Letting Customers Lead Us to a 21st-Century Electricity Grid

From Hawaiian homeowners to large customers in the Nevada desert to government fleet managers in cities across the U.S., customers are beginning to take control of their energy by using innovative distributed energy resources (DERs). DERs such as rooftop solar, energy storage, electric vehicles, and grid-interactive appliances can save customers money on their monthly bills, offer greater reliability and resiliency, and improve customers’ comfort and health.

Despite these benefits, the vast majority of customers who could benefit from DERs have not yet embraced them. Adoption rates of rooftop solar and electric vehicles (EVs) remain in the single digits in most of the country, and traditional utility demand-side management programs are not faring much better. Even where adoption is high, few of the benefits of DERs reach all customer segments, and few states are using these DERs to enhance grid needs. It’s clear that 20th-century customer engagement strategies are leaving value on the table for DER providers, communities, and customers, and preventing utilities from building a 21st-century grid.

How can the electricity industry translate the excitement of early adopters in places like Hawaii and Nevada into broad, mass-market adoption? New customer analytics, targeted marketing, and customer service efforts across the country suggest that pursuing a customer-centric, “people-first” approach is a necessary first step.

A PEOPLE-FIRST PERSPECTIVE

“Start with the customer” is an obvious marketing truism, but many customers still feel that DERs are pitched to them through complicated user-unfriendly programs and products. New DER customers are often large commercial customers that have strong financial incentives and the sophistication to negotiate directly with energy providers, or residential customers concentrated in places with supportive policies and where DER providers have invested heavily in expensive customer acquisition.

The electricity industry will have to address a multitude of intrinsic barriers to implementing a customer-first perspective: the past assurance by regulators of a monopoly market, which reduced the imperative to understand customer needs; products that can be hard to understand; and the burdens of complicated regulations that make it difficult to create a smooth customer experience. Based on our work at the eLab Summit with representatives from organizations including SmartPower, Sacramento Municipal Utility District (SMUD), the Energy Trust of Oregon, EnergySage, Nest, and others, we identified three primary “people-first” methods to address these challenges: market research to understand customer needs; marketing campaigns designed around compelling, motivating factors; and program design that brings DERs to customers via easily accessible, trustworthy communications channels.

MARKET RESEARCH TO UNDERSTAND WHAT CUSTOMERS WANT

People-first DER adoption starts from the desire to understand the customer’s needs, using the best quantitative and observational methods from traditional and Internet-age consumer marketing such as user segmentation, focus groups, and user experience testing.

With current DER programs typically engaging less than 1 percent of customers, leading utilities are turning to segmentation analysis to better understand what individual customers and groups of customers need. Creating user personas and profiles is helpful for targeting offers to customers more likely to be interested in DERs, but adoption of DERs by those customers may not align with grid needs. Take for example what SMUD is doing to ensure that customer adoption supports the grid: the utility is going a step further and matching its grid data on locational constraints with information about each customer’s demographics, values, attitudes, interests, and lifestyle, and then developing and targeting its offers accordingly. By layering information about the parts of the grid where there’s latent value with information about likely customer interest, SMUD staff reports that they have improved marketing efficiency and engaged customers with more relevant offers.

Few utilities have made the investment in data analytics and market research to do this type of analysis—a necessary first step to drive successful DER adoption. Utility size and internal capacity may be barriers, which create opportunities for the emerging marketplace of energy data analytics firms. Regulators can support people-first analytics by using this data for rate design and planning, and by allowing prudent market-research expenses by utilities. Utilities can design requests for proposals for DER providers with a data-sharing component to enhance their internal capacity.

MOTIVATING MARKETING TECHNIQUES

People-first DER adoption requires more than just understanding the customer’s needs and behavioral patterns—it also needs understanding to be translated into motivation powerful enough for customers to take action. Successful energy providers build products and campaigns that embed DERs in what different groups of customers already care about, such as getting the next trendy home device, pitching in on a neighborhood or church effort, or saving money on recurring bills.

For some customers, cost savings alone are powerful enough to motivate DER adoption. Yet in most cases, DERs are no different than other consumer products where a good economic case needs to be combined with a marketing stimulus to drive adoption.

One enterprising example of where this approach is seeing success is on Nantucket. On the island, peak summer demand is growing by more than five times the Massachusetts state average, creating the need for an expensive, disruptive third undersea transmission cable. In response, National Grid launched a program to defer or reduce the need for that cable construction by four years with a “non-wires alternative” (NWA) proposal for energy efficiency, demand response, off-peak charging incentives for electric vehicles, volt/VAR optimization, and customer outreach and engagement.

Many communities are beginning to pursue NWAs, but what makes the Nantucket development special is its focus on motivation. National Grid, the Town of Nantucket, and SmartPower are combining a tangible, community-driven goal—avoiding the cable upgrade—with community marketing that uses social diffusion to drive DER uptake in specific locations. They’re targeting permanent residents as well as the yearly swell of summertime visitors to cut peak costs, which requires both behavioral changes and technology investment on the part of customers. National Grid’s use of community-based marketing to target uptake to a specific geographic location—Nantucket—will help demonstrate the efficacy of this marketing model for reducing grid costs and driving the adoption of a variety of DERs.

MAKING IT EASY TO ADOPT DERS

People-first DER outreach also requires moving from understanding customers to motivating them toward actual adoption—and that means reducing transaction costs and making complex energy markets simpler to understand.

Innovative new companies are building services that support how people actually buy and interact with devices. This includes the requirements for successfully marketing and delivering a product in any industry, like trustworthy messengers, minimal steps to purchase, and meaningful customer choice. For example, EnergySage has built a customer-facing website where visitors can compare solar prices and quotes based on such parameters as the type of financing, equipment, and quote process that actually matter to them. EnergySage found that customers responded to more transparent, credible choices with better adoption rates, with average adoption rates increasing by over five times when consumers received four or more quotes.

Online marketplaces such as EnergySage are a notable first step for distributed solar. However, all market actors have room to support an easier customer experience: regulators can simplify program rules; utilities can create customer choice by building approved, trustworthy contractor networks and using “make it simple” program design; and communities can put together bulk purchases to reduce costs and simplify contractor selection for customers.

“PEOPLE-FIRST” OPPORTUNITIES FOR EVERYONE

Energy providers, utilities, regulators, and communities have taken the important first steps toward speeding the DER revolution. But much more work needs to be done to give customers more customized, targeted information about the increasing number of energy choices available to them thanks to the emergence of new DER technologies. Getting beyond the first adopters to the next tranche of customers who can reap the benefits of DERs will require a customer, or people-first, approach from all system stakeholders.

Image courtesy of iStock.