Recent advances in information technology are expected to transform electricity markets worldwide, and research from the University of Melbourne’s economics department suggests customers who are informed about their energy use can save up to $50 on their electricity bill. This translates to a reduction of 212.40kg of carbon dioxide (CO2) in the air per household each year.
The mandatory state-wide roll out of ‘smart meter’ technology in Victoria is set to transform supply and demand in the electricity market. Smart meters record real-time electricity use every 30 minutes. With online tools for customers to track their energy activity immediately, the potential for better management of energy resources is huge.
However, outside small-scale pilots, there is little evidence of the actual impact of smart meters, and policy makers worry whether consumers will ultimately benefit from their widespread adoption, especially in a market like Victoria with active retail competition. With funding through the Australian Research Council (ARC) Linkage Projects, the University has partnered with electricity retailers and Billcap, an online consumer smart meter tool, to evaluate how consumers engage with the smart meter data and how that affects their bills and carbon footprint.
CHANGING CONSUMER BEHAVIOUR
Early research suggests that the more customers know about their energy usage, the more likely they are to make changes that benefit their pockets and the environment. Using a sample of 8,000 Victorian households, the researchers used randomised controlled trials to analyse the behavioural changes brought about by access to the smart meter data. Some households were randomly given real-time feedback and peer comparisons on electricity use from their smart meter, while others were not. The economic and environmental impact of simply providing the information was striking: informed customers managed to reduce their electricity consumption by 4-5% relative to uninformed customers. For an average customer, this represents a $50 saving and 180 kWh reduction in electricity use per year.
These effects are largely driven by a particular household type. People who thought they were low electricity users before the experiment realised that they were not as green as they thought. So, while we find environmentally conscious consumer types are those who are better able to take advantage of their smart meter data to realise cost and environmental savings, they do so because they were mistaken about their relative environmental impact. Providing them with feedback based on their smart meter data encourages them to become who they thought they were.
These experiments are the first and largest of their kind ever run and will continue to inform industry best practice.
Yann Burden, CEO of Billcap, says the research provides a solid evidence-based foundation for the company’s innovation.
Our clients know that our commitment to improving their customer engagement is backed up by independently verified world-leading research.
Ongoing experimentation in partnership with Billcap will tackle pressing questions, such as: How can smart meter data be used to simplify customer choice? Can we make electricity like petrol in terms of price salience? How will customers respond as electricity prices become increasingly dynamic in the retail market? Who will win and lose from dynamic pricing, and how should policy be designed to protect socio-economically vulnerable households going forward?
The ARC Linkage Projects scheme provides funding to eligible organisations to support research and development projects which are collaborative between higher education researchers and other parts of the national innovation system.
Originally published in Exchange Magazine by the Faculty of Business and Economics. Exchange presents in-depth analysis and commentary on the research and practice changing the business landscape.