Pricing Tool Worthy of Environmentalists’ Support

Environmental advocates have always heavily relied on government-imposed mandates and targets to achieve their objectives. Last week, the Obama administration unveiled their climate change plan to reduce emissions by 28 percent over the next decade utilizing a mix of higher efficiency standards and restrictions on coal-fired power plants. The environmental community duly applauded.

What most environmental advocates, however, have not seriously considered is unleashing consumer choice as a means to save energy by helping consumers to save money and better manage their energy spend.

Customer-facing offerings and transactions enabled by smart grid have enormous potential to achieve multiple objectives for multiple stakeholders. In particular, prepay energy has shown itself to be a magic wand of sorts, capable of delivering substantial business and consumer benefits as well as positive environmental outcomes.

One may look at prepay energy as simply a bill pay option to pay now for future consumption. We look at prepay energy as transformative, giving consumers much more control and convenience than traditional billing.

Saving money from the customer perspective should be viewed as saving energy by environmental advocates. In fact, prepay energy is arguably one of the cheapest, quickest and most satisfactory means to achieve significant reductions in energy consumption, and thus, greenhouse gases.

Customers on prepay energy accounts reduce their consumption 10 – 14 percent on average in communities where it has been studied. The largest group of prepay users—149,000 customers of Salt River Project—have achieved 12 percent savings consistently for many years. Our own studies point to the same finding no matter the geography or type of service provider.

Up to this point, however, environmental advocates have punted on prepay energy or other behavioral approaches to energy conservation.

But everyone should consider the following back-of-the-envelope calculations: If prepayment plans were implemented by two-thirds of U.S. electricity suppliers and adopted by 10 percent of their customers—an adoption rate exceeded by many utilities that now offer prepayment—this would likely cut about 8 million metric tons of CO2 emissions from power plants annually.

If all U.S. electricity suppliers offered prepayment, and their customers participated at a rate similar to that of the Salt River Project, those emission reductions would likely rise to more than 16 million tons annually.

That’s like taking 12 250-megawatt coal power plants offline. Or 3.4 million passenger vehicles off the road. In addition to GHGs, emissions of mercury and other air toxins would be avoided.

Those are big numbers by any measure. Given the scale of the challenges to protect the planet from environmental damage, environmental advocates should take note of the promise of prepay energy.

Filed Under: Conservation, Prepaid