Digital Verdure

Assuming you were suddenly given $10,000 for home improvements, which of the following would you do?

• Remodel Kitchen or Bathroom
• Replace carpet or add hardwood or tile
• Replace windows
• Repaint roof
• Repaint interior or exterior
• Replace hot water heater
• Add insulation
• Finish out basement or bonus space

If you picked kitchen/bathroom and floors as your first and second choices, welcome to the club. You chose the same as a majority of consumers, according to the Shelton Group's EnergyPulse survey, released this week.

Here’s another question: did you factor the home improvement’s ROI in your decision?

That’s actually a concern for many homeowners when it comes time to invest in remodeling, yet it’s not clear today which option leads to greater resale value and why. Homebuyers are a finicky bunch and may pay more for marble counter-tops than a high efficiency hot water heater, even though the latter pays for itself in energy savings in just a few years.  Of course, a home buyer isn’t going to throw a housewarming party in her basement to show off her new EnergyStar boiler… but how much cash does a boiler need to save before it wins investment over sexier renovations?

A heck of a lot, according to energy efficiency experts, who note that consumers are very irrational when it comes to home improvement decisions. In the latest example, the Shelton Group found that consumers would endure up to $129/month increase in utility bills before investing in energy efficiency renovations, demonstrating what Shelton Group calls the “Apathy Gap – the price people are willing to pay to do nothing.”

The Apathy Gap

The Apathy Gap is notorious among energy policymakers and economists, who cite the average consumer’s ridiculously high internal discount rate for energy efficient projects – as high as 70 – 80% in a recent study by Efficiency Vermont. By comparison, most consumers extend a 5% discount rate to Uncle Sam when buying US Treasury bonds. Do people really think that investing in retrofits (essentially the laws of physics, as proofed in building science, plus some installation risk) is 16 times more risky than the Federal Government?

The Apathy Gap is extremely irrational. In Predictably Irrational, Dan Ariely asks, “Why do people splurge on a lavish meal, but cut coupons to save twenty-five cents on a can of soup?” Similarly, energy efficiency advocates should ask, “why do house hunters scrutinize mortgage rates, but ignore utility bills?”

In both cases, the reason is that consumers make decisions emotionally, in conformity with social norms. Bank and broker advertising have taught home buyers to rate compare, but no one has shown them how to negotiate on utility bills. Around Boston, where I live, a winter heating bill may only be a few dollars shy of a monthly mortgage payment. Installing an efficient boiler can lower a heating bill by tens of thousands of dollars over the 30 year span of a typical mortgage. Yet many home buyers would discount that payback so much as to make the boiler less valuable than the marble countertops.

There are similar forces at work across the full range of residential energy efficiency products and services. Even low-cost and no-cost behavioral changes, like replacing lights with free CFLs or running dishwashers at night, have unreasonably high hurdles to adoption given their easy savings.

Roadblocks on the Bridge

We need to bridge the Apathy Gap and we should start by clearing the major roadblocks: the reality that energy efficiency is not a social norm and the perception of energy efficiency as a “Big Brother” utility-backed priority. There are others, but these are particularly bad because they are fundamental obstacles to consumer recognition and internalization of energy efficiency priorities and because they can be broken down with the cost-effective digital media and social marketing strategies.

Energy efficiency is NOT a social norm

Consumers make decisions that align with social norms while home energy consumption largely exists in a vacuum. We don’t behave as if home energy is a scarce resource today because it has been delivered “cheap, reliable and plentiful” to us for generations. Obviously this needs to change if we are going to become a more energy efficient society.

Interestingly, academic research shows, and social marketing experience validates, that the most effective way to get consumers to change their behavior is to demonstrate that others like them already have. There are many ways to do this (see the “Big Brother” point below), but the most effective enable consumers to tell their own stories of becoming energy efficient on a real-time ongoing basis, ideally to a target audience that closely identifies with them, such as friends or self-selected peers, and already emulates them in other ways.

OPower (formerly Positive Energy) has taken another approach by analyzing utility company data and adding messaging to utility bills that compares customers to efficient neighbors. The company also gently prods customers to make no- and low-cost behavioral modifications to conform. The approach essentially transforms the utility bill into a teacher’s report card and well-meaning nudge, but I wonder how effectively it motivates consumers to deepen their commitment to energy efficiency, like by investing thousands of dollars in home performance renovations.

