If you have read some of my other blogs, you are probably aware that I have a passion for consumer opinions about clean technologies. When given the opportunity to choose a topic for blog entries, I often find myself perusing the results of Pike Research’s consumer surveys to find something noteworthy in how consumers view the various clean technology sectors that we cover. On more than one occasion, I have been fascinated by the differences in opinions that are revealed when results are segmented based on the various traits of the respondents. For example, why do older consumers favor nuclear energy so much more than younger consumers? Segmenting the responses to our survey questions by age, income, gender, and education level has provided us with some interesting insights into what factors are driving consumer attitudes toward clean technologies.

However, demographic segmentation does not always provide a compelling story. Increasingly, marketers are looking to behavior segmentation in order to define their target markets and tailor advertising messages. To bolster our own analysis of consumer opinions, Pike Research examined if certain behaviors could be indicators of attitudes towards clean technologies and other environmental concepts. Our survey was completed by a nationally representative and demographically balanced sample of 1,042 U.S. adults. Respondents were asked to provide their impression of each technology and concept using a scale of responses from “strongly unfavorable” to “very favorable” including options for “neutral” or “not sure / not familiar.”

Our theory was that a consumer’s willingness to invest in a new technology could be an indicator of how he or she viewed clean technologies. Therefore, we included the following questions and responses in our survey:

Please choose the statement that best fits you when it comes to technology products and services.

• I’m an “early adopter” of new technologies – I always like to have the latest thing
• I’m not on the leading edge, but I generally use new technologies before the majority of people I know
• I usually wait until a technology is more mature and widespread before starting to use it
• I’m generally one of the last people to start using a new technology

After segmenting the results based on the respondent’s answer to this question, our findings were mixed. For some of the technologies and concepts, there was no significant difference between the percentage of favorable responses from the total sample and from those identifying themselves as early adopters of technologies. These concepts included solar energy, wind energy, hybrid vehicles and electric cars, all of which were favored by a majority of the total sample. For many of the topics that did not receive a high percentage of favorable responses, early adopters of technology showed a significantly more positive opinion. The chart below shows the percentage of favorable responses for the total sample and for the “tech early adopters” segment for the topics where a significant difference was found.

While our theory did not prove true for all the topics we examined, it is worth illustrating how early adopters are more favorable on topics that are less favorable to the overall group of respondents. For many of these topics, the percentage of “not sure / not familiar” responses was greater among respondents other than early adopters. This indicates that this behavior segment tends to be more informed about clean technologies and environmental topics. The clean technology industry should take note of these results and look to this segment for input on consumer applications. In particular, utilities looking to implement smart meters and smart grid technologies would benefit from targeting these consumers for pilot projects and testing. Early adopters of technology represent a goldmine of opportunity for consumer-focused cleantech companies.

Inspiring demand for residential energy efficiency retrofits has been a difficult endeavor in recent years. A lack of confidence in the real estate market and an overall reduction in consumer spending have led to a renewed lack of interest in home remodeling projects focused on energy savings. Even during strong economic times, willingness to invest time and money in these types of home improvements is not easy to find. While the promise of reduced energy bills and the appeal of “going green” is incentive enough for some consumers, the vast majority are reluctant to spend big in order to save a little. Addressing these concerns has long been the goal of utilities, non-profits, and state, local, and federal governments targeting energy efficiency measures as a means to help solve the energy crisis.

Many of the attempts to encourage home energy improvements have come in the form of financial incentives including rebates and attractive financing plans. Last year, the Home Star Energy Retrofit Act of 2010, also known as “Cash for Caulkers,” proposed a $6 billion program in which the government would cover up to $8,000 for residential energy improvements in the hope of creating jobs in the hard hit construction industry. Though the bill passed a vote in the House of Representatives, it never came to a vote in the Senate after it was referred to the Committee on Finance. The Home Star Act, like all other proposed bills still under review, was then cleared from the docket when the new session of Congress began earlier this year. In light of Capitol Hill’s recent focus on tackling the federal deficit, the Home Star Act’s hefty price tag will likely keep it off the legislative agenda for the time being.

State and local governments have also tried to address concerns about the prohibitive upfront costs that home energy improvement require through Property Assessed Clean Energy (PACE) programs. Under a PACE financing program, the cost of energy efficiency home improvements to be paid back in the homeowner’s annual property taxes via a special assessment on the home. Under such a program, a homeowner could install solar panels or additional insulation with little or no upfront costs and repayment plans of 15 to 20 years. In the event of a transfer of ownership, remaining payments would be made by the new owner because the assessment is tied to the property. These programs are virtually extinct due to vehement opposition from mortgage providers, Fannie Mae and Freddie Mac. Since a PACE loan would be repaid before a mortgage in the event of default or foreclosure, the mortgage giants refused to underwrite mortgages for homes utilizing PACE programs.

