Policy Instruments influencing
Consumers’ Energy Behaviour
Claudia Aravena
Mäler Scholar – Beijer Institute – Royal Swedish Academy of Sciences (Sweden)
Assistant Professor - Heriot Watt University (Scotland)
Workshop on Consumers, Economics and Energy Systems
17-18 October 2016, UCD
Factors influencing supply and demand
SUPPLY
energy
DEMAND
Factors influencing supply and demand
SUPPLY
TECHNICAL
energy
DEMAND
Factors influencing supply and demand
SUPPLY
TECHNICAL
energy
DEMAND
Factors influencing supply and demand
SUPPLY
TECHNICAL
energy
ECONOMICAL
DEMAND
Factors influencing supply and demand
SUPPLY
TECHNICAL
energy
ECONOMICAL
DEMAND
Factors influencing supply and demand
SUPPLY
CHOICES &
PREFERENCES
TECHNICAL
energy
ECONOMICAL
DEMAND
Factors influencing supply and demand
SUPPLY
CHOICES &
PREFERENCES
TECHNICAL
energy
BEHAVIOUR
ECONOMICAL
DEMAND
Factors influencing supply and demand
SUPPLY
CHOICES &
PREFERENCES
TECHNICAL
energy
BEHAVIOUR
ECONOMICAL
DEMAND
Factors influencing supply and demand
SUPPLY
CHOICES &
PREFERENCES
TECHNICAL
energy
BEHAVIOUR
ECONOMICAL
DEMAND
Factors influencing supply and demand
SUPPLY
CHOICES &
PREFERENCES
TECHNICAL
energy
BEHAVIOUR
ECONOMICAL
DEMAND
Factors influencing supply and demand
SUPPLY
CHOICES &
PREFERENCES
TECHNICAL
ENERGY POLICY
energy
BEHAVIOUR
ECONOMICAL
DEMAND
ENERGY
POLICY
ENERGY
POLICY
Is the consumer influencing the energy policy or is the policy influencing the
consumer behaviour?
Where the technical (and economic)
part gets it wrong? - Examples
 Example: Increase of energy generation in Chile (Aravena et al., 2012)
Demanda GWh
160000
Santiago
140000
The current sources
are not enough
to supply the increasing
demand for the next years
120000
Energía [GWh]
Concepción
100000
80000
60000
40000
20000
0
1996
2000
2004
2008
2012
Año
2016
2020
2024
Alternatives of Energy Supply
 FOSSIL FUELS
 Oil
 Coal
 Gas
• RENEWABLE
ENERGY
• Wind power
• Solar power
• Biomass
• HYDRO
POWER
• with large
dams in
Chilean
Patagonia
Alternatives of Energy Supply
 FOSSIL FUELS
 Oil
 Coal
 Gas
• RENEWABLE
ENERGY
• Wind power
• Solar power
• Biomass
• HYDRO
POWER
• with large
dams in
Chilean
Patagonia
Alternatives of Energy Supply
 FOSSIL FUELS
 Oil
 Coal
 Gas
• RENEWABLE
ENERGY
• Wind power
• Solar power
• Biomass
• HYDRO
POWER
• with large
dams in
Chilean
Patagonia
Hydropower in Chilean Patagonia
• Flooding more than 5000 Has
– cultivated lands, wetlands
– primitive territories, with
high diversity of fauna and
flora, important cattle
farming
– agricultural and tourist areas
– biodiversity conservation
zones.
– Resettlement of communities
– Visual impact (generation
and transmission).
And what
happened?
The problem
 The cost of renewables is much higher than
the other sources.
 But!
 Does it include the cost of the externalities
and households’ social preferences and
attitudes?
 What would happen if it is included? Would
RE become more competitive?
The study
 Contingent valuation study
 Surveys to Chilean households
Results
 Chilean households were willing to pay in average 16% more in their
monthly electricity bill to avoid the externalities caused by
thermoelectric power plans and large dams.
 The values were included in cost-benefit analysis and the renewables
become a competitive source.
Results
 Cost of Large Dams =
USD$ 4,700 million. (without externalities)
 Cost of Fossil Fuels
USD$ 4,285 million. (without externalities)
=
 Cost of Renewables =
USD$ 6,525 million.
 VALUE OF EXTERNALITIES:
 Large dams
=
USD$ 3.440 million.
 Fossil Fuels
=
USD$ 4,060 million.
 FINAL COSTS:
 Cost of Large Dams =
USD$ 8,140 million. (with externalities)
 Cost of Fossil Fuels
USD$ 8,345 million. (with externalities)
=
 Cost of Renewables =
USD$ 6,525 million.
