08 July 2013
RE: Opower's Response to Review of the Energy Saver Incentive: Issues Paper – June 2013
Dear Mr. Blowers:
Opower appreciates the opportunity to submit comments on the "Review of the Energy Saver Incentive: Issues Paper – June 2013." This consultation seeks to assist the Department of State Development, Business and Innovation (DSDBI) in preparing the Regulatory Impact Statement (RIS) that will support development of new regulations for the future of the Energy Saver Incentive (ESI) scheme. Opower writes to encourage the DSDBI to recognize the justified need for new regulations that enable the ESI to maximise energy efficiency uptake. Specifically, Opower recommends that the RSI directly address two of the market barriers identified in the Issues Paper – information gaps and behavioural factors – which have been proven surmountable by cost-effective activities not currently deemed eligible under the scheme.
Opower is the global leader in behavioural energy efficiency and smart grid customer engagement. Opower works with over 85 utilities across 7 countries to provide energy insights to more than 16 million households. In Victoria, Opower provides EnergyAustralia with services to deliver MyEnergyReport, which was launched in October 2012 to help EnergyAustralia customers save energy and money. MyEnergyReport is a multi-channel approach for giving consumers contextualized energy information and personalised tips, including a web portal available to all customers, and paper and email reports for some customers.
Summary of comments in response to the June 2013 Issues Paper
In reviewing the objectives of the Victorian Energy Efficiency Act 2007 and the market barriers that the Energy Saver Incentive was designed to overcome, we were impressed by the government's foresight, but surprised to see that energy savings from information-enabled behavioral energy efficiency programs remain outside the scope of the current ESI scheme.
The following comments seek to address a number of the questions posed by the June Issues Paper by elaborating on three observations drawn from Opower's experience and the verified results of our programs.
- The ESI's exclusive focus on hardware-based measures leaves significant potential for cost-effective energy efficiency on the table.
- Behavioural energy efficiency programs can drive energy saving behavior consistently across all demographic groups.
- Expanding the ESI to include residential Project Based Assessments could provide a path toward maximising energy efficiency uptake.
Opower offers the following comments as a complement to our submission of 22 February 2013 in response to the Department of Primary Industry's Issues Paper on Project Based Assessments in the Energy Saver Incentive.
I. The ESI's exclusive focus on hardware-based measures leaves significant potential for cost-effective energy efficiency on the table.
Nearly three years ago, MIT researcher Hunt Alcott identified the aggregate of Opower's programs as "one of the largest randomized field experiments in history."The results from this ongoing experiment have enabled regulators and utilities alike to better understand the cost-effective potential savings from non-hardware efficiency programs designed to overcome information gaps and behavioural factors – two of the five market barriers identified in the 2011 RIS and restated in the June Issues Paper.
In his article published in the Journal of Public Economics, Dr. Alcott found that information-enabled behavioural efficiency consistently improves household energy efficiency by 1.4 to 3.3 percent, with an average of 2.0%, and that these savings persist over time if treatment is maintained. He further established that:
"Non-price interventions can substantially and cost effectively change consumer behaviour: the effect is equivalent to that of a short-run electricity price increase of 11 to 20%, and the cost effectiveness compares favourably to that of traditional energy conservation programs1."
A majority of the 600,000 households included in Dr. Alcott's study are located in states where energy efficiency policy and regulation were well established prior to the implementation of behavioural programs. Like Victoria today, these states already had an established track record of success in reducing energy use and emissions by incentivizing investment in efficient lighting and other low-cost installed measures. In short, Dr. Alcott's findings suggest that behavioural programs deliver impacts that are distinct and complementary to the limited list of prescribed activities currently incentivized by ESI regulations.
Today, more than 16 million households participate in behavioural efficiency programs, and every utility that has partnered with Opower to drive energy efficiency has achieved statistically significant energy savings2. As the impact of behavioural efficiency programs has scaled up, so too has the evidence from independent evaluators verifying their results: Dr. Alcott's findings have been confirmed in twenty separate publications3.
The consistent energy saving outcomes driven by behavioural programs help quantify the market barriers that the ESI's hardware-only approach fails to address. Weestimate that each year, Victoria is losing over 45 million AUD in bill savings, 150 gigawatt hours of cost-effective energy savings, and 140 tons of avoided CO2 emissions4. In other words, Victorians are paying for power to more than 23 thousand homes that could be taken off the grid by an ESI that incentivizes the provision of information-enabled behavioural efficiency.