These failures to maintain strong, large-scale financial incentive programs have discouraged hopes of creating more widespread demand for home energy improvements. However, some argue that even if such programs were in place, the incentive would not be compelling enough for many consumers to commit the time, energy and inconvenience required for these renovations to take place. Though these efforts to address the financial barriers of home energy improvements have created more controversy than results, there is evidence that a more targeted approach to financing and marketing these projects will be more effective. Stay tuned for my next blog to learn why market segmentation is so critical to the success of the residential energy improvement industry.

In my previous blog, I highlighted some of the failed attempts to increase demand for home energy efficiency improvements by creating financial incentives. These failures were not due to the effectiveness of the programs themselves. The Home Star Energy Retrofit Act of 2010 failed to navigate the federal legislative process and Property Assessed Clean Energy (PACE) financing programs created problems for existing mortgages. As a result, the potential of these programs were never realized. The lesson of these failures is that government-backed financial incentives to spur market demand tend to be controversial and, therefore, may not be the best solution for the slowed activity in the home energy improvement market.

The problem with these large-scale programs is that they try to appeal to everybody. Consumer motivations are rarely the same for everyone and the home energy improvement market is no exception. While one homeowner may choose to upgrade her home’s insulation to do her part in saving the environment, another may choose to do so to protect a valuable collection of antiques. Understanding motivations is paramount to successful marketing, especially when adoption is slow. While financial motivations are often thought to be important to all consumers, a recent Pike Research consumer survey suggests that these motivations are stronger in some segments than others. Focusing on PACE financing programs (see my previous blog for a full description of these programs), the results of the survey showed how interest in these programs varies among certain groups of consumers.

The chart below shows the levels of interest in financing residential energy efficiency improvements using a PACE program segmented by monthly spending on electricity. There is a strong correlation between monthly spending on electricity and interest in a PACE program. Single family homeowners spending less than $200 per month on electricity showed significantly less interest in PACE programs than those spending more than $200. Within the group of respondents spending the least on electricity (less than $100), only 39% indicated interest in PACE versus 62% of those spending more than $200. This is an intuitive trend since PACE financing offers homeowners the opportunity to cut their electricity usage without a large upfront investment.

While this is a very basic example, it demonstrates how important it is for the home energy improvement industry to embrace a segmented approach to financing and marketing its services. Homeowners with expensive utility bills are more likely to be interested in home energy improvements that offer attractive financing, such as PACE. They are also more likely to be receptive of a marketing message focused on saving money on electricity as that is more likely to be a concern for them. When the cost of electricity is not as great of a concern, as is the case of the segments spending less than $200 per month, appealing financing programs are less likely to generate strong interest in making one’s home more energy efficient. Understanding what would motivate these segments to invest in energy efficiency improvements requires further research. By tailoring a unique marketing message to each of the various segments that the market comprises, consumers are able to understand the benefits of home energy improvements that are most relevant to them. In this situation, tactful marketing is a better driver of demand than simply throwing money at the problem.

As a Boulder resident, I am loosely participating in the SmartGridCity project run by our local electric utility, Xcel Energy. I say “loosely” because the extent of my participation has been the few times I logged into my online account to see a more granular view of my energy consumption. On this website, I could see into my daily energy usage in as small as 15 minute increments. I will admit that this was an interesting experience as it gave me a better idea of what devices in my home caused my electricity usage to spike. For example, I saw a huge jump in kilowatt hours every morning when I took a shower, most likely due to the energy needed to power my electric water heater. Since that water heater resides in a closet, it is basically out of sight and out of mind when I think about my electricity consumption.

While I found this service of the SmartGridCity project to be interesting and informative, it fell short of impacting my behavior and thought patterns with regards to how I use electricity. I wanted to see my electricity usage in real time, so I was consistently made aware of the impact by behaviors had on my electricity bill. Therefore, I decided to fill out a survey to qualify for an In-Home Smart Device trial, so I could see my energy usage at all times without needing to log-in to a website. Unfortunately, my home did not qualify and my interest in SmartGridCity began to wane.

Much has been written about the poor execution of the SmartGridCity project, primarily how Xcel has been passing the cost of the project on to its customers by including it in their monthly bills well before the cost saving benefits of the program had been demonstrated. While this is an obvious concern, I believe that a greater focus on educating its customers about how to use the technologies of SmartGridCity would have helped to make the project more successful. By providing more tools to help its customers monitor and manage their energy consumption and understand the project, the backlash over increased rates may have been less severe.

Currently, the project is focused on getting customers to enroll in off-peak pricing plans, in which customers pay less per kilowatt hour during time periods when overall electricity demand on the grid is lower, or tiered pricing plans, in which customers pay more per kilowatt hour after they have reached a certain monthly threshold for electricity usage. While I applaud Xcel for helping its customers save money and attempting to reduce demand during peak hours, these incentive plans do little in terms of utilizing smart grid technology to educate consumers on their energy consumption. In the next phase of the project, I hope to see more installations of In-Home Smart Devices and an expansion of customer education programs to help make the residents of SmartGridCity smarter about how they use electricity.