SMART THERMOSTATS INTEREST
GROUP WORKING SESSION
Considerations for Free Ridership
November 7, 2016
Smart thermostats abound, but are they the holy grail?
 Increasingly, smart thermostat programs are being offered to customers
to not only reduce peak demand, but also achieve energy savings
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Agenda
 Overview of EE and DR for smart
thermostats
 Considerations for free ridership
from an EE perspective
 Next Steps
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Demand Response
 Changes in behavior or technology to reduce energy use at specific times
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Energy Efficiency
 Changes in behavior or technology reduce total energy use
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Free-ridership
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What is Free Ridership?
 The free rider problem is a market failure that occurs when people take
advantage of being able to use a common resource, or collective good,
without paying for it, as is the case when citizens of a country utilize
public goods without paying their fair share in taxes
 In energy efficiency programs, this results in savings that would have
happened without the program. Participants would have installed
program-supported measure on their own or taken the energy efficient
action
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How do these differ for EE vs. DR?
Free Ridership for DR Impacts
Free Ridership for EE Impacts
 Customers receive incentives for
their device or for their
participation in events, but:
 Customers receive incentives for
their device, but:
 Won’t have load that is
controlled by the device during
event hours
 Would have purchased the
device without the incentive
 Would have changed their energy
usage at that time without the
incentive
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Free-Riders in DR
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In some programs DR Free-riders are do not contribute load / adjust their
usage – Example from peak pricing program
 “Structural winners” tend to have consistent load at all times and benefit from a
reduced rate throughout the year
 Why an issue: This load level is low enough that these customers are able to save
money on the rate without actually reducing any load on peak days
Typical Structural Winners
 Billboards
 Radio repeater towers
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In some programs DR Free-riders are do not contribute load –
Example from AC Cycling program
 Infrequently use HVAC unit (either by not being at the
premise, or by not needing it due to mild climates)
 In one program 14% of participants keep their AC units off at all
times
 Why an issue: Ongoing incentive payments given to those who do not
contribute load reduction
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Free-Riders in EE
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Typical approach to identifying a free rider
 Ask participants questions about their
decision to install energy efficient
equipment and the role the program played
in that decision
Full Free Rider
Would have installed same
efficiency, same quantity at
same time without the program
• Efficiency, Quantity and Timing
 Would they have installed the same
efficiency equipment, the same quantity, at
the same time?
 What? How many? When?
Partial Free Rider
Would have installed less
efficient, or lesser quantity or at
a later date without the
program
 Free ridership is not a zero – one concept
 Allows for the possibility of partial free
riders
Not a Free Rider
Would not have installed
anything or standard efficiency
equipment without the
program
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Free Ridership Scores
Illustrative Example: Free Ridership Results for Self-Report Smart
Thermostat Pilot
1.00
0.95
0.90
0.85
0.80
0.75
0.70
0.65
0.60
0.55
0.50
0.45
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
Segment 1
Segment 2
Segment 3
0%
20%
40%
60%
80%
100%
Cumulative Percent
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Free ridership has cost-effectiveness implications
High FR
decreases
benefits
Benefits
CostEffectiveness
Costs
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Key Considerations
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Considerations for program design
 Customers are willing to pay for devices (high free ridership for EE
impacts)
 High free ridership has implications on cost-effectiveness and customer
enrollment targeting
 Target customers who are less likely to pay for device
 Employ select marketing strategies (like POS or targeted campaigns) to
reduce free ridership
 Incentive structures can minimize free-ridership
 Vary device incentive based on customer willingness to pay
 For EE, do not enroll customers or lower incentive for who have already
purchased the device (device incentive)
 For DR, offer incentives based on event participation and/or estimated load
reduction (participation incentive)
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Thanks for listening!
Contact:
Olivia Patterson
Director, Data Science
Opinion Dynamics
[email protected]
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