The Ultimate Guide to Prosumer Flexibility Incentives

March 7, 2024
Satisfied customer benefiting from flexibility incentives

Executive Summary

Transitioning to EVs and greener energy usage patterns is proving more cumbersome for customers than the futuristic engineers of the last decade were hoping. Encouraging customers to embrace flexible energy usage requires a multifaceted approach, including behavioural psychology, technology, and effective communication. 

Understanding customer behaviour is key. Positive and negative reinforcement can be applied, rewarding responsible energy use and penalizing excessive consumption during peak hours. Aligning these strategies with customer motivations, such as cost savings, simplicity, ethics, and environmental impact, is crucial. Moreover, leveraging social influence through peer networks and energy communities can foster a supportive environment for behaviour change. Renewable Energy Communities (RECs), backed by new energy legislation across many parts of Europe or Community Solar in the US, allow customers to collectively generate, share, and sell clean energy. This article provides a thorough study of all the ways in which an energy company, OEM, automotive supplier, or charging point operator can incent more prosumers to flexible energy use.

Today’s Prosumer Conundrum 

Change can be difficult, just like every other aspect of human life and experience. In this case, change is switching from the way of life around vehicle usage dominated by petrol & diesel engines to electrically-run engines. Change is also switching from using energy at my house whenever I want, to using it during specific times of the day.

Think about it: your typical customers in London, for example, probably owned a small ICE vehicle for a couple of years, during which they could fill up their tanks and expect to travel a range of 400 - 600km with fuel stations spread around in the range of 5 -15km from one to the next. These customers are now limited to travelling 200 - 350km after a full charge, and public EV fast chargers are still steadily but slowly growing in numbers. 

On top of this layer of change, users face a new request from energy companies to go further and charge their EVs or use their appliances at a particular time to maximise the use of renewables and reduce the grid impact of everyone demanding energy at the same time. 

There’s a lot of inertia to overcome here! 

How do we get these customers to form new habits and become prosumers, participating in flexible energy usage and other demand response programmes? 

There are a couple of approaches and directions we can look into to stimulate change: 

  • Firstly, the behavioural aspect, taking into account human psychology factors and social influences.
  • Secondly, the technological aspect, which includes innovation, its features and accessibility.
  • Finally, the communication strategies to “prime” the customers to take the intended action.

While all of these approaches are important and interplay, in this guide, we will elaborate only on the behavioural aspect of stimulating change, discussing what that requires for you as a business (utilities, OEMs, EV manufacturers, appliance manufacturers, ESCOs, aggregators). Don’t miss all of the insights for winning over your customers and rewarding their flexible energy usage.

Understanding your Customer’s Behaviour

The Psychology: Behaviour Motivation can be classified as intrinsic or extrinsic, and it plays a very crucial role in adopting change. In the behaviour lies the user's motivation and needs, the cognitive ease of adopting the change, and the forming of new habits around the change. While you have little or no access to the intrinsic drive of your customers, you can influence their extrinsic motivation with the right offering.

Like every human, your customer's behaviour is a product of their environment and learning, which can be shaped by "reinforcement" or "punishment", according to the famous psychologist BF Skinner. To stimulate your customers into a flexible energy usage behaviour, you need to reward them for their positive actions and punish them for their negative/lack of action.

Let’s understand this a bit better by stepping away from energy and into Harvard’s mid-century psychology labs, where BF Skinner's studies on animal behaviour, particularly with rats, laid the foundation for understanding behaviour modification. Using a controlled environment known as the "Skinner box," equipped with a lever, light, and food dispenser, Skinner demonstrated positive reinforcement. Rats, initially pressing the lever accidentally, soon learned to associate lever pressing with food rewards, a process underscored by the immediate and predictable relationship between action (lever press) and reward (food).

Skinner also explored negative reinforcement by introducing an electrified floor in the Skinner Box. Here, pressing the lever would temporarily stop the electric current, teaching the rats to avoid or end an unpleasant experience. This form of conditioning, though effective, was found to be less rapidly acquired by the rats compared to the positive reinforcement scenario, highlighting differences in learning behaviours based on the nature of reinforcement.

These findings underscore the importance of immediate and clear feedback in shaping behaviour in the context of energy flexibility incentives versus tariff-based punishments. Just as Skinner's rats responded more readily to positive reinforcement, individuals may be more motivated by rewards and incentives for energy flexibility rather than punitive measures. However, it is essential to consider the effectiveness of each approach in achieving the desired results. Your typical customer expectations often arise in the following areas:

Value for money or affordability: This is especially crucial now that there's been global inflation following COVID-19 and the fluctuating oil prices. The cost of living for the average customer has been on the rise, just as you may be experiencing. Therefore, saving on energy costs is a crucial factor for your customers, especially now. However, this doesn't necessarily mean downsizing their way of life around their electric assets or energy usage; customers want to get the most value - as shown in a study by PwC. The study revealed that consumers prioritise value for money, balancing affordability with quality and experience. 

