Consumers of the energy transition

This week we published a one-pager that expands on one of our EU Election Manifesto priorities for the next European Commission: consumers. This topic is quite important as a large majority of the benefits in the energy transition fall to consumers, but only a small number of them are engaged. To deliver a successful energy transition that has society’s support necessitates getting consumers engaged. This includes households, all the way up to large industrial consumers. Of course, the profiles of each are different and will require a different approach. So, what does engagement look like, and how can we muster up more of it across society.

How can consumers engage

If a consumer is said to be engaging in the energy transition, what does this mean? Energy companies are often the focal point of the energy transition, with the archetype being a switch from polluting fossil fuel energy to clean and renewable energy energy. But this is a simplification. Already we can broaden this to other sectors like transportation, buildings and industry.

Consumer engagement is the other side of the same coin. While the supply side changes how they procure the energy they supply to consumers, consumers too can change how they use energy. Consumers generally refer to households in European legislation, but engagement can and should go further than that to encompass small and medium enterprises (SMEs) and energy intensive customers. No matter the differentiation, there are ways in which they all can engage and be a part of the energy transition.

Individuals

For individuals, there are several ways individuals can engage in the energy transition. The most hands-off way is via smart meters. Although the rollout in Europe is disparate, they can enable more valuable interactions of the individual with the energy system. That’s because smart meters help make the individual aware of their real-time energy usage, as well as when tariffs for energy are higher. Knowing this can help individuals make smarter decisions about their energy consumption. Depending on the granularity, individuals could even potentially make time-of-day decisions on energy consumption for when tariffs are lower. This can save the individual money and enable energy suppliers to reduce peak demand periods, lowering reliance on dispatchable generation sources which are often fueled by natural gas or coal.

A step up would be installing solar panels on household roofs to generate electricity at home. This would make the individual more self-sufficient for electricity needs and even make it possible to sell some excess electricity back to the grid during peak periods. Additionally, installing a home battery or buying an electric vehicle (EV, a battery on wheels) would allow them to store the excess electricity for later and put it to use when needed.

On EVs, the efficiency gains over a regular internal combustion engine can also lower an individual’s transportation emissions, even if it were powered with electricity generated by fossil fuels. This therefore lowers the absolute amount of energy we need to produce as a society. Ideally, though, it would be powered by clean or renewable energy, significantly reducing emissions from the individual’s transportation.

A heat pump also offers similar benefits compared to traditional gas boilers for heating households. On average, European households save 39% on their bills when switching from fossil fuel-powered heating systems to electric heat pumps and decarbonise their heating in the process.

These are just some of the ways to engage directly. However, many suppliers offer other services and products as well. In our Power2People study done in collaboration with Accenture in 2021, we highlighted some examples, such as E.ON that helps customers with insights about the energy consumption of individual appliances in their house, supporting choices that save energy, or EDP that created a Solar PV simulator, helping users understand how solar panels work, how much they can reduce their energy bill, and advises changes in energy use behaviours that can help them get most out of the electricity that they generate with their solar panels. You can find more information on select suppliers' offers here.

Industry

While consumers can contribute to the energy transition, the big potential lies with industry. This is where engagement is crucial. In 2015 according to our Decarbonisation Speedways study, industry consumed a sizeable chunk of final energy at roughly 24%. They can therefore have a large impact based on how they use, procure or even produce energy, making them a significant group in the energy transition’s trajectory.

Many solutions for industry are the same as for individuals, just on a larger scale. Solar panels on factory roofs, electrification of transportation fleets, electrified heating, etc. There are also innovative ways that industry is using electricity in industrial processes to produce cleaner products. But given their power consumption, industry can engage in another way as well.

Industry, relying on massive quantities of energy to undertake their activities and endowed with far more resources than any individual, has the potential to influence overall demand for energy. By signing long-term contracts such as power purchase agreements (PPAs) to provide price certainty, industries can also ensure that the energy they demand is clean or renewable, while providing enough demand to actually stimulate investment in growing capacity.

When industries contract with clean and renewable energy project developers to provide a specified amount of energy from a project, portfolio of projects, or myriad other ways, they ensure that they have uninterrupted access to energy at a stable price for their more predictable operations. In so doing, industrial engagement in the energy transition can drive the development of more and more clean and renewable energy, serving as a catalyst for the energy transition.

Consumer engagement

Consumers have responded to these new ways to engage. Power2People found that consumers feel like they have more choice and control over their energy use, and that around 45% of them were either actively seeking out and using new solutions, or at least considering taking them up. However, 80% of them are still not taking part in the energy transition. Lack of awareness, inability or simple disinterest are key barriers to more consumer engagement, which is, in itself, a barrier to the energy transition.