II. Behavioural energy efficiency programs can drive energy saving behavior consistently across all demographic groups.
The Issues Paper seeks input on potential barriers to participation of specific groups in the ESI. Experimental design of large-scale behavioural efficiency programs enables accurate measurement of the distribution of benefits among different customer groups. Opower results show that savings rates per home are consistent across all customer segments, including low-income households, rural consumers, and the elderly.
In the U.S. we also see that utility investments in information-based behavioural efficiency drive higher participation in other programs that deliver low-cost installed measures – programs that low income households are more likely to participate in.
In addition, behavioural programs amplify other measures. Increased uptake in other energy saving activities can occur by increasing general awareness of energy use –which we call the Halo Effect – or can occur through direct promotion of specified programs. Under the Halo Effect, we see a median lift of about 20%. When behavioural program communications explicitly promote other efficiency programs, participation rates in those other programs can double.5
III. Expanding the ESI to include residential Project Based Assessments could provide a path toward maximising energy efficiency uptake.
Opower appreciates the DSDBI's interest in assessing whether the mix of activities included in the ESI has been appropriate to maximise energy efficiency uptake. We believe that an ESI that fails to incentivize behavioural efficiency will fall short of that goal. However, we continue to strongly support the proposed inclusion of residential Project Based Assessments (PBAs) in the ESI as a means to address that shortfall. For more detail, please refer to "Opower's Response to Issues Paper – Project Based Assessments in the Energy Saver Incentive," submitted to the Department of Primary Industry on 22 February 2013.
Whether through adoption of PBAs or by other regulatory means, we submit for consideration in the RIS that regulatory acceptance of behavioural efficiency programs has become the norm in the U.S.6 and is pending in New South Wales and in two leading EU Member States. In the United Kingdom, the Cabinet Office referenced Opower's program in its report, "Behaviour Change and Energy Use."7 At the same time, First Utility, a British supplier, has decided to deploy Opower's program in conjunction with its smart metering rollout.
Moreover, regulatory commissions in jurisdictions with a tradition of leading on energy efficiency are coming to see behavioural programs as a core element of the portfolios they oversee:
- The Massachusetts Department of Public Utilities recently approved a 3-year, 3.7 TWh statewide efficiency plan that relies on behavioural efficiency programs to drive 24% of electricity savings and 20% of gas savings.8
- Within the framework approved by the Rhode Island Public Utility Commission to require investment in all cost-effective energy efficiency, National Grid's behavioural efficiency program will soon reach all of Rhode Island's 425,000 households – the first fully statewide behavioral program in the US.9
- The California Public Utility Commission sets a "floor" on utility investment in behavioural energy efficiency, by requiring that no less than 5% of residential households in each investor-owned utility participate in behavioral programs by 2014.10
Regulators in each of these states have come to the same conclusion: hardware-based programs and behavioural programs complement one another, and together deliver more cost-effective energy efficiency benefits more equitably than either could alone.
The current ESI scheme fails to incentivize cost-effective activities that have been proven to deliver savings at scale and address key market barriers identified by the Victorian government. Each year as a result, Victoria is losing over 45 million AUD in bill savings, 150 gigawatt hours of cost-effective energy savings, and 140 tons of avoided CO2 emissions. The inclusion of residential Project Based Assessments –currently under consideration by the Department of Primary Industry – would remedy this issue and help ensure maximum uptake of energy efficiency in Victoria.
In accord with the purpose of the RIS process as stated in the June Issues paper, Opower recommends that the DSDBI identify the capture of cost-effective energy savings from behavioural programs as a justified need – and thus as an obligation to implement new regulation to include residential PBAs within the ESI.
VP, Regulatory Affairs & Legal
1 Allcott, Hunt, October 2011, "Social Norms and Energy Conservation," Journal of Public Economics, available here: http://web.mit.edu/allcott/www/Allcott%202011%20JPubEc%20-%20Social%20Norms%20and%20Energy%20Conservation.pdf
2 Opower's opt-out experimental program design uses randomised controlled trials that enable rigorous ex-post measurement and verification of results. For more detailed discussion of the practice and benefits of using randomised controlled trials to measure energy savings, see "Opower's Response to Issues Paper – Project Based Assessments in the Energy Saver Incentive," submitted to the Department of Primary Industry on 22 February 2013.
