By Michael McCullough, Edelman
The golden rule in staying trim is portion control. Problem is we tend to naturally super size. This is the reason diet gurus use detailed data to guide healthy living in the “real” world.
We face the same scenario when it comes to energy consumption. Without detailed feedback about our energy use, we are less likely to make changes. We could all trim costs if we had more information about our energy diets.
Unfortunately, most of us are in the dark.
The discovery and understanding of calories changed the roadmap for healthy living. Today there isn’t a single digestible item in the grocery story that doesn’t offer specific caloric and nutritional information.
Electric utilities want to innovate in the same manner as calorie-counting nutritionists. They want to deploy technologies that will provide us with information to manage personal energy use beyond the simple rules we learned as kids like turning off the lights when you leave a room or insulating the attic.
Collectively, these technologies are called the “smart grid,” an “energy Internet” delivering real-tme knowledge to help consumers save up to 15 percent on their power bills by making smarter energy choices.
Standing in the way of consumer empowerment are regulatory policies written before a smarter grid was possible, dated infrastructure and a lack of consumer understanding and engagement – a Harris Interactive poll found 68 percent of Americans haven’t heard of smart grid. These challenges will hold up smart grid investment and consumer adoption.
Energy regulators, policy makers and industry influencers need only look to the emergence of the cell phone market for answers to these challenges. They would be wise to engage us in a similar manner.
Take pricing for example.
Twenty years ago, consumers paid for phone services through the same “all-you-can-eat” model many apply to their energy usage today. Pick up the phone, listen for the dial tone, make a call and hang up. It was as mindless as flipping a switch.
As cell phone technology emerged in the ‘90s, and use became ubiquitous, the consumer mindset towards call pricing changed. “Minutes” became the currency by which all plans were structured and measured. And these plans evolved to become pricing models that fit with individual’s service usage: Pay more for minutes or messages used during peak hours. Be rewarded with lower costs – perhaps even free – by making calls during lower demand, off-peak hours.
Updated technology, cell phones, and their associated pricing models, changed how we budgeted for telecom services forever. What once was a flat, single offering evolved to become an endless array of choices to fit many needs.
The smart grid will offer us a similar model for energy pricing.
Unbeknownst to most, the cost to generate electricity varies minute to minute, influenced by several factors, including demand. Demand typically is highest in the afternoon and early evening – so-called “peak times.” But as it stands, most consumers pay their utilities based on a seasonal average price and never see price fluctuations in their rates.
Today’s energy pricing model, like the electric grid itself, is antiquated. Until now, there was no incentive to offer consumers a choice in price. And the infrastructure to do so simply didn’t exist.
Add to that the business ramifications. Utilities aren’t creating a new industry like wireless companies decades ago. And, generally speaking, marketers don’t advocate that customers use less of their product. Thus, policy influencers will have a crucial role in bringing new pricing structures to fruition by providing incentives to electric utilities to invest in and utilize smart grid technologies.
A shift in how we pay for energy will not happen overnight. Industry leaders need to continuously explain changes in the newly proposed energy pricing model in a way that’s understandable and comfortable for us. There’s fear in the unknown. Showing that future energy pricing mimics many models already accepted by the public is key. Consumers demonstrate a willingness to pay premiums for goods and services – just not electricity.
Travelers know that rates for the beach-front hotel are higher in summer. The savvy book vacations during off-peak weeks to save.
Commuters are accustomed to paying higher tolls to escape clogged roads during rush hour; but some alter departure times, keep the tolls and avoid pay roads.
In the past, mobile callers knew they would pay more if they rang during the day and instead chose to call at night or on weekends, when they could save money.
The smart dieter knows when it’s OK to eat a doughnut in the morning if they are going to have a salad with lunch.
The cost of energy will rise with or without the smart grid. What the smart grid has to offer is more control, similar to the control you have in choosing your diet and family cellular plan. Those of us who flip the switch are the real smart grid decision-makers – and our demand for better energy technologies will urge policymakers to act.