Who cares about home energy efficiency? Not homeowners.


You used more electricity than anybody else in the system!

Gently borrowed from cartoonstock.com

Entrepreneurs are self-selected to be steadfastly optimistic organisms. They need to be; startups have the odds stacked up high against them, and the height of the stack is proportional to the size of the problem they’re solving.

When you’re solving a massive problem like inefficient home energy consumption, however, it’s easy to get a bit frustrated. Why? Because, despite the $200B+ spent annually in residences on electricity and natural gas, most homeowners don’t seem to care that a good portion of it is wasted.

Here are a few reasons why:

  • Small share of wallet. The cost to power a home is relatively small for the average homeowner. As of Q2-2010, the Bureau of Economic Analysis counted $33,170 of annualized personal consumption expenditures (PCE) per capita. Of this, 5.3% was energy-related, split about 60:40 between motor fluids and electricity/natural gas. At 2.2% of PCE, home energy spend is about 200% of gambling, but 33% of food/non-alcoholic beverages. Energy isn’t your last priority, but it’s nowhere near your first.
  • Not top of mind. Greg Guthridge of Accenture (who does studies on these topics) is often quoted claiming “the average customer thinks about their [sic] utility bill 6 minutes per year.” That seems about right. The only time I think about my energy consumption is when I pay my bill, and that takes about 30 seconds each month. Before utilities struggle to reduce customers’ energy consumption, they must first bring their customers’ distracted minds to the topic. That requires marketing — something utilities have never before needed and, consequently, aren’t good at.
  • Importance of comfort and control. You don’t run your home like a business. You run it like a home. While one major job of a facilities manager at a steel mill is to monitor energy consumption, the point of having a home is to enjoy living there. Control over that home is also important; but, for the right compensation, homeowners will consider making lucrative tradeoffs, as shown by Accenture here. Specifically, when customers retain the ability to opt-out of a particular energy efficiency measure, an incremental 1% increase in promised energy savings convinces an additional ~1.8% of customers to sign up. Without the ability to opt-out, that impact is only ~0.8% of customers. Thus, customers are more than twice as likely to engage energy efficiency if they remain in control. I’ve extracted the relevant graph and put it here:

Source: Accenture, "Understanding Consumer Preferences in Energy Efficiency," 2010.

So, that’s the bad news.
The good news is that startups like 

OPOWER

 and 

Recurve

 are working on solutions to these problems. Each is targeting an innocuous entry point to the home: for OPOWER, it’s the utility bill; for Recurve, it’s the energy audit. Each will use an activity homeowners are used to in order to establish a foothold, from which they will sell additional products and services around home energy efficiency. This “Trojan Horse” strategy is one of my favorite cleantech business models and will be the subject of a future 

I2V

 post.

Now for the interactive part. What do you think is the best way to engage homeowners on energy spend? And, who’s doing it best today? With $200B+ of home energy spend to play with, you’ll get paid well if you figure it out! Feel free to comment below.

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13 Responses to Who cares about home energy efficiency? Not homeowners.

  1. Alex,

    The answer to your question in the last paragraph is Wattzy, says the “steadfastly optimistic organism” 🙂

    But seriously, I disagree with much of what you’ve said here.

    Yes, energy costs represent a small share of wallet for the average consumer, but financial gain (from phenomenal ROI) is just one of the benefits to any consumer who’s upgraded her home’s energy efficiency. Other reasons to invest are feeling connected to the green movement and showing off to neighbors. Consumers currently spend billions on green causes and the home improvement industry.

    Yes, energy consumption is not top of mind currently. That’s exactly WHY there is an opportunity for startups. To quote Dean Kamen, on J.P. Morgan’s hypothetical response to two non-hypothetical M.B.A.’s hypothetical objections to J.P.’s railroad, “I know there’s nothing out there. That’s why I want to build the railroad!”

    On the good news side of your post, I think that OPower and Recurve are by no means “innocuous” in the eyes of consumers.

    NBER research shows that OPower can actually have a “boomerang” effect if consumers are not pre-disposed to energy savings. ( See http://www.nber.org/papers/w15939) For already left-leaning consumers, OPower has a pretty limited appeal since it white-labels its products with the utility’s brand. I love this stuff and even I do an instinctive mental yawn when I see my utility’s logo.

    Recurve has developed some impressive software, but first they must get into a home. I don’t have any hard data, but from my personal experience interviewing hundreds of homeowners on these topics, many are not familiar with the concept of an energy audit, and many less have actually had one. So Recurve is like many residential energy efficiency startups in that they must also spend a lot redoing what little utilities have done to educate consumers about home energy.

    All this said, I deeply agree with you on the importance of control and comfort. Consumers won’t consider in energy efficiency unless they feel comfortable with these relatively new (or newly reintroduced) concepts and in control of their adoption. Without sounding like too much of a comment-isement, this is what Wattzy is doing by introducing energy efficiency to consumers through friends and neighbors, and by bringing transparency to the financial and climate benefits of retrofits.

    Many other startups are taking many different approaches to making the world of energy efficiency safe for consumers. I appreciate the invitation to comment here and look forward to your next post!

    Alex

    Alex Patriquin
    Founder & CEO, Wattzy
    Track, Compare and Lower Your Utility Bills at Wattzy.com

    • ataussig says:

      Alex,

      Thanks for your thoughtful, candid response. Let me attempt to address your concerns here, as well as clarify and elaborate on what I’ve already written.

      To your first point, my claim that share of wallet is small is certainly not in conflict with your claim that ROIs can be great for homeowners. I concur. However, I also believe that even 0-year payback investments require a certain level of savings to get a customer’s attention. The absolute dollar value of annual savings needs to be high enough to “move the needle.” I’m sure there are plenty of cases, particularly in the Northeast, where it does, but on average I’d have trouble believing that once you consider the fully burdened cost of those projects, including the overhead of the business implementing them.