Results
 Cost of Large Dams =
USD$ 4,700 million. (without externalities)
 Cost of Fossil Fuels
USD$ 4,285 million. (without externalities)
=
 Cost of Renewables =
USD$ 6,525 million.
 VALUE OF EXTERNALITIES:
 Large dams
=
USD$ 3.440 million.
 Fossil Fuels
=
USD$ 4,060 million.
 FINAL COSTS:
 Cost of Large Dams =
USD$ 8,140 million. (with externalities)
 Cost of Fossil Fuels
USD$ 8,345 million. (with externalities)
=
 Cost of Renewables =
USD$ 6,525 million.
Results
 Cost of Large Dams =
USD$ 4,700 million. (without externalities)
 Cost of Fossil Fuels
USD$ 4,285 million. (without externalities)
=
 Cost of Renewables =
USD$ 6,525 million.
 VALUE OF EXTERNALITIES:
 Large dams
=
USD$ 3.440 million.
 Fossil Fuels
=
USD$ 4,060 million.
 FINAL COSTS:
 Cost of Large Dams =
USD$ 8,140 million. (with externalities)
 Cost of Fossil Fuels
USD$ 8,345 million. (with externalities)
=
 Cost of Renewables =
USD$ 6,525 million.
Policy Implications
 Premiums for renewables to households.
 Internalization of externalities by generators.
ENERGY
POLICY
 But what is next?
Example 2
 Let’s go for WINDPOWER !!
Reference: Aravena et al., 2014.
Energy Economics
Example 2
 Let’s go for WINDPOWER !!
 Where we locate the windfarms?
 Choice experiment study with collaboration of
engineers, economists, psychologists, sociologists,
biologists and other professionals.
Example 2
 Let’s go for WINDPOWER !!
 Where we locate the windfarms?
Example 2
 And the consumer side says…
Example 2
 And the consumer side says…
Example 2
 BUT… not always consumers have the last word…
they can also be wrong
 This time engineers said NOT POSSIBLE TECHNICALLY!!
(Chilean case)
The solution and policy implemented
 We build wind farms on-shore / inland
What about policies affecting
consumer behaviour?
ENERGY
POLICY
What about policies affecting consumer behaviour?
An Irish Example
 CER Smart Meter trial.
Results
 Time of Use tariffs and DSM stimuli reduce overall energy usage
and peak.
 Energy consumption reduces over 8% at peak times
 In home displays are most effective, especially when
deployed with time of use or seasonal tariffs.
 No single tariff stands out (but the existence of ToU is effective)
 Simple information can also be effective:
 75% finding the magnet useful and 63% finding the sticker
useful
 The detailed energy statements are effective, but information must
be provided in a variety of methods
 More frequent (i.e. monthly) statements are more effective.
Customer engagement in design process in vital for later
acceptance.
Research Results - Literature
 CER reports
 Di Cosmo, Valeria; Lyons, Sean and Nolan, Anne (2012). The Energy Journal.
Estimating the impact of time-of-use pricing on Irish electricity demand.
 Carroll, J.; Lyons, S; Denny, E. (2013). Energy Economics
Reducing Electricity Demand through Smart Metering: The Role of Improved
Household Knowledge.
But does the change in behaviour last?
Short term
Large reduction
Long term
Back to normal ?
Alcott 2014. AER.
Policies must be revised in order to be effective in
incentivize behavioural changes.
Final Remarks
 Trends in Energy Research
 “Undervaluation of the influence of social dimensions on energy
use.”
 “Bias towards science, engineering and economics over other
social sciences and the humanities”.
 “Lack of interdisciplinary collaboration”.
 “Under-representation of female or those from minority groups”.
 Applications are scarce in non-industrialized countries.
 Sovacool, B. (2014). Nature, 511. Pag 529.
Recommendations
 Sovacool, B. (2014). Nature, 511. Pag 529.
 The energy field should open and bring together social and physical
sciences.
“Energy ministries, statistical agencies and public utility commissions should focus
more on energy behaviour and demand, rather than just supply”.
 Universities should deliver courses focused on the solution of energy
problems.
 “Granting agencies should prioritize and direct money to behavioural work”.
More incentives/funding are needed in interdisciplinary research and prioritize
social topics. We cannot continue thinking in Energy as only an engineering and
economic problem.
 Energy journals should consider these disciplines into the energy research.
 More research is needed in developing countries.
Policy Instruments influencing
Consumers’ Energy Behaviour
 Massimo Tavoni
Politecnico di Milano / FEEM - Italy
Light bulbs in China.
 Bengt Kristrom
Centre for Environmental and Resource Economics
SLU – Umea University - Sweden
Residential Energy Demand – OECD study of Greening Household
Behaviour: The role of public policy