Perception of energy efficiency as a “Big Brother” utility-backed priority

In human communications, who is saying something is usually far more important than what is being said. Unfortunately, utility company brands are typically faceless, boring, and irrelevant. Decades of television advertising and direct mail campaigns in some states have trained consumers to associate energy efficiency with utility companies. Consequently, consumers process conventional energy efficiency outreach as “the boring old utility company bugging me again.”

Instead of focusing on transforming their brands at this time of unprecedented concern over privacy and the environment, utility companies are taking on major reputation risks by treating their customers’ energy consumption data like it is proprietary, by pressuring their customers to conform to fstandards and by considering default control of in-home appliances and HVAC systems via smart grid technology.

All these strategies expose the already lackluster brands of most utility companies to significant reputational risk, principally in the form of customer backlash. Look no further than PG&E’s PR fiasco with its Bakersfield smart meter rollout. Utility companies need to learn to navigate today’s hyper-connected community networks if they aim to convince consumers to embrace smart meters and energy efficiency.

When Secretary of Energy Stephen Chu visited the Daily Show with John Stewart last week, he couldn’t give Stewart an honorary membership to the National Academy of Sciences, so instead Chu gave Steward a “Nerds of America Society” t-shirt.

Secretary Chu, a Nobel Prize winner who recently joined Facebook, was on Comedy Central boosting the administration’s $60 billion investment in American clean energy and energy efficiency in front of a big, young audience eager for change.

That kind of money is no laughing matter and dozens of technology companies, from GE to Google to a spate of newly incorporated startups, are lining up to compete for their slice of the pie.

Google announced Power Meter in February to help utility companies display electricity consumption data to customers via the web. Studies have shown that when consumers have real-time data (via a smart grid or home rig), they tend to consume less electricity and save money.

Microsoft fired back in June with Hohm, which doesn’t wait for smart grid deployment to begin helping homeowners save money. Give Hohm an exhaustive set of details about your home (pun intended – an Ohm is a unit for measuring electrical current) and it returns a tailored set of energy efficiency improvement recommendations.

Companies haven’t begun marketing all this fancy new smart grid technology and data to consumers yet, but that hasn’t stopped consumers from getting increasingly interested in renewable energy and energy efficiency.

Visitors to more than 50 leading energy sites like energysavers.gov and consumerenergycenter.org reached 3.5M in June, 2009, up 68% over the prior twelve months. (Note the spikes just after December and February, when temperatures drop and bills rise the fastest.)

With all of this money and interest flowing toward energy efficiency, I became curious about how people evaluate their energy consumption today. Most people purchase electricity through a utility company (although quite a few generate their own with solar panels and windmills, even selling their surplus back to the grid) and many visit their utility online to pay bills, enroll in services and research renewable and efficiency options.

The ‘green pages’ of utility company websites are one of the most significant channels for consumers to engage in renewable energy and energy efficiency. On green pages, utility customers can elect for up to 100% of their electricity to come from clean sources, analyze their home energy efficiency, sign up for free home energy audits and more.

To learn how effectively these green pages are at reaching and engaging energy customers, I looked at visitation to over 100 utility sites, handily listed at UtilityConnection.com. Collectively, this group received 10.7M unique visitors in June and grew 26% versus a year ago. The top 10 utility sites accounted for 57% of the total and grew 30% in June versus a year ago.

Interestingly, though, visitors to green pages at the top 10 utility sites are actually declining.

Only 2.3% of unique visitors to the top 10 utility sites visited green pages in June, down from 4.4% a year ago. In volume terms, that’sonly 124K of the 6M visitorsthat went to PGE.com, NationalGridUS.com and other leading utility sites.

 So it would seem that utilities are not doing a great job at capturing their share of rising consumer interest in renewable energy and energy efficiency. This is consistent with a recent study by Gartner, which found that “energy efficiency programs are poorly marketed by utilities.”

To anyone familiar with energy issues, this is not so surprising. That’s because government regulation too often enables utilities to earn greater revenue by selling more electricity and natural gas. Attempts to “decouple” this misaligned incentive through tax credits and legal mandates have been successful in only a few politically progressive states, like California and Massachusetts.

“This is particularly disturbing,” Earth2Tech’s Katie Fehrenbacher has written, “because it reminds me that those billions allocated from the stimulus package would be much more effective if they were being pumped into a market where all utilities had financial incentives to implement them.”

I have hope, however, that broad consumer interest in energy efficiency will continue rising, encouraged by savvy marketing from big tech and edgy startups, until less-than progressive utilities and legislatures answer their call.