When we talk about smart energy, thoughts often veer toward rooftop solar panels, the latest smart thermostat models, home energy storage or a Tesla Model S electric vehicle – all of which require substantial investments. This has led some to believe that smart energy is only for more affluent consumers – or that low- and moderate-income consumers are not interested in smart and clean energy technologies and related programs.
Despite these misconceptions, we found in the “Spotlight on Low-Income Consumers: Revisiting Their Needs and Wants” report that low- and moderate-income consumers are, in fact, interested in smart energy programs, services and technologies at comparable, albeit slightly lower, levels than more affluent customers. These consumers also report knowledge of home energy efficiency actions at levels similar to more affluent customers.
However, there are challenges to engaging lower-income customers. They often don’t see their utility as a trusted partner to help solve their problems and often perceive a number of hurdles to engaging in programs, including the upfront costs associated with some technologies and the lack of agency to make changes as renters. Yet, despite this disconnect, there are some notable efforts underway from electricity providers to include lower-income consumers in energy programs and technologies.
Here’s how several stakeholders across the United States are designing programs to overcome lower-income consumers’ barriers to engagement and helping them save energy:
1. Helping consumers make energy-efficient upgrades with tariff-based financing
Tariff-based financing (also known as an on-bill tariff) is one method being used to overcome the barrier of upfront costs associated with energy-efficient and clean energy upgrades. Pioneered by the Energy Efficiency Institute in 1999, the Pay As You Save (PAYS) model of tariff-based financing does not require a loan to the customer or testing for eligibility.
One example of a utility using tariff-based financing is Ouachita Electric Cooperative, a cooperative electric utility serving approximately 7,000 members in Arkansas. In 2016, Ouachita EMC converted its existing on-bill financing program to a PAYS model, which means that customers incur no debt for energy-efficient improvements and that the improvement stays with the property, allowing renters to more easily participate.
The program offers new insulation, weather-stripping and air-sealing; fixes duct leakages; and replaces old HVAC equipment with modern, efficient upgrades. The cooperative gets a return on its investment through reduced demand, especially peak demand, and the cooperative's members get an average monthly bill reduction of 20 percent.
Ouachita’s PAYS program is open to anyone that pays a bill to the cooperative, and the process begins with a home energy assessment completed at no cost. Consumers receive a report with the cost of the recommended improvements and the associated annual cost savings. They then select the upgrades that they would like to receive, and the work is completed at no cost and paid back through the energy savings on each month’s bill.
In the last few years, Ouachita EMC has completed over 500 residential projects with zero defaults. Some consumers have seen monthly savings of over 40-50 percent, and each year, the average tends to stay close to 20 percent. Ouachita continues to improve the program and has added smart thermostats and LED lighting since the program’s inception and is beginning to get involved in rooftop solar.
2. Working with community partners to redesign income-eligible programs
Headquartered in northern Minnesota, Minnesota Power, an investor-owned utility with about 150,000 customers, serves a customer base where roughly one-third of all residential customers qualify as low-income households. Over the years, the utility has learned that there is no single profile for their low-income customers and that there are considerable variations in age, energy use, energy burden and other household characteristics.
In 2018, the utility worked with several nonprofit organizations, including the Citizens Utility Board of Minnesota and Fresh Energy, to update the design of its affordability program for income-eligible customers. The updated program had several objectives, including lowering the percentage of income that participating households devote to energy; decreasing or eliminating arrears; lowering the utility’s costs associated with account collections; and coordinating with other available low-income resources.
The updated program includes several components. The first is a flat $15 discount to eligible customers through an automatic enrollment process; there is no application beyond applying for LIHEAP. The program also contains an affordability discount component, which has an energy burden target of three percent of average household income. For example, if a customer has an annual income of $18,000 and annual electric bills of $950, the customer will receive an annual discount of $410 (a 43-percent reduction) in order to get the customer's energy expenses to equal three percent of their annual income.
There’s also an arrears forgiveness component where the utility takes the balanced owned, places it in a separate service agreement with the customer and contributes a match toward those arrears, providing the customer with a path to eliminate their arrears while still saving each month through the program’s other components.
By partnering with nonprofit organizations, Minnesota Power has helped develop an affordability program that more adequately addresses lower-income consumers’ energy burdens and helps build trust with the electricity provider, providing a pathway to future engagement.
3. Using smart home technology to engage underserved customers
Ameren Illinois, a delivery-only utility with 1.2 million electric customers in southern and central Illinois, launched its Market Development Initiative in 2018 to engage customers who have not previously benefitted from energy efficiency. The program also seeks to increase the number of energy efficiency jobs available to local, diverse candidates and support new or growing energy efficiency businesses.
A crucially important piece achieving the initiative’s goals has been community-based partnerships. Ameren works with community action agencies and local nonprofit organizations to reach customers who they have not previously been able to engage. Prior to COVID-19, this outreach often took the form of booths and speakers at community events; however, today, there is a greater focus on webinars, social media and phone calls, all in partnership with community organizations.
One aspect of the Market Development Initiative portfolio is Smart Savers, a smart thermostat program that launched in 2018 with CLEAResult as a partner. This program makes it easy and convenient for customers to receive a smart thermostat. First, the customer fills out a short online application to confirm eligibility. Then, the customer selects their preferred smart thermostat – either a Nest Thermostat E or an ecobee3 lite – and their installation method. Customers who choose to self-install receive a $25 gift card, or it can be installed at no cost to the customer.
This program is designed to be very simple and is completely free to the customer. Ameren Illinois determines customer eligibility based on zip code; the utility uses geotargeting to identify areas where the median income falls in the low-to-moderate range. Customers in the targeted zip codes don't need to verify their income separately.
In 2019, the Market Development Initiative achieved a number of milestones, including about 30,000 customers engaged through smart technology; 12,598 customers engaged through community events; and 3,250 energy efficiency kits distributed (including LED lightbulbs, advanced power strips and more).
Conclusion: A smart energy future for all
Lower-income consumers are an important group of customers for every electric utility, but there are challenges that can make this group hard to reach. However, as evidenced by the programs noted above, these hurdles can be overcome. With disproportionately high energy burdens and oftentimes poor community air quality, lower-income customers are often best suited to benefit from smart energy. These programs demonstrate methods for creating a smarter, cleaner energy future that is accessible to all – not only those who can afford it.
To learn more about lower-income energy, download SECC’s “Spotlight on Low-Income Consumers: Revisiting Their Needs and Wants” report here. SECC will also be publishing new primary research on this topic in Q4.