3 See the following: i) Anne Dougherty, July 2012. Massachusetts Three Year Cross-Cutting Behavioral Program Evaluation Integrated Report. Opinion Dynamics Corporation and Navigant Consulting.; ii) Randy Gunn, May 2012. Evaluation Report: Home Energy Reports, Commonwealth Edison Company. Navigant Consulting.; iii) Ken Agnew, April 2012. Puget Sound Energy's Home Energy Reports Program: Three year Impact, Behavioral and Process Evaluation. DNV KEMA Energy & Sustainability.; iv) Anne Dougherty, June 2011. Massachusetts TwoYear Cross-Cutting Behavioral Program Evaluation Integrated Report. Opinion Dynamics Corporation and Navigant Consulting.; (v) Davis, Matt, May 2011. "Behavior and Energy Savings: Evidence from a Series of Experimental Interventions." Environmental Defense Fund; vi) Cooney, Kevin, February 2011. "Evaluation Report: OPOWER SMUD Pilot Year 2." Navigant Consulting; vii) Todd, Annika, Steven Schiller, and Charles Goldman, October 2011.3 "Analysis of PSE's Pilot Energy Conservation7Project: "Home Energy Reports." Lawrence Berkeley National Laboratory; viii) Ivanov, Chris, July 2010. "Measurement and Verification Report of OPOWER Energy Efficiency Pilot Program." Power System Engineering; ix) Macke, Rich, June 2010. "Measurement and Verification Report of Lake Country's OPOWER Energy Efficiency Pilot Program." Power System Engineering; x) Allcott, Hunt and Sendhil Mullainathan, March 2010. "Behavior and Energy Policy." Science, Vol. 327; xi) Allcott, Hunt, February 2010. "Social Norms and Energy Conservation." Working Paper, Massachusetts Institute of Technology's Center for Energy and Environmental Policy Research; xii) Ayres, Ian, et al., September 2009. "Evidence From Two Large Field Experiments That Peer Comparison Feedback Can Reduce Residential Energy Usage." NBER Working Paper; xiii) Klos, Mary, September 2009. "Impact Evaluation of OPOWER SMUD Pilot Study." Summit Blue Consulting, LLC; xiv) October 2010. "Puget Sound Energy's Home Energy Reports Program." KEMA; xv) Gunn, Randy, May 2012. "Evaluation Report: Home Energy Reports." Navigant Consulting; xvi) Dougherty, Anne, July 2012. "Massachusetts Three Year Cross-Cutting Behavioral Program Evaluation Integrated Report." Opinion Dynamics Corporation with Navigant Consulting; xvii) Sutter, Mary, October 2012. "Impact and Process Evaluation of 2011 (PY4) Ameren Illinois Company Behavioral Modification Program." Opinion Dynamics Corporation with The Cadmus Group, Navigant, and Michaels Engineering; xviii) Wu, May, November 2012. "Impact & Persistence Evaluation Report: Sacramento Municipal Utility District Home Energy Report Program." Integral Analytics, Inc with BuildingMetrics Incorporated and Sageview; xix) Gunn, Randy, November 2012. Commonwealth Edison Company "Energy Efficiency / Demand Response Plan: Plan Year 4 (6/1/2011-5/31/2012), Evaluation Report: Home Energy Reports." Navigant Consulting; xx) December 2012. "Verification of Hawaii Energy 2011 Programs." Evergreen Economics.
4 This estimate assumes behavioral efficiency programs would achieve the lower bound of observed average savings for mature programs: 1.4%. Assumptions for typical household usage (6500 kWh) and retail price per kWh ($0.29/kWh, the lowest average rate projected among Victoria's retail distributors) drawn from: Australian Energy Regulator. State of the Energy Market 2012. Chapter 5. Assumptions for carbon intensity (0.914 tons/MWh) drawn from www.carma.org.
5 Results based on analysis from 30 Opower deployments across 11 US utilities.
6Information-based behavioral energy efficiency programs are approved in 28 U.S. states. Approval is pending in Idaho and Iowa. A complete list of relevant Commission orders and docket numbers is available on request.
7 "Behaviour Change and Energy Use," 2011, UK Cabinet Office and Department of Energy and Climate Change. See https://www.gov.uk/government/publications/behaviour-change-and-energy-use-behavioural-insights-team-paper
8 DPU Order Approving 2013-2015 Three-Year Electric & Gas Energy Efficiency Plans, relating to dockets 12-100 to 12-111. See: http://www.ma-eeac.org/DPU%20Proceedings.html
9 Rhode Island Public Utilities Commission, Docket 4284. See: http://www.ripuc.org/eventsactions/docket/4284page.html
10 "Decision Providing Guidance on 2013-2014 Energy Efficiency Portfolios and 2012 Marketing, Education, and Outreach," Public Utilities Commission of the State of California, Decision 12-05-015, May 10, 2012.
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