Simplicity & ease of use: Cognitive ease plays a vital role in engaging with technology and life. Humans across the board have lazy intuitive minds that want to do things fast without calling on their analytical minds. Getting your customers to create new habits of participating in energy flexibility easily must appeal to their intuitive mind - it must be simple and easy to use.

Ethics & Ecological impact: Your business class talking about “LOHAS” or “true green” consumers is no longer relevant! Almost all consumers are conscious of how their way of life impacts the environment. From the food they eat to the clothes they wear and their energy source. A PwC report found that 70% of global consumers are willing to pay a premium for sustainable products, and 43% are actively choosing sustainable brands. Another study in China showed that customers were willing to pay more for electrical appliances with eco/energy efficiency labels on them. 

The most popular motivating factor for EV users is its impact on the environment and reducing their carbon footprint. When you clearly show your flexibility programme's ecological impact, your customers are motivated to participate and form these new habits.

Understanding the motivations of your customers is always a great place to start. The next question now is how you can align your own objectives with their needs. 

Aligning your Objectives with your Customer’s Needs

Bridging this gap between customer motivation and your business goals is crucial, as we’ll see shortly. Creating an energy flexibility programme typically addresses two elements for an energy-related business:

Grid benefits. You kickstart an energy flexibility programme to reduce grid strain and congestion during peak periods, which is very necessary for you since expanding grid capacity may not be feasible yet, considering that the current grid capacity still works “well enough” during off-peak periods. Therefore, the challenge here lies with the peak periods - reducing the demand and encouraging the customers to spread their usage across the day. 

Cost savings and revenue generation. You start a flexibility programme to save costs by accessing flexibility services from your customers instead of from expensive battery/steam turbine reserves. With the programme, you create your virtual power plant accessible to you for grid balancing. Other players like ESCos and aggregators can generate revenue from the flexibility programmes by pooling the flexible energy from their customers to provide grid services to DSOs, TSOs & BRPs. 

Ultimately, the success of either of the objectives heavily relies on customer participation and engagement. This is where understanding customer behaviour, as illustrated by Skinner's rat experiment, becomes pivotal. By applying principles of positive and negative reinforcement, we can effectively guide customer behaviour towards energy flexibility. Now let’s examine how you can stimulate this behaviour with reinforcements, punishments and social influences.

Using Reinforcements

Reinforcements are reward-oriented schemes designed to encourage customers to keep up their positive actions. As they participate in the flexibility programmes, they gain usable monetary or eco rewards. Some of these programmes include:

Type of Use & Load-Specific Tariffs

This type of tariff rewards your customers with savings credit based on the scheduled usage of specific home/office loads. It is most popular for EVs, where customers get a different tariff for charging their EV than for their household. The goal is to encourage new habits with specific electric loads. The same can be applied to heat pumps, boilers and other heavy home/industry appliances. 

How to use: If you know the specific loads from your customers that contribute mostly to the peak demand period, you can offer this tariff to stimulate a new habit around using them by providing extra reward/saving points for the proper scheduled usage you give. 

Case Study: Next Drive is a tariff programme offered by E.ON to encourage their household EV customers to reduce charging during the day. They offer a unique and cheaper overnight EV charging rate for the customers to save on the charging costs (V1G).

Other players that can be involved are EV manufacturers, CPOs, appliance manufacturers, and ESCos.

Potential Challenges: user behaviour/conflicts in preferences, data privacy and security, smart meter standardisation, and interoperability.

Demand Response

This type of incentive is a reward-based approach to encourage your customers to stop or shift their energy usage to less congested time for the grid. Usually, customers who enrol are notified ahead of time to reduce their heavy energy load usage based on the forecast of some peak periods. When this is successfully done, they gain compensation for participating.

How to use: Demand response as a reinforcement programme is ideal for knowledgeable and enthusiastic customers who want to contribute to grid stability. A customer not excited about grid balancing would not enrol or proactively monitor these notifications to help balance the grid. A conscious customer will happily engage, especially when the programmes are gamified, they relate to their progress, and recognise their contributions.

Case Study: In a confidential project in Europe, Hive Power is collaborating with one of the largest OEM dealerships and a regional aggregator to offer price incentives to EV subscribers who enrol in a demand response smart charging program. Based on the daily demand and the need for flexibility, the aggregators are able to control the charging of the connected EVs to offer grid services to the DSOs. 

