Energy efficiency in households

Power supply companies are expected to be among the main stakeholders for achieving energy policy goals, with incentive-based electricity tariff designs being a promising option.

  • Background (completed research project)

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    According to behavioural economics, incentive-based electricity tariffs that penalise overconsumption could act as a strong motivator in reducing electricity demand. However, this raises the question how consumers can be motivated to voluntarily subscribe to such an electricity tariff.

  • Aim

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    The project aimed to establish whether incentive tariffs could contribute to significantly reducing energy consumption in households. The researchers studied two types of incentive tariffs, i.e. progressive tariffs (PTs), which penalise high electricity consumption, and electricity saving feed-in tariffs (ESFITs), which provide incentives for reducing electricity consumption. The project team also analysed what concrete technical measures could be implemented in households and estimated the generated energy savings and costs.

  • Results

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    Based on a literature review, the team first studied the effectiveness of PT and ESFIT. The findings of this comparative quantitative analysis for a number of countries are in line with the insights of behavioural economics. These indicate that PTs are more effective in mobilising electricity-saving than ESFITs, thereby confirming biases (i.e. loss aversion) in human decision-making.

    The project team then conducted choice experiments by means of detailed questionnaires in order to identify which features of electricity tariffs were most important to consumers. In line with the concept of loss aversion, it was found that electricity tariffs employing rewards for conservation were preferred to tariffs employing penalties for overconsumption, while tariffs employing a combinational approach of rewards and penalties yielded significantly higher acceptance among consumers. Individual differences including saving intentions, loss aversion, and environmental values and emotions were found to be the strongest predictors for accepting incentive-based electricity tariffs, particularly tariffs that penalise electricity overconsumption.

    Finally the development of the stock of white appliances in terms of their energy use and the costs for energy efficiency were studied. While the future stock will consist of appliances that are clearly more energy efficient, electricity consumption will not necessarily decrease due to the increased number of appliances in use. Results with regard to the cost-effectiveness of replacing appliances show that switching to more energy efficient white goods would involve high specific costs, unless technological innovations are successfully commercialised.

  • Relevance

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    Implications for research

    The findings are of high relevance for the energy sector as they confirm that behavioural patterns known from other domains of decision-making are also valid for household electricity tariffs. Combined bonus and malus schemes deserve more attention in energy research and, more generally, in sustainability research. Finally, the results of the stock model call for more energy efficient technological solutions (A+++/2) at acceptable cost levels.

    Implications for practice

    As key insight with practical relevance, one quarter to one third of all households showed high acceptability for a tariff that combined an incentive for reaching an energy saving goal (bonus) and a disincentive for failing to reach this goal (malus). One important limitation is, however, the level of representativeness and the applicability of the results to the whole Swiss population. Furthermore, the implementation of such tariffs in Europe is challenging due to the liberalisation of the energy markets, they require large-scale implementation of smart meters and may have undesired distributional effects.

  • Original title

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    Effect of tariff structure on mobilization of energy savings in households