Lower-income households are in danger of being left behind in the transition to energy efficiency. Here’s how utilities can reduce the energy burden on them while hitting their business targets and meeting regulatory requirements toward a carbon-neutral future. Part 1 of 2.
Check back for Part 2 in this series, when we take a deep dive into some specific customer segments for targeting lower-income households about energy efficiency.
New appliances, good insulation and airtight windows are expensive. But they save customers money in the long run. Month after month, owners of high-efficiency washers, dryers, light bulbs and refrigerators see lower utility bills than those with old energy guzzlers.
Homeowners with adequate insulation have lower heating and air conditioning bills. And those who can afford high-quality windows and doors that don’t leak air enjoy better energy efficiency. That means their utility bills are consistently lower than for those who can’t afford the same upgrades.
People surviving on modest incomes don’t typically have room in their budgets for high-efficiency appliances, or for home improvements such as new windows. Renters, especially, lack the authority to swap out refrigerators or add insulation. Landlords make those modifications, and unfortunately, landlords of low-income housing are notorious for avoiding such expensive improvements.
Unpacking the Low-Income Energy Burden
This means there’s an added burden placed upon lower-income households with regards to energy affordability that higher-wealth earners don’t have to carry.
The cost of energy upgrades means they are simply out of reach for many who are struggling to pay for rent, food, childcare and healthcare. That means they pay more in utilities each month.
According to U.S. News & World Report, “These costs fall heaviest on those with lower incomes, older adults and communities of color. Fully two-thirds of low-income households experience a high energy burden. And compared with non-Hispanic white households, Black households spend 43% more of their income on energy costs, Hispanic households spend 20% more and Native American households spend 45% more.”
Unfortunately, for many low-income households, energy inefficiency leads to high utility bills they can’t afford. This in turn means they are more likely to carry high balances and default on payments, a situation that customers and energy companies alike want to avoid.
The Kilowatt Conundrum
According to Clean Energy Resource Teams, “A 20-year-old refrigerator could use 1,700 kWh of electricity every year, compared with about 450 kWh for a similarly sized new ENERGY STAR model. At an electrical cost of 12 cents per kWh, that represents a savings of $150 per year and a potential payback of about 7-9 years.”
$150 in savings per year, which comes from switching out one appliance, could suggest enormous savings for households that have the capacity to upgrade other appliances in their homes. Yet lower-income customers don’t have access to the newest dishwasher or fridge on the market.
A high-efficiency fridge can cost anywhere from $700 for a small, apartment-sized unit, to $3,000 for a larger one. For people living paycheck to paycheck, the point-of-sale price tag is prohibitive.
What can be done to offset that cost at the register for low-wage earners?
State Carbon Reduction Commitments
Meanwhile, carbon reduction plans at the national level are making headway. President Biden’s goal, according to Whitehouse.gov, is for the US “to create a carbon pollution-free power sector by 2035 and net zero emissions economy by no later than 2050.”
That would mean, at least in part, that more people need to switch to energy efficient appliances and make more energy-saving home upgrades.
State-level carbon reduction legislation is moving in the same direction. The Commonwealth of Pennsylvania, for instance, requires “state-owned and occupied facilities to reduce energy consumption by 3% per year, and 21% by 2025 from 2017 levels,” as set forth in bill EO 2019-01 (source: ACEEE.org).
Colorado’s Executive Order D 2019 016 “directs all agencies to reduce greenhouse gas emissions from State fleet vehicles by at least 15% by the end of FY 2022-23 from a baseline of FY 2014-15 or at least 7.5% by the end of FY 2022-23 for vehicles categorized as special use. The executive order further requires that all agencies priorize EVs for light duty applications.” (source: ACEEE.org).
Washington state goes farther, specifically addressing residential legislation for low-income households. Its 2019 law states, “…priority must be given to projects that benefit vulnerable populations including Tribes and communities with high environmental or energy burden. Further, a new allocation of funds was established specifically for community solar projects that provide benefit to low-income households, low-income tribal housing programs, affordable housing providers, and nonprofit organizations providing services to low-income communities.” (source: ACEEE.org).
Unfortunately, not all US states are as aggressive in reducing carbon emissions, eliminating the energy burden and creating more equity for low-wage earners.
But even in regions with smaller goals, new legislation has created new–and often stringent–regulations that utilities must meet. Doing so may require creativity and proactive planning by energy providers.
Luckily, with customer intelligence, they can meet these new guidelines with ease.
Addressing the Energy Burden
To help customers lower the upfront costs of appliances and lower their energy bills in the long run, some utilities offer rebates or discounts for appliances at participating retailers.
- Los Angeles Department of Power and Water gives customers $75 back on their purchase of an approved fridge.
- Efficiency Vermont offers up to $400 cash back on a new clothes dryer, and free energy efficient items for income-qualified customers.
- Alliant Energy in Wisconsin gives customers up to $600 on a new central air conditioning unit, and up to $1,700 for installing a geothermal heat pump.
In addition, utilities often conduct free or reduced-cost home energy audits for income-qualifying households to educate customers on where they can cut back on energy usage and cost. Some offer energy efficiency starter kits that include things like free LED lightbulbs and educational materials. Most utilities provide help in recycling old appliances, too.
So…why aren’t more lower-income customers taking advantage of these programs?
We can surmise that:
1) they simply don’t know such programs exist, or,
2) if they do know, the discounts, rebates, audits and starter kits simply don’t go far enough to actually provide a cost benefit that would motivate lower-income earners to act.
With customer intelligence, utilities could be engaging their customers more effectively about energy efficiency, thereby boosting program participation and meeting regulatory guidelines.
Utilizing Customer Intelligence for Important Next Steps
How can utility providers:
- Work to reduce disparities, so that lower-income customers don’t get left behind in the transition to energy efficiency?
- Ensure that their most vulnerable customers have access to, and knowledge about, energy efficiency and cost efficiency programs?
- Boost engagement in those valuable energy efficiency programs?
- Meet regulatory requirements and carbon-neutral goals set forth that aim to lower emissions?
Customer intelligence helps utilities to achieve those goals, letting utilities precisely target the communities and households that are being directly affected by the energy burden. Performing customer segmentation through an energy efficiency lens gives utilities the power to reach different customers about specific programs with unique messaging that resonates, and through the channels each household most often uses.
Making the Most of Customer Intelligence
Data-rich, predictive customer intelligence means utilities have the power to know who their vulnerable customers are and understand what makes them unique, household by household. Utilities can analyze household spending habits, social media preferences, billing histories, and so on. With it, they are able to learn what customers really need, what kinds of messaging are most likely to motivate individuals to act, and which channels of communication are most effective for reaching different people.
We conduct these sorts of analyses for our utility partners, and they’re yielding astounding results. Targeted engagement is generating higher response rates, higher program enrollment, better customer satisfaction, more rebates being distributed and regulations being met with ease.
But none of that happens without our partners first taking a long, hard look at who their customers really are.
In Part 2 of this series, we’ll delve into some of the unique, lower-income customer segments to discuss their wide-ranging concerns with regard to energy efficiency.
One thing we know for sure is that no two customers are alike. The same is true for lower-income customers: there’s a wide spectrum of customer segments within that large group, and they must be addressed uniquely. Which is why it’s so important to study them at the household level, as we do–so that you can target them with effective engagement.
Stay tuned for a close-up view of some lower-income persona segments next week! In the meantime, download our Energy Efficiency one-pager to learn how we can help your utility boost program participation. Explore more energy-focused solutions that BlastPoint’s customer intelligence platform is perfect for, or reach out to us here to kick off your energy efficiency optimization strategy!