The State of California is getting serious about clean energy for all — including energy efficient end-use devices, such as TVs and appliances.
Energy-smart shopping for everyone
Since last Fall, when we laid out our case for the California Energy Commission (CEC) to include in its Low-Income Barriers Study [1] a dedicated discussion of plug load & appliance efficiency barriers and solutions, address critical data-related barriers that have hampered plug load & appliance efficiency advances in the past and implement behavioral interventions to overcome barriers and drive efficiency, the discussion has advanced significantly.
The Energy Commission recommended in December 2016 that the Legislature ensure that low-income persons have product selection options and information necessary to avoid driving up their plug-load energy use.
Empowered low-income customers. This is a radical conceptual leap from existing low-income rate discount and energy savings assistance programs, with great potential to benefit all ratepayers.
In 2017 alone, ratepayers are footing the bill for $1.28 billion in electricity and gas rate discounts and $372 million in free energy efficiency measures and energy education (a statutory “public purpose program surcharge” to fund these programs appears on monthly utility bills) [2]. Although there are circumstances when bill subsidies are needed to avoid hardship, subsidies don’t tackle the root causes of energy burden and may contribute to energy waste. The existing direct install low-income program provides some efficient end-use devices, but far more can be done.
So what would a market-based program to empower low-income households to shop energy-smart look like?
I recently had the opportunity to share my vision at the 2017 IEPR Joint Agency Workshop on SB 350 Low-Income Barriers Study Implementation, which was held on 1 August 2017.
Leveraging utility online marketplaces
In addressing the California Energy and Public Utilities Commissioners, I focused on the opportunity to leverage utility-branded online marketplaces — and the consumer product market intelligence and behavioral insights they generate — to remove barriers and modernize low-income programs.
This approach was advanced significantly when the California Public Utilities Commission (CPUC) instructed all utilities under its authority to operate online marketplaces that include energy management technologies by the Fourth Quarter of 2017 [3] — and directed them to help customers with bill payment issues understand the relevant product information that would be obtained there (product pricing, product rebates available, savings estimates for the products, customer reviews…).
The live California Marketplaces powered by Enervee include the LADWP Marketplace, the PG&E Marketplace and the SCE Marketplace.
Low-income programs delivered via online marketplaces are poised to offer great value to low-income households & disadvantaged communities, ratepayers and society as a whole, because they:
- Provide ongoing energy efficiency support for all 5.4 million low-income customers. This is important, because in any given year, 20 times more households are provided rate discounts than receive energy efficiency measures [2];
- Nudge private investment by low-income households into more efficient products — even without incentives. By making efficiency visible and providing personalized energy bill savings and total cost of ownership information, the added market transparency & lowering of search costs drives more efficient choices;
- Cover dozens of plug load & appliance categories not included in existing efficiency programs, which nonetheless contribute significantly to energy burden. TVs, for example, are ubiquitous, and among the 600+ models currently on the market, consumption ranges by 4-fold, with efficiency not correlated with price [4];
- Offer greater choice & convenience to low-income customers and building owners. Online marketplaces capitalize on high internet access (mobile, computer) [5] and the trend towards an increasing share of online purchases of products & services [6], to inject energy into the shopping journey. They are an “always on” resource and can modernize programs to scale participation. Online point-of-sale incentives, for example, directly address the purchase price barrier, without interrupting the shopping journey;
- Deliver targeted and cost-effective incentives at scale. The data engine behind the public-facing marketplaces helps diagnose barriers and informs program design. With daily updated retail price and relative efficiency information, it’s possible to dynamically match incentive levels to incremental costs and to focus incentives on the most efficient products, rather than commonly used benchmarks.
- Create a seamless digital experience to implement a range of legislative mandates.
By expanding the universe of plug load & appliance categories addressed, adopting market-based and behavioral strategies and using data to target marketing and incentives for greatest impact, utility-branded online marketplaces can scale participation and improve low-income program cost-effectiveness.
Every program $ reduces CARE subsidies by $1.80
Enervee data on the online retail prices and consumption of the most efficient products currently on the market, coupled with assumptions about an illustrative program design, show that targeting low-income customers with higher incentives on super-efficient products with Enervee Scores 90+ (roughly corresponding to product models at the 10th percentile and below in terms of energy consumption) can have the following benefits [7]:
- Total benefit to cost ratio exceeds 7:1
Every program $ reduces CARE subsidies by $1.80
Every program $ reduces bills by $2.80 (assuming CARE-subsidized rate)
Every program $ delivers grid benefits (Avoided Energy Cost) of $2.60 - Every program $ leverages 50 cents in investment into super-efficient products by low-income households themselves
- For every $ that a low-income household invests, they save $5.70 in energy bills
- CARE subsidy savings are 3.7X greater than investments required of low-income households
- Program cost (incentives + marketing) per avoided kWh = $0.06/kWh.
These calculations show some great justification for investing in online marketplace incentives that will get super-efficient products scoring 90+ into low-income households.
If we assume that a third of all incentives projected statewide based on current marketplace performance fall under a dedicated low-income scheme — with incentives high enough to limit customer co-investment requirements to $137 per product purchase, on average (ranging from zero for LED replacement bulbs to $273 for gas water heaters) — the program cost (net of marketplace revenues) would be only in the tens of millions of dollars, a small fraction of the annual $370 million Energy Savings Assistance program budget. Such a program would deliver hundreds of GWh in electricity (and hundreds of thousands of tons of greenhouse gas) savings annually, while at the same time reducing CARE budget requirements by a factor of nearly 2:1.
Public purpose program surcharges and monthly utility bills would be reduced, with more channeled into productive efficiency investments and less required to fund CARE subsidies.
One immediate opportunity to pilot the approach suggested above of offering higher incentives on super-efficient products for qualified households is within the context of the San Joaquin Valley proceeding. Enervee is ready to work with the CPUC to help communities estimate the benefits of solar plus super-efficient appliances, so that they may consider alternatives to building out expensive gas infrastructure, as well as with utilities to design and implement effective incentive programs.
Utilities should be encouraged to make full use of their online marketplaces to better serve income-constrained households and scale the associated energy and carbon savings. Integrating the avoided cost of bill subsidies in the cost-effectiveness framework across residential programs or performance based incentives for reducing CARE subsidy requirements through special low-income incentives offered via the marketplace would create the right incentives.
They should not have to wait for the next CARE/ESA cycle to begin experimenting, and should be encouraged to do so, in the context of SB 350 and AB 793.
There is great potential to deliver benefits to low-income households, the energy system and society at large — by implementing digital, market-based programs that incentivize super-efficient product purchases and nudge consumers towards them.
Notes
[1] Senate Bill 350 Low-Income Barriers Study, Part A
[2] CARE & ESA Programs Fact Sheet. In 2016, there were an estimated 5,394,416 eligible CARE rate customers, against the 2017 ESA treatment goal of 274,855 households. The Family Electric Rate Assistance (FERA) program applies a 12% discount on electricity bills for households between 200 and 250% of the Federal poverty guidelines.
[3] The CPUC issued Resolution E-4820 to implement Assembly Bill 793.
[4] Even within a specific size class, we’ve documented a 4-fold range in consumption.
[5] 2016 Low-Income Needs Assessment banner tables from telephone survey
[6] NPD Group 2017. Major Home Appliances See Online Channel Growth
[7] Based on Enervee comments on empowering low-income households to manage their energy (17-IEPR-08), including updated estimates of grid benefits.
