North American energy efficiency (EE) program sponsors spend approximately $5 billion per year on financial incentives to encourage customers to purchase more efficient products. Despite these investments, little analysis has been done to assess the effectiveness of existing incentive strategies or how they might better align with customer purchasing preferences, avoid over-incenting products that have inelastic adoption curves, and minimize free-ridership. Meanwhile, the pressure on EE program administrators to improve the cost-effectiveness and achieve increased energy savings with smaller budgets has never been greater.

Eight utilities partnered with ICF to rethink their approach to heating and cooling (HVAC) equipment incentives and take the industry beyond antiquated applications of payback acceptance curves. To understand the influence of different product attributes and characteristics on efficient technology adoption, a conjoint analysis was conducted on customer choice data collected from 14,000 utility customers. Technology-specific price elasticities were identified that reveal customers’ true willingness-to-pay for efficiency, which enables the optimization of incentive offers for different products. Quantifying the influence of various factors that shape customers’ technology adoption decisions is key to designing effective incentive programs. The analytics-based approach taken in this collaborative project revealed the most cost-effective approaches to driving the desired EE adoption outcomes. Product warranties, ratings, financing options and other factors can also be influential on technology adoption decisions, in addition to rebates. Differences among customer segments also emerge based on distinct patterns of revealed preferences, which allow for targeting and tailoring of incentive offers.

Session Takeaways:

• Program offerings and incentive strategies must evolve to improve cost effectiveness without losing adoption as the market shifts and technologies develop.
• Non-traditional financial or even non-financial incentives can drive adoption of efficient equipment effectively in addition to traditional rebates.
• Identifying technology-specific price elasticities reveal customers’ true willingness-to-pay for efficiency, which enables optimization of incentive offers for different products.
• A new approach focused on redesigning and optimizing the incentive strategy using analytics brings an opportunity to drive EE product adoption more cost-effectively.
• The typical utility may be able to reduce its incentive budget by 10-20% while still achieving the same savings.