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Opower: Energy Efficiency Through Behavioral Science and Technology

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"Opower: Energy Efficiency Through Behavioral Science and Technology"

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Simplicity is a beautiful thing. While companies developing advanced metering technologies awkwardly try to plug into a “dumb” utility system, Opower is reaching out to customers the old fashioned way: through the mail.

And it’s working.

Opower analyzes utility data and produces residential energy reports to show ratepayers how much energy they’re using, how it compares with others nearby, and also gives advice on reducing energy use specifically tailored to the customer using behavioral science. The energy reports are mailed out in envelopes that look like they come from the utility.

It’s a simple, capital efficient way to get customers thinking about energy use. So far, Opower has reduced residential electricity consumption by 380,000 megawatt-hours – the rough equivalent to 38,000 homes. The company says its on track to reduce consumption by 1 million MWh by the end of next year, mostly by sending letters in the mail.

If the smart metering companies are focused on using data to empower the consumer, Opower is more focused on helping the utility reduce demand and meet state-level efficiency standards. But this also has a powerful impact on ratepayers. If Opower can meet the 1 million MWh target next year, it says it will cumulatively save consumers $100 million on bills.

In a culture so wrapped up in the digital world, who knew snail mail could be so effective?

This is the perfect example of what analysts call Business Model Innovation (BMI) –making tweaks to existing business models and technologies that can enable explosive positive change. In an article at AltEnergyStocks last week, David Levy of the University of Massachusetts explains the significance of BMI:

While public policy and the media tend to focus on technological innovation as the key to addressing climate change and boosting clean energy, business model innovation (BMI) offers a path to rapid deployment of existing technologies. The concept was popularized and given its current acronym by Mark Johnson, Clayton Christensen, and Henning Kagermann in their Dec. 2008 Harvard Business Review article “Reinventing Your Business Model.” They point out that “Low-cost U.S. airlines grew from a blip on the radar screen to 55% of the market value of all carriers. Fully 11 of the 27 companies born in the last quarter century that grew their way into the Fortune 500 in the past 10 years did so through business model innovation.”

The potential for BMI in the development of the cleantech sector is only just beginning to be appreciated. Rob Day, a partner with Black Coral Capital in Boston, recently wrote about a new wave of startups that run lean and require less capital to scale up, so are less likely to founder in the infamous Valley of Death: “Some of this next wave of startups will be hardware, but many will be software and/or services…  Business model innovation will often be stressed over technological innovation.  They will sometimes marry energy-related market opportunities with Web2.0 and social media business models and platforms.”

Opower is truly a BMI company. Its data services provide immediate value to the utility and the ratepayer without changing anything – they simply plug into the existing system and realize energy reductions through traditional mailing. (Opower also works with utilities to create web-based offerings and says its products will scale with advanced metering options as they are deployed.)

As a society, we are obsessed with energy technologies that haven’t been proven yet – solar paints, nanotube capacitor batteries, the “smart grid” – but we tend not to appreciate the immense value in BMI — and behavioral science. We should. These are the kind of solutions that will help us make rapid GHG emission reductions cost-effectively, while helping bridge the gap to tomorrow’s revolutionary technologies.

For more on Opower’s use of behavioral science see:

A study of the effectiveness of Opower’s behavioral implementation at Sacramento Municipal Utility District
Researchers Hunt Allcott and Sendhil Mullainathan write about the cost-effectiveness and energy-saving potential of behavior-based efficiency programs.

 

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