Information Feedback, Behaviour and ‘Smart Meters’: Using behavioural economics to improve our knowledge about the potential effectiveness of Smart Meters to use electricity efficiently

Abstract

As part of the development of the European electricity grid, the EU has decided that ‘Smart Meters’ should be installed in 80% of the households of the EU by 2020. It is expected that this will lead to a reduction of energy use in the residential sector in the order of 10%. Driven by the so-called ‘Information-Deficit’ model, a critical assumption in this policy development is that provision of information, via ‘Smart Meters’, enables energy end-users to make more informed, and thus better, decisions in relation to their energy service demands (e.g. lighting). However, even if there is some evidence that feedback to consumers stimulate an efficient use of energy, the magnitude of this reduction is debated. In fact, findings from behavioural economics suggest that behavioural biases (e.g. loss aversion) and cognitive limitations restrict end-users from displaying purely rational behaviour, which in turn limits the effect (and policy expectations) of policies applying the information-deficit model. The thesis at hand addresses these issues explicitly and provides empirical analyses of how behavioural biases affects consumers’ response to energy-related information. To that end, experimental research covering eight field exercises and a Smart Meter experiment was conducted. The thesis aimed to generate knowledge about the applicability and implications of using behavioural economics to deliver feedback to electricity consumers. With due limitations, the experiments illustrate that a knowledge-gap exists, and that information can help correct consumer behaviour, but that the framing and salience of this information can affect the magnitude of the response. The Smart Meter experiment on loss aversion took place in a real-life setting where consumers actually used and paid for the electricity. Results show that the intervention group reduced its electricity use, and that those reductions were larger than those found for the reference group (for both daily and standby consumption). Compared to related research, findings revealed that reductions in electricity use were also larger than the average electricity reduction found in other studies of feedback on electricity use. As a whole, it is concluded that feedback information can contribute to efficient electricity use and thus contribute to meeting EU policy targets. However, the (expected) effects depend on how feedback is designed, framed and presented. The Smart Meter experiment indicates an enhanced effect on electricity use reduction as a result loss aversion, but further research (e.g. large scale trials) is needed for more conclusive and statistically significant results