putting food on the table and paying for medication. The cost of energy that wealthier folks take for granted represents a real burden for low- and moderate-income households. The 22.9 million households with annual incomes under $20,000 spend over 7% of total income to pay energy bills (and the 27.3 million with incomes up to $39,000 spend 4% on energy).
While existing bill subsidy and energy efficiency programs help, roughly one-third of U.S. households still reported facing a challenge in paying energy bills or sustaining adequate heating and cooling in their home [1].
At Enervee, we’re excited about opening up the retail product channel to modernize low-income energy efficiency programs and reach more people in need. It’s something that we’ve been working towards for several years now and we recently had the opportunity to test our capabilities, in partnership with AEP Ohio.
Rather than relying on bill subsidies or traditional energy efficiency programs under which a limited range of products is installed for free in people’s homes, with little choice, AEP Ohio’s online retail low-income pilot program gave customers the opportunity to select from among four leading smart thermostat models and purchase them online, with an instant discount of $75 provided by the utility, leaving copays ranging between $32 and $60.
Successful technology demonstration & partnerships
This program was delivered using Enervee’s choice engine platform, the Enervee Marketplace, in partnership with Lightbulbs.com, Ecobee, Emerson, Google Nest, and Greenlite Lighting Corporation, demonstrating the effectiveness and feasibility of functionality new to the energy sector:
- Validating customers and verifying income qualification instantly online during the purchase process.
- Delivering dynamic incentive levels based on data collected during the checkout process – in this case, with income-qualified customers receiving an additional $25 instant discount above the $50 discount available to all customers.
- Leveraging private investment to scale and improve the cost-effectiveness of low-income programs. Enervee negotiated special pricing with manufacturers on thermostats intended for income-eligible customers, capitalizing on their own commitments to better serve the low-income segment (such as the Nest Power Project). And we also experimented with the best practice of a customer copay requirement to encourage a sense of ownership and promote high realization rates.
These measures leveraged an average of $0.85 of new private investment for every incentive dollar spent, to maximize the impact of utility efficiency program spending.
Customer voice
The AEP Ohio online retail product pilot not only demonstrated new technology; it also provided the following valuable utility customer feedback:
- 100% were satisfied with the program (83% extremely satisfied)
- 50% had a more favorable view of their utility overall, based on their experiences with the AEP Ohio retail thermostat program
While the discounted price was universally appreciated, half of respondents also said the selection of products to choose from and the convenience of online shopping were things they liked best about the program. These features are new in the low-income efficiency space.
- 100% thought the co-pays were affordable (points to the viability of leveraging more private investment to deliver low-income energy efficiency programs)
- For 100% of respondents, this was their first smart thermostat, so the program is having an effect on speeding market deployment among low-income customers that are traditionally hard-to-reach
- Women made nearly four times more online smart thermostat purchases than men did, which may have implications for marketing strategies
- Low-income customers did not pay for thermostat installation; instead, two-thirds asked someone to install it for them at no cost and one-third took the DIY approach.
While the pilot numbers were small, these results suggest that we are onto something: Empowering low-income customers to buy efficient products themselves resonates.
Why is this online retail low-income pilot program noteworthy?
With the success of this pilot, two complementary retail product strategies for the low-income segment have been revealed:
- Nudging income-qualified households towards affordable and efficient purchases that will minimize total cost of ownership, in cases where they make these retail purchases themselves, such as home entertainment systems (without the need for financial incentives).
Efficiency doesn’t have to cost more, and a series of randomized controlled trial experiments has documented that the presence of the zero to 100 Enervee Score leads consumers to make more efficient product choices, and that personalized energy bill savings information is particularly salient and impactful for low-income shoppers. Both of these levers are integrated into Enervee’s online choice engine platform.
- Offering targeted instant discounts to income-qualified customers. Not only does this address the up-front purchase price barrier; incentives can be tied to super-efficient products to drive product innovation and market transformation, while ensuring the greatest energy bill relief for customers in need.
With a retail product approach, we are able to address the ubiquitous plug loads – appliances, electronics and other gadgets that plug into electrical outlets – that are a major contributor to energy bills across all income groups, accounting for roughly 1/3 of total energy costs (or 40% to 50% of electricity bills).
Plug load efficiency is notoriously difficult to address with traditional incentive schemes, and few are included in low-income programs.
We look forward to working with utilities and governments to roll out these new capabilities and offerings, making 2020 the year of empowering low- and moderate-income customers to shop energy smart at scale!
Notes
[1] One in three U.S. households faced challenges in paying energy bills in 2015