#PowerSwitch is a programme led by E.ON Next (an ESCo) and UK’s NationalGridESO that compensates individual customers and businesses for reducing their energy use during peak demand periods. Each month, customers are rewarded with credits based on their participation, which is then reflected on their next bill account.

Other players that can be involved: CPOs, ESCos, and Aggregators

Potential Challenges: the need for a widespread smart metering infrastructure and accurate demand forecasting. 

Carbon Emissions Reward Tariffs

This reward-based approach is similar to demand response, but in this case, customers are encouraged to shift their usage based on the carbon intensity of the electricity generated at different times. The goal is to promote ethical and eco-friendly energy sources to customers by rewarding them when they use energy during renewable or clean generation and less energy during carbon-intensive generation. There's a lot of data transparency involved here, and this reward system is a win for all sides, promoting clean energy usage and balancing the grid for all.

How to use: Carbon emission rewards are great programmes to engage increasingly carbon-conscious customers. This can be applied to specific assets like EVs, heat pumps, and boilers. You reward customers with carbon points when they shift their usage to the clean energy period. What’s more, there’s nothing quite like the sense of satisfaction for engaged customers who perceive themselves as important contributors in a gamified environment with instant feedback.

Case Study: JuiceEco is a scheme by Enel X that offers their EV customers “Renewable Energy Certificates (RECs)” when they charge at home with clean energy. This is aimed at EV drivers who are already conscious of their carbon footprint, encouraging them to reduce it further by charging with only renewable generation.

Other players that can be involved are EV manufacturers, CPOs, carbon tracking & rewards companies, ESCos, and aggregators.

Potential Challenges: carbon footprint information access and trust, market readiness, and smart grid infrastructure.

Using Punishments

While reinforcements encourage behavioural adaptation, punishments can also be effective as penalty schemes to manage excessive energy consumption, especially during peak periods. Some of these schemes include: 

Capacity Tariffs

This type of tariff penalises customers for their peak loads/demands. It's a very popular mechanism to restrict your customers from going over their base load during the peak periods of the day. These peak times vary by country, and customers usually receive extremely high monthly or annual bills when they fail to manage their energy usage.

How to use: Capacity tariffs are famous for large and industrial energy consumers because they need an efficient energy management system to monitor and manage the peaks and smoothen out their energy usage throughout the day. It can be challenging to use for individual customers.

The CHP surcharge scheme in Germany penalises large industrial energy consumers with over 100MWh of annual consumption at a tariff based on their highest load in a 15-minute interval. Therefore, to avoid the penalties of high bills, these customers stay under or within their base energy usage throughout the day. 

Other players that can be involved are ESCos and OEMs.

Potential Challenges: smart metering infrastructure and complexity for customers.

Time Of Use Tariffs

This approach penalises your customers for using energy during peak periods by providing a higher tariff rate during the peak periods and a lesser tariff rate during the off-peak periods. With TOU tariffs, they are charged based on the rate in effect when they use their appliances or EVs. Customers end up with higher energy bills when they consume most of their energy during peak periods.

How to use: TOU tariffs are a great way to discourage energy usage during peak periods. It's a simple punishment to use across the board, regardless of the electric load. You can also apply them for specific loads like EVs to reduce customers charging during peak periods.

Case Study: Tarif Bleu is a TOU tariff programme offered by EDF to encourage their customers to shift their household energy usage to off-peak times. They only offer cheaper electricity rates for 8 hours during the day, thereby penalising the users with higher energy bills during the other 16 hours. 

Other players that can be involved are EV manufacturers, CPOs, Appliance manufacturers, and ESCos.

Potential Challenges: smart metering infrastructure, government regulations, and market readiness.

Dynamic Time of Use Tariffs

This is a more intricate TOU tariff, in that there are no predefined peak or off-peak periods. The customers have to plan their energy usage based on the near real-time price rate at which the suppliers trade them. Factors like grid demand, the availability of renewables, or weather conditions affect the tariff rate fluctuations. As with TOU, they are penalised with higher bills when they use energy during the high tariff rates and save money during the lower tariff rates.

How to use: Dynamic TOU tariffs are complicated, and users will require an efficient energy management system like FLEXO to optimise the electric loads based on the tariff price forecasts. Therefore, they are not ideal for individual customers. Business customers like EV fleet operators, CPOs, ESCos, and industries can maximise the benefits of this scheme to save energy costs.

Case Study: Through a pilot test project in Denmark, E.ON is offering dynamic TOU tariffs for their public EV charging station. This dynamic pricing programme with EV fleets and CPOs is growing in adoption across the world. The scientific committee from Power2Drive has awarded FLEXO as one of the most advanced energy optimisation software systems for energy players who want to tap into this. 

