Navigant Research Blog

Utility Programs May Be Doing More than We Give Them Credit For

— February 24, 2016

light bulbsMany utilities run programs that incentivize their customers to buy increasingly efficient devices, with the ultimate goal of making these efficient devices the new normal. These programs are often accompanied by marketing campaigns to educate the public about the new technology and encourage people to adopt it. The long-term strategy is that this combination of incentives and messaging makes customers more comfortable with new technology, eventually leading them to purchase it regardless of whether or not it is still being incentivized by the utility. Making this change to the norm is called market transformation.

The accounting that goes into determining how much savings utilities can claim for this market transformation process is tricky. Let’s use lightbulbs as an example. Utilities are supposed to be able to claim credit for purchases of efficient lightbulbs that their programs are responsible for influencing. While it’s easy to count how many lightbulbs the program incentivizes each year, calculating how many efficient lightbulb purchases the program influenced is not that simple.

Determining Influence

First off, there are people who bought incentivized lightbulbs but who would have still bought the more efficient lightbulbs even if the program didn’t exist. These customers are known as free riders and shouldn’t be counted; the number of free riders in a program is often estimated and subtracted from program sales.

There are also people who may have received one efficient lightbulb in a kit and decided to purchase a few more without getting the incentivized price. These extra purchases are called program participant spillover. Beyond that, there are people who learn about the benefits of the new technology—from program advertising, retailers stocking more of the efficient technology on their shelves, and price reductions from increased sales volumes—and purchase it without the incentivized price; this is called non-participant spillover. “Market effects” is the term used to describe these spillover purchases and others that aren’t counted because they are very difficult to estimate; however, the utility should get credit for influencing these purchases.

Navigant’s Market Transformation Model endeavors to measure the full impact of utility programs by forecasting what would have happened in the market without the program and comparing this to actual market activity. The Market Model has been used to estimate the market effects of lighting programs in both the residential and commercial sectors. In Michigan, the model was able to show that utility programs were making a larger impact on the market than just the number of lightbulbs being incentivized. By correctly attributing market effects beyond the sales incentivized by programs, we can give utilities the credit they deserve and better support them in spurring the shift to more efficient lightbulbs and other devices.

 

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