      To your second point, I agree wholeheartedly that this very break between the urgency of the problem and its lack of awareness creates an opportunity for startups. While you may not be a big OPOWER fan, this seems to be the role they’re attempting to play. I think others will step into the fray as well. My point was to simply raise this issue.

      Overall, I’m glad to see you’re engaging the blog. Keep on reading and commenting!

      -Alex

  2. Hey Alex,

    I actually like OPower… even though they seem to suck a lot of oxygen out of conversations with investors and industry outsiders, I do believe they’ve “landed the beachhead” of consumers and energy efficiency with a service that is recognizable to the iPhone generation in design and concept. There just seems to me to be much more territory beyond the beach.

    Also you make a good point about “moving the needle”. Even in the South, where there’s billions of savings potential in aggregate, the individual homeowner stands to save under 5% share of wallet. (See http://www.ens-newswire.com/ens/apr2010/2010-04-12-092.html) But just like the railroads opening the low-rent vistas of the West, I believe a wave of monitoring technology will open the eyes of consumers to efficiency soon.

    Alex

  3. Oops… forgot a sentence there before I got all grandiose. I meant to add that consumers will begin to see the externalities (carbon emissions) on the price of energy and social competition forces will kick-in with that wave of monitoring technology.

  4. Tom Grossi says:

    Hey, Alex.

    Nice blog. You’ve hit on a pet peeve of mine here. I agree with you 100%, but I think the challenge is that we’ve engaged consumers in the wrong conversation. Every consumer efficiency play I’ve seen have engaged around economics and ROI, but as you’ve noted these don’t seem to be particularly compelling. OPOWER appears to be successful in part in that they engage consumer (slightly) more emotionally by comparing you to your neighbors — engaging a combination of competitive drive and, if you’re really wasteful, shame.

    But even here, we’re not really following the example of “green” products that have more successfully engaged the consumer. Look at the Prius and now the Volt and Tesla… they essentially say “yes it will cost you more, but don’t you want to be green?”

    The sad irony here is that a Volt/Leaf/Tesla will do almost nothing to save the environment. Most users will drive less than 30 miles/day (as the electric car guys constantly remind you if you complain about range) so you’re likely mitigating about 500 gallons/year of gasoline use. That’s nothing in the grand scheme of carbon particularly given the $20,000+ of price premiums and subsidies consumers will pay to buy an EV like these.

    A far more environmentally friendly move would be for those same consumers to invest that $20,000 in things like home efficiency. So let’s engage people that way. Expunge “ROI” and $ from our marketing messages and talk about “number of Priuses” of equivalent of carbon savings. Of course, you can’t drive higher R-value walls to the store to show off how green you are so we’ll have to find another way for consumers to brag… maybe a special social game avatar only for people with LEED certified homes.

    • ataussig says:

      Tom,

      Thanks for visiting. Great comments here.

      In MBA-speak, the “willingness to pay” for green is extraordinarily low in the mass market. The Prius and LEED seem to be the two exceptions to that rule. I’d argue the former’s success is due to the expressive nature and sheer visibility of the automobile. The latter’s success is due to LEED producing “better buildings,” with simple features like daylighting and bike racks that make people enjoy working in the built environment. The lesson from both? I’d say forget “green.” It doesn’t really mean much. Focus on giving your customer a better product overall.

  5. Tom Grossi says:

    I don’t disagree with your notion that businessed need to create environmentaly friendly products that are overall superior. I just come at it from a different angle. The mean individual’s willingness to pay for “greenness” is low, true… just look at the resistance to a small gas tax. But mean willingness to pay for Prada is also low. Prada recognizes they are a luxury good selling to a specific client where willingness to pay is very high (usually NOT for any economic reason but for social status reasons.) I agree with your assessment that the term “green” probably also needs to go away but my point is that there is ample evidence of a not-so-small subset of people having VERY high willingness to pay for the luxury of look and feel environmentally friendly (e.g., Tesla owners). The key, in my mind, is to find a way to create products that are genuinely good for the environment, but are also high margin “green bling”.

    • ataussig says:

      Rich,

      Despite the title, I wouldn’t say homeowners don’t care. There are just a lot of reasons for them not to care and to care about other, more meaningful, stuff in their lives.

      I have no question that if power prices increased, whether because of a carbon tax or some other rate-base-able charge, home owners would consume less energy on average. Furthermore, without the proper information, I also agree that they won’t make “logical” choices on what to abate and what not to abate.

      The issue I am trying to raise, however, is that energy still isn’t that important to homeowners in the grand scheme of their busy lives, so it’s not straightforward to assume they will start caring when prices go up and little red bulbs start flashing on home energy displays. Maybe it’s because I just saw Inception (awesome!), but the only solution I see is to plant the seeds in homeowners’ minds by infiltrating activities they already partake in.

      -Alex

      P.S. What’s the x-axis in your graph?

      • Rich Bryden says:

        Monthly household consumption in KWH, i.e. households in Tennessee manage to consume more electricity than any other state – more than double that of households here in MA.

  6. Rich Bryden says:

    Oh, sorry. Did not see that the x-axis was cut off. Importantly, that is the price of residential electricity in cents/kwh.

  7. Pingback: 6 Reasons the High ROI of Energy Efficiency Doesn’t Matter | The Green Light Distrikt

  8. I consider this contribution very important as it is increasingly necessary to raise awareness on the proper use of energy, both at home and at work.
    There have been several trials and research studies on how to improve the use of energy and emerged many alternatives but I think there are many populated areas of the country that should make appropriate use of energy by implementing government controls and restrictions more severe for those who exceed the use of it. In short, it is a matter of conscience

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