Out of sight, out of mind

Lack of awareness is perhaps the most important barrier to overcome. In essence, it is about bringing new solutions to the attention of consumers when they come to market. Or, in some cases, a consumer may be aware of the solution(s) but unaware of the benefits offered such as increased affordability, energy efficiency and even quality of life. Power2People found that 41% of consumers were unaware of their supplier’s products and services related to home energy generation, management and electric mobility, while 34% were unaware of energy savings and financial support products and services they offered.

This awareness gap must be closed. Clear and reliable information is a simple way to narrow the gap, but this also depends on awareness from the supplier’s side of the needs and expectations of their consumers. Suppliers can do their part to make solutions and their benefits more visible and comprehensible to consumers, but public authorities and civil society can also play a role by strengthening their public awareness campaigns.

No means

While there can be affordability benefits to new energy solutions, it would be naïve to say there is no price tag attached. The upfront cost of transitioning can often be a nonstarter for individuals who are otherwise aware of new solutions and willing to adopt them. The European Committee of the Regions published a report in 2019 that found 11% of people across Europe were affected by energy poverty – approximately 54 million people which is more than the population of Spain and Ireland combined.

Energy poverty, according to Art. 2(52) of the Energy Efficiency Directive (EED) means “a household’s lack of access to essential energy services, where such services provide basic levels and decent standards of living and health”. This includes adequate heating, hot water, cooling, lighting, and energy to power appliances, in the relevant national context, existing national social policy and accounting for other relevant national policies. It can be due to a combination of factors including at least non-affordability, insufficient disposable income, high energy expenditure and poor energy efficiency of homes. Undertaking an energy transition when two Member States' worth of people live in such a situation means we need to empower consumers to access clean new energy solutions.

Financial support is key here, to ensure the energy poor, as well as those simply lacking upfront capital can make the switch. Things such as innovative and tested financial instruments, consumer protections and even education on how to understand one’s energy bill would go a long way in enabling more people to engage in the energy transition.

Today, we are only partway there. For instance, subsidies offered by many Member States to incentivise the adoption of technologies like heat pumps and EVs are often depleted early in the fiscal year due to high demand, leaving numerous consumers unable to transition to electric solutions. In France this year after only a month they suspended their EV purchase subsidy due to exploding demand. These schemes need to be accessible to all customers seeking to integrate electric solutions when they need it.

Meanwhile, there are other ways to lack the means to engage. Many of the energy services available today only have information and help online, while digital literacy remains a roadblock for a large portion of society. Eurostat reported in 2019 that 44% of population aged 16-74 in the EU had only a basic level of digital literacy, making it difficult or even impossible for some to find and act on the options provided to them. In a modernising world with accelrating digitalisation, digital literacy needs to be a fundamental part of education.

Disinterest

Finally, some people simply are not convinced to take part in the transition. This does not chalk up to climate change denial, or ignorance. There are very valid reasons that people may be disinterested in engaging with the transition. Power2People showed that 37% of consumers lacked information to make a hassle-free switch, which might dissuade further engagement. Others simply are not convinced by the solutions on offer. They may not see the benefits outweighing the costs that they will incur, or would rather have alternative solutions to suit their more personlised needs.

A simplified experience with the clear, comprehensible benefits is what is needed here. As EU elections approach, voters have been venting their frustration with many green policies across the Bloc. Less stick and more carrot is the way to counteract the backlash. Disinterest can easily be overcome when the benefits are so obvious they cannot be ignored.

At the end of the day, consumer engagement is predicated on these three points. Consumers need to be interested in the energy transition to engage. To be interested, they must be aware of how the possibilities to engage and what benefits it can bring them. Finally, they need the means to take the next step. Checking these three boxes is what is needed to get more EVs on the road, heat pumps in buildings, and solar panels on roofs. It is also what is needed to have buy-in to new services offered by energy suppliers and have industry sign more PPAs. Consumer engagement is a two-way street. As the energy sector, we need to ensure that engagement is as appealing as possible to get societal buy in and drive the energy transition forward.

This week's edition written by:

Nicholas A. Steinwand, Policy Communications Advisor - Eurelectric

With technical input by:

Savannah Altvater, Retail Markets Policy Advisor and Data Management & Flexibility Lead - Eurelectric

Alessandro Zappi, Markets & Customers Policy Advisor - Eurelectric

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