Every so often you hear something that seems fairly trivial at the time, but then, as you think about it, you realise that it contains a fundamental truth. That happened to me a few weeks ago when I was speaking at the Smart Metering UK conference in London.
One of the speakers before me was Aidan O’Neill of PrePayPower in Ireland. Aidan made a statement that the bulk of his customers spend more each day on cigarettes than they do on electricity. It’s one of those throw-away lines that doesn’t really impinge at the time. Let me explain why it’s so important.
The energy industry has a mission to change consumer behaviour in the way we use energy, particularly at peak times. They’re convinced that they can achieve this by introducing new tariffs – what they call Time of Use (ToU) pricing. They consistently claim that users will “follow” the dollar”; in other words, if electricity is made more expensive at times of peak demand, millions of us will change how and when we use our appliances. I’d argue that there’s precious little evidence for that. Most people still need to cook meals and wash clothes at peak times and it will take a very big price hike to change that.
There’s lots of evidence that people won’t change, unless price increases are truly draconian. When gas (petroleum) prices rocketed in the U.S. the higher cost didn’t spawn a new industry making more efficient cars. Instead it signalled the explosive growth of the Hummer and the lookalike SUVs that guzzled gas as if it came out of the pumps for free.
The hard fact that everyone needs to acknowledge is that we spend money on things we like, whether or not we need them, or whether they’re good for us or our environment. Governments have tried hard to control this addictive behaviour, slapping taxes on alcohol and cigarettes. On one level they claim that this is to curb consumption and modify public behaviour. On the other hand, they find it quite a useful source of revenue.
That latter point, the chance to demand more money from the consumer, is probably what makes Time of Use pricing look so attractive to utilities. Smart metering and the promotion of energy saving is not really a very convincing business model for a utility, as it reduces its income. There are lots of expensive consultants who will explain that this is balanced by savings gained from reducing the need to build new power stations, being able to optimise the grid and so on. However, many of these arguments seem at best to be either self-serving or somewhat tenuous.
But if you’re a utility, it must feel great sitting in a focus group with consumers, asking them whether they’d support Time of Use pricing and appealing to their green instincts, persuading them that by doing so they’ll help to save the world. Stephen Sondheim summed it up rather well with his words from “Into the Woods” when the Wolf meets Red Riding Hood for the first time: “There’s no possible way to describe how you feel, when you’re talking to your meal.” Why wouldn’t a utility love Time of Use pricing? The question is: “will it really work?”
The problem is that for most people, energy use is an addiction, just like drink, alcohol, or any other drug of choice. And like all drugs it’s incredibly difficult to wean people off it. It’s not easy to change addictive behaviour. The only area of addiction where Western governments have had any real impact is smoking, which illustrates just how difficult the job is.
As a population, very few people stopped smoking because they worried about its dangers, however graphically they were portrayed. So a simple message that excessive energy use is bad for the world is unlikely to have much effect. We could start with mandatory Government health warnings on light switches and pictures of dying polar bears on fridges, but my guess is that they won’t do much to change or shift energy demand.
Nor did people give up smoking when taxes were increased. They moaned. A few people went down the micro-generation route of growing their own, but most paid up and continued to puff away.
It was only when the message started to permeate that it was anti-social that behaviour started to change. Legal judgements on the dangers of passive smoking started to change the moral ground, from where it became acceptable to castigate people about their habit in public.
That was reinforced by pressure groups taking tobacco companies to court over their marketing practices and winning massive settlements from them. Only then did Governments act by banning smoking in public places, throwing more grist to the mill of ostracising smokers and reinforcing consumer behavioural change. Yet despite all of this, many still smoke – they just do it in private.
Can we effect a similar social tsunami in terms of energy usage? At what point will it be acceptable to publicly criticise a neighbour because they have an illuminated Santa on their roof at Christmas? Or cook real food in their oven instead of microwaving a ready-meal? And if we go down that route, what secrets might we find lurking in the vaults of our utilities that could set them up for public vilification and the chance to become the next Philip Morris? Heaven forbid that at some point in their murky past they might have encouraged consumers to use more energy…
The prospect of becoming the next punchbag for the righteous consumer movement isn’t the only concern for the energy utilities. They’ve probably not even thought about that possibility. There’s a more worrying possibility that they should be considering. Governments have seen acceptable or necessary addictions as a source of tax revenue in the past, and there’s no reason they couldn’t do the same again – this time with energy. Instead of letting utilities profit from Time of Use prices, they could legislate to implement them as a Tax on Use, diverting the potential spoils from the utilities’ coffers to their own. If they seize that opportunity they probably won’t even bother to pretend they’re trying to change consumer behaviour – they’ll just take the money.
Which brings me back to Aidan’s quote. And here’s the insight I promised. For all of the progress in changing society’s attitude towards smoking, PrePayPower’s customers still spend more each day on cigarettes than they do on power. Yet these are the same customers that utilities believe will change their energy use as a result of the introduction of Time of Use tariffs. If every stick and carrot that has been applied to get smokers to change their behaviour over the last fifty yeas has failed to have an effect on PrePayPower’s customers, what hope is there for Time of Use pricing?
Does anyone in the industry seriously believe that ToU will work? Unless their wolf eyes can see a truth that the rest of us are blind to, then PrePayPower’s message is telling us that all the utilities can do is dream and drool. Their Little Red Riding Hood won’t even acknowledge the Wolf’s presence as she sneaks a cigarette out of Granny’s basket on the way to deliver her daily packs of Woodbines.