Digital innovation begins with a deep understanding of what drives customer behavior – something Innowatts understands better than anyone. With more than 30 million smart meters enabled to date, Innowatts has an unmatched body of machine learning insights to help us understand how customers use energy.
In our latest blog post, our R&D team – Innowatts Labs – shares insights on the impact of time-of-use electricity products on consumption patterns and decarbonization efforts.
What We Asked
Our research was driven by two major questions:
- Which consumption segments show highest elasticity?
- What is the potential to use TOU products to decarbonize the supply stack?
To answer these questions, we analyzed energy usage of customers who voluntarily switched to a TOU plan. Using one consistent set of customers provided us with the most accurate understanding of how TOU impacts consumption patterns, as we could track how their behaviors changed from one year to the next.
What We Uncovered
When customers were on the TOU product, lower- or no-cost period usage increased by 7%, and the biggest driver of change was a 36% increase in their time-sensitive load (such as washing machines, dryers, dishwashers, etc).
Digging deeper, we overlaid customers’ usage on the fixed rate plan with the external factors impacting usage while on the TOU product. We uncovered that the TOU periods benefited the users, who would have paid more while consuming less power had they been on a fixed rate plan in the same conditions as when they were on the TOU product.
What It Means
Higher consumption during off-peak times lessens the difference between peak and non-peak usage. If the difference between peak consumption periods relative to trough is high, any need for increased generation results in inefficient utilization, as well as increased run time of generation units with potentially higher carbon footprints. Lessening this difference could yield better utilization of excess installed grid capacity. Additionally, a 4% adoption and shift in consumption has the potential to decarbonize the supply stack by at least 5%.
Further, we hypothesize that customers who switched from a fixed rate plan to a TOU product had a general understanding of their power usage; they “knew” to increase usage when power was free to secure more lower- or no-cost power. To ensure optimal profitability, retailers and utilities offering TOU must carefully consider this potential volume shift when making cost calculations.
Conversely, a customer on a TOU plan who doesn’t fully understand the product’s structure could see higher overall bills, even with the lower- or no-cost power periods. This could result in NPS challenges and higher call volumes. While we believe the adoption of TOU products will be skewed toward customers who believe they can change their consumption to take advantage of the lower- or no-cost periods, energy providers may need to educate customers on the bill control TOU products provide to ensure optimal customer experiences, while at the same time taking into account their own profitability.
While it appears that TOU products do change customers’ behaviors, the extent to which they change, and the impact to the grid and energy providers’ bottom lines, needs further investigation.
Regional variations in price sensitivity and weather load, as well as varying levels of education and ability to change behavior, all impact customers’ propensity to alter their consumption levels.
Energy providers must conduct a deep analysis of their customer data, to truly understand the customer segments with highest and least elasticity, in order to build the right TOU products that benefit the grid, provider and consumers.