Changes in the way consumers use energy will drive the transition to a low-carbon economy, helping governments and energy companies to meet their carbon-reduction commitments and to secure energy supplies. Smart meters connected to a Smart Grid (such as the one being rolled out to all households in the UK by 2020) will play a key role in this transition. They will give consumers a better understanding of their energy consumption and help them to increase home energy efficiency. However, these changes will only reduce energy consumption if consumers make the right energy management choices.
A number of initiatives to increase home energy efficiency introduced by governments and energy companies across the world have sought to change consumer behaviour through communication and awareness programmes. However, PA Consulting Group believes these programmes must be accompanied by incentivised pricing to deliver lasting change.
Time of Use (ToU) pricing is a popular form of incentivised pricing which aims to reduce energy consumption, but energy providers face significant challenges in its roll-out because:
- renewable generation has variable and unpredictable outputs so ToU tariffs will need to vary by the day – and consumers will not be able to manage their consumption according to a set cycle
- prices need to reflect not just the generation cost of electricity, but also network capacity limits and carbon policy. However, to do this they need to vary significantly at different times in the day to encourage consumers to change consumption patterns
- ToU tariffs must deliver a genuine saving for consumers, not just a redistribution from ToU consumers to non-ToU consumers – failure to offer real savings has been a key reason for programme failure in some jurisdictions
- new technologies and changing pricing structures could alienate consumers – so focused communications and awareness programmes are needed to illustrate the advantages of change.
PA Consulting Group believes that to address these challenges, successful smart energy programmes will need to:
- design ToU tariffs that encourage changes in behaviour, but do not disadvantage vulnerable consumers
- communicate and convince consumers of the benefits of improving home energy efficiency
- establish common standards particularly to ensure that there is a strong market in compliant intelligent products
- design common interfaces so that third parties, such as energy management companies, can access the Grid.
PA's skilled teams continue to help clients realise the benefits of smart meters and Smart Grid. For example, in the US we have worked with Pepco Holdings Inc. to support their Smart Grid planning and in the UK, we supported the scoping phase of the roll-out of smart meters in Great Britain by 2020.
To find out how your organisation can drive down carbon emissions by encouraging consumers to reduce energy consumption, please contact us now.