As North America transitions to a clean energy future, dynamic rates such as time-of-use (TOU) pricing are becoming an increasingly popular tool to manage demand. But as more regulators and utilities look to shape baseline loads with these programs, concerns about customer education, adoption, and satisfaction are front and center.
Currently, about 5% of U.S. residential customers are on TOU rates; this figure could triple once investor-owned utilities in states like California, Colorado, and Michigan complete their transitions in the coming years. But the move to TOU has not been seamless.
Many opt-in TOU programs face very low adoption rates, and some regions have delayed default TOU implementation to accommodate more time spent at home during the pandemic. Even after multi-year customer education campaigns, research shows a majority of California residents still don’t understand the importance of shifting usage to protect their bills.
These examples show that by itself, a time-based pricing program – whether opt-in or default – faces challenges with adoption and predictable load shifting. To get customer buy-in and see a meaningful impact on the grid long-term, utilities need to equip customers with tools that don’t require a change in lifestyle or behavior.
Here are three reasons why incorporating such technology is essential for any time-based pricing program’s success.
1. Increased customer participation and satisfaction
Research shows that the average customer spends only eight minutes per year engaging with their energy provider. The overall objective should not be expecting customers to understand and want to actively engage with time-based rates on a daily basis. Instead, utilities should meet customers where they're at and equip them with the tools they need that do the work in the background of their daily lives.
“Customer willingness to participate in TOU pricing jumps from 7% to 44% if automation technologies are deployed in their homes.”
Smart Energy Consumer Collaborative report
Rate Design: What Do Consumers Want and Need?
A 2019 SECC report found that customer willingness to participate in TOU pricing jumps from 7% to 44% if automation technologies are deployed in their homes. Evidently, customers want devices to manage their comfort and energy usage when faced with more complex electricity rates. To capitalize on this, utilities should offer smart thermostats with rate optimization to drive enrollment and satisfaction in time-based pricing programs.
Effect of Automation Technology on Residential Customer Willingness to Participate in Time-Based Pricing Programs, by State Type
In another survey, nearly half of customers on TOU rates indicated they would only purchase a smart thermostat with TOU rate optimization, even if it costs more than a model without such capabilities. This makes offering and marketing these solutions to customers key. Sacramento Municipal Utility District (SMUD) did just that in a recent campaign that positioned ecobee smart thermostats with eco+ as an automated solution for customers on TOU rates. Over the course of a five-week campaign, SMUD saw 31% more customers enable the eco+ TOU optimization feature, delivering predictable load reductions of 0.25 kW per device and additional cooling bill savings of 8% for customers.
Importance of Time of Use optimization in smart thermostat technology
By giving customers the automation technology they want and need, utilities can increase participation in opt-in TOU programs and ensure long-term bill protection and satisfaction for customers transitioning to default TOU rates.
2. Predictable load reductions and customer bill savings
Thermostat optimization technology can help customers save by taking advantage of off-peak rates. For example, ecobee smart thermostats enabled with eco+ offer TOU optimization out of the box to help customers intelligently precool or preheat their home at times of day when electricity prices are low.
This feature essentially acts as an energy storage resource by leveraging a home’s ability to serve as a thermal battery. It does this by using customer comfort preferences, real-time and historical occupancy patterns and a home's specific thermodynamic properties and HVAC system performance to create personalized, real-time optimization around a time-based rate, allowing customers to ride out higher priced periods.
A recent study shows the significant energy, demand, and bill savings smart thermostats with TOU optimization can achieve. In summer 2020, even as people spent more time at home, customers on a TOU rate with the eco+ TOU feature enabled saved up to 23% on their cooling bill. Since the savings are automatic and don’t require customers to take any action, utilities can count on predictable load reductions.
eco+ TOU optimization results for summer 2019 & 2020
3. Maximize the benefits of smart meters for residential customers
Many utilities have made or are making significant investments in smart meters to offer residential customers time-based pricing. But research shows most utilities are failing to make the most of their smart meters and are “greatly underutilizing this technology.” Some utilities have even had their smart meter proposals rejected because they were too expensive and didn’t deliver enough benefits to the residential customers who would eventually pay for them.
Smart thermostats that can automatically manage time-based rates are an essential component of grid modernization efforts because they take the granular information made possible by smart meters and use it to directly deliver savings to customers.
A win-win for customers and utilities
Automation technology is critical to the success of time-based pricing programs to deliver predictable load management for utilities and predictable bills savings for customers. Utilities have an opportunity to support their customers’ lifestyles by equipping them with tools that can work on their behalf to manage rates in any dynamic pricing program. By modernizing the grid in this way, utilities will also build the load flexibility capabilities required to accommodate a clean energy future.