Other players that can be involved are fleet operators, CPOs, ESCos, and OEMs

Potential Challenges: real-time data demands and highly responsive customer communication. 

Navigating the Potential Challenges: While the described incentive measures offer exciting possibilities for managing energy consumption and promoting sustainable practices, implementation challenges still exist, as we’ve identified. However, some of these challenges can be managed. For instance, you can implement robust data encryption and anonymization techniques to protect user information and strengthen your data security. In addressing user behaviour/preference challenges, you can adopt AI energy optimisation software algorithms to predict the best times and asset availability based on learned user behaviour. Other policy, market and regulatory challenges can addressed by joining groups like SmartEn that advocate for smart and favourable energy transition policies. 

Using Social Influence with Peer-Network & Energy Communities

These rewards and punishments, when appropriately employed, can stimulate significant behavioural change in your customers - creating a group of conscious and flexible energy users. However, focusing solely on these incentives overlooks a powerful motivator: social influence. 

As Robert Cialdini highlights in his book “Influence,” the sense of belonging to a unified group is a potent persuader. This is particularly true in renewable energy communities(aka community solar), where the network effect is crucial. As more people adopt renewable practices, the community's value increases, offering benefits like lower energy costs, enhanced grid resilience, and a smaller carbon footprint. 

This collective participation not only multiplies individual benefits but also creates a supportive atmosphere that encourages further involvement, amplifying the network effect. Thus, harnessing this social dynamic within energy communities can significantly expedite the shift to sustainable energy practices through increased collaboration and shared advantages.

Winning with Renewable Energy Communities(RECs)

RECs provide a collective and customer-driven avenue to generate, manage and consume clean energy. Through energy communities, customers can locally generate their energy from clean sources, share the energy between themselves, and collectively optimise to reduce energy costs to a minimum. They can even generate extra revenue by selling excess energy from the community to the grid. 

This kind of social energy interaction is backed by EU law. It can take the form of any legal entity like an association, a cooperative, a partnership, a non-profit organisation or a limited liability company. Also, over 30 states in the USA also have policies and pilots to proliferate this type of energy consumption and generation model. 

A more recent indication is Italy's newly passed law on citizen energy communities to generate, share, and sell renewable energy within a defined geographical area, promoting local energy production and self-sufficiency. 

Energy companies and new incumbents, such as CPOs and OEMs, ought to go beyond just incentives and penalties to encourage clean and flexible energy usage. Those who are smart will embrace the power of the network effect for their customers through energy communities. 

In Conclusion

Navigating the shift to electric vehicles and sustainable energy usage requires more than just technological change; it demands a behavioural transformation among consumers. The blend of psychological strategies, incentive schemes, and the power of social influence in renewable energy communities can encourage flexible energy usage with your customers - effectively steering them towards a more sustainable and self-sufficient energy future.

Putting it Into Practice 

So now you have all of the tricks to turn consumers into prosumers. What’s next? It's crucial to empathetically step into the shoes of your customer. Nobody wants to be constantly bogged down by thoughts of energy bills, whether at home, in a commercial space, or on the road with their EV. They'd rather focus on dinner plans, upcoming vacations, and spending time with their loved ones. So, design it for them. Samsung and Hyundai are already exemplifying this transition towards a more holistic user experience with their connected car applications, seamlessly incorporating control of electrified devices into everyday life. 

As an energy player, you, too can design incentives and network effects that effortlessly integrate into daily life, requiring minimal effort from your end-users. Any additional tasks should feel engaging, almost like playing a game. The heavy lifting, such as predicting and adjusting for user preferences, renewable availability, and other flexibility factors, should be entrusted to AI and machine-learning algorithms. These algorithms, which cannot be developed solely with a software background and a ChatGPT subscription, are often overlooked by many R&D teams. Make it easier, make it more effective. Leverage the expertise of Hive Power, the creators of FLEXO. With over 30 years of combined energy experience, they have crafted a suite of algorithms, admin consoles, and front-end APIs tailored to enhance user experience and optimise energy management effortlessly.

Comparison Table

Nectar: the Incentives to Flexibility

Sting: Punishments of Flexibility


No comments yet, be the first...

Let us know your thoughts

Thank you! Your comment has been submitted!
Oops! Something went wrong while submitting the form.

Stay in the loop

Subscribe to the hottest newsletter in flexible energy.
Close Cookie Preference Manager
Cookie Settings
By clicking “Accept All Cookies”, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage and assist in our marketing efforts. More info
Strictly Necessary (Always Active)
Cookies required to enable basic website functionality.
Made by Flinch 77
Oops! Something went wrong while submitting the form.