Common Tragedies

Thoughts on Environmental Economics

Energy consumption and real time information

Posted by Evan Herrnstadt on January 10, 2008

The New York Times reports that a Pacific Northwest National Laboratory study shows people could substantially reduce their energy consumption and spending when given the means to constantly monitor and adjust their level of usage. Specifically, the program involved the following measures:

In the Olympic Peninsula, west of Seattle, 112 homes were equipped with digital thermostats, and computer controllers were attached to water heaters and clothes dryers. These controls were connected to the Internet. The homeowners could go to a Web site to set their ideal home temperature and how many degrees they were willing to have that temperature move above or below the target. They also indicated their level of tolerance for fluctuating electricity prices. In effect, the homeowners were asked to decide the trade-off they wanted to make between cost savings and comfort.

Giving consumers this level of information and control over their consumption choices gives them a clearer set of options. The current system in which all energy decisions are bundled with exogenous shocks into one price can be opaque:

The market signals from household utility bills are not clear to people, some experts say. Conservation steps, they note, may bring savings of only a few percentage points, and even those may be obscured by seasonal swings in electricity use and pricing.

Still, the enthusiasm over this project should be tempered. In this geographically skewed sample, I’m skeptical of how many people were actually responding to an improved awareness of cost incentives:

The monetary savings were nice, but Mr. Brous said his main motivation for joining the project was to participate in research that might accelerate the spread of energy efficiency programs.

One must be careful when extrapolating these results to a broader program, as I’m guessing not every part of the country is as ecstatic about energy efficiency deployment for its own sake.

Update: Lynne Kiesling over at Knowledge Problem (who was involved in the project) addresses some of the hurdles involved in implementing this new technology.

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4 Responses to “Energy consumption and real time information”

  1. Lynne said

    You’d be surprised at how attuned they became to costs. I encourage you to read our final technical report:

    http://gridwise.pnl.gov/docs/op_project_final_report_pnnl17167.pdf

    We are also planning on writing up some more of the economics results as journal articles.

  2. Rich Sweeney said

    Couple things:

    – your comments about sample bias are broadly true of all the electricity pricing experiments i’ve seen. in addition to regional specificity, customers have to either opt in to the experiment (which indicates they’re more energy conscious than average) or the utility assures that participation will be revenue neutral at worst. i looked quickly at the report but couldn’t figure out how they go the participants to join.

    – more generally, i wonder if you can consider these results as support for government intervention to support energy efficiency/ conservation. over on kp, lynne kiesling says the following, “Not only did these individual actions lead to individual savings, though; in aggregate their willingness to respond to price signals reduced the strain on the congested distribution system in peak periods.”

    is kiesling saying that there are positive externalities associated with energy conservation? the other day i wrote a long post musing on the merits of promoting energy efficiency. if the individual making the decision to conserve energy doesn’t consider the full benefit of conservation, the outcome will be sub-optimal. i think.

  3. Rich Sweeney said

    this is what i get for cross posting comments. lynne answers my question over on kp. apparently the externality i pointed out is irrelevant. here are her words (although you should really go read her whole post):

    Rich,

    That is precisely what I’m saying.

    No, it is not a case for government intervention; it is what Buchanan & Stubblebine called an irrelevant externality — even if each person got a miniscule subsidy to account for the marginal benefit they are not capturing, would it change their behavior? In most cases, probably not.

    Here are some other posts that have discussed irrelevant externalities:

    http://www.knowledgeproblem.com/cgi-bin/mt-search.cgi?IncludeBlogs=1&search=irrelevant+externality

    Plus I have a whole chapter on it in my forthcoming book, the manuscript of which goes to the publisher tomorrow (!!).

  4. Lynne said

    Yep, we struggled long and hard with how to get the local utilities to agree to do a random match that would nullify the selection bias. Not considered to be very good customer service :-). So we suck it up and just deal with the selection bias. There are worse things in the world, and you gotta pick your battles.

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