(Podcast) Energy study of business and residential consumers | Deloitte Insights

Deloitte Resources 2019 Study Energy management—Balancing climate, cost, and choice

26 June 2019

Host Tanya Ott met with Stanley Porter and Marlene Motyka—authors of Deloitte’s 2019 Resources Study—to discuss how businesses and consumers are tackling climate change’s challenges and how to reduce carbon footprints.

 
“ When the customers speak, businesses tend to listen. When stakeholders speak—i.e. investors—businesses tend to listen. ”

—Stanley Porter, vice chairman and the US energy, resources, and industrials leader, Deloitte Consulting LLP

TANYA OTT: The energy sector is complicated these days, but the stakes have never been higher.

I’m Tanya Ott and on today’s Press Room we’ll dig into a new study that sheds some light on what consumers and businesses think about climate change and how they’re trying to reduce their carbon footprint.

My guests are the study’s authors: Stanley Porter is a vice chairman and national industry leader for Deloitte’s Energy, Resources & Industrials (ER&I) practice. Marlene Motyka is US and Global Renewable Energy leader and a principal in Deloitte Transactions and Business Analytics LLP. She works with people who invest in, own, or operate in the renewable energy sector.

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About nine years ago, right after the recession, they noticed that demand for electricity was down. A lot of people blamed the bad economy and said it was just belt-tightening. But Marlene’s team wanted to see if that was only explanation, so they surveyed 1,500 residential consumers and 600 businesses across the US. They’ve repeated that survey every year since and the latest survey came on the heels of a devastating year—with natural disasters in many parts of the country.

According to one estimate, in 2018 global insured losses just from natural disasters was US$79 billion and a good chunk of that came from the US.1 There were devastating floods on the East and West Coasts. Hurricanes Florence and Michael left trails of destruction throughout the Southeast. And, of course, the wildfires in California. Many experts tie the severity of these events to climate change. And late last year the US government2 and the Intergovernmental Panel on Climate Change3 both released reports that have some pretty grave predictions. I asked Stanley and Marlene how much climate change is influencing the way the businesses and individuals they surveyed think about energy consumption.

STANLEY PORTER: On the business side, 84 percent of the cohort that responded actually were aware of the reports. Two-thirds of those actually changed their energy management strategies and 83 percent of those actually increased their commitment. So we do see this interest and knowledge of climate as an agenda topic.

On the consumer side, 76 percent of [millennial] consumers are very concerned about climate [change], but we do see a plateauing of those engaged in renewables. [It] went down a little bit, and we think that's because early adopters have jumped in the game already. And when you start thinking about the new technologies to participate in renewables, it is a question of disposable income, specifically for residential customers. Cost, complexity, and the like are impacting the engagement on the residential side.

So overall, both groups are very cognizant and engaged in climate. We're seeing different participation levels in this year's study.

MARLENE MOTYKA: The one exception I would like to note on the consumer side is millennials. They've really stepped up, and although climate is important for all of the residential consumers we surveyed, millennials ranked higher in terms of concerns around climate change and their personal carbon footprint. And we see these millennials as a stand-out that really could impact things going forward. As Stanley said, businesses are very much involved in climate change. We look at the combination of economics and sustainability together, and those are two very powerful motivators on the business side.

TANYA OTT: I want to talk more about millennials in a moment, but first I want to go back and get a definition, because Stanley, you mentioned renewable energy sources. When we're talking about that, we're talking about things like biomass and hydropower and geothermal and wind. But the one that I'm really interested in these days is solar. Early adopters have gone there, but [are we] going to have a hard climb to get anybody else on that train?

STANLEY: In the survey, it's explicitly states’ cost and uncertainty of the return on the investment of that cost for the residential consumer that is impacting the adoption and, I think, growth rate of residential solar. Now with that said, you see a spike in interest, particularly as you combine storage to that, because that mitigates some of the uncertainty. But it’s an additional cost. There is a bit of plateauing due to cost.

There is a desire for government to participate, probably more for the residential side, to gain some more certainty on what these options are going to be. Are they going to help the regulatory construct to be more affordable and accessible? Those dynamics impact the residential side.

MARLENE: Really where we've seen big support on the renewables side is from the state perspective. Thirty states now have renewable portfolio standards that are requiring utilities to provide renewable sources to consumers. There are challenges around net metering, but what we do see are changes in net metering—looking at different options, including maybe incentivizing solar plus storage, to provide options related to solar in those markets. But then with the battery storage added, being able to not impact the grid negatively or impact the broader population of people within a state.

TANYA: In many communities, consumers don't have a choice of electricity providers and I'm wondering how that influences what they're able to do.

MARLENE: We do know from the study that oftentimes residential consumers don't know if they have a choice or not of a provider. What we find is that there needs to be more communication provided to consumers to understand whether they have choice or not, and potentially what options are available to them from their electricity provider, whether it be a utility or a third-party provider. And these services might relate to time-of-use rates or demand response.

STANLEY: What we see overall, and I believe this is consistent with municipalities, co-ops, and providers of energy, is there is a transition going from “rate payers” to “consumers,” or “rate payers” to “customers.” A lot of utilities are putting investments into trying to understand consumers’ expectations, but then also use that information to push out options and services. As Marlene mentioned, the one thing that comes out loud and clear is that the consumer is confused. There is an opportunity for energy providers to provide a bit more clarity and to use social media to engage. The most optimistic data point there is the millennial group, which is the largest and growing group, is highly engaged. There is this investment in engagement with the customer, but there's an evolution at this point in time.

TANYA: And you make the point in your study that that communication is such an opportunity for companies that are trying to reach and segment out their audience along the lines of who's potentially most receptive to certain messages. There are a lot of things that residential consumers can do. We have all these apps and things like that to help us manage our energy consumption. You have to enter some information about your home and things like that and you can, for instance, in one of the apps see what the average monthly rate of consumption of energy for various appliances that you use. But I’ve got to tell you, some of the consumer technologies can seem a little daunting in terms of figuring out how it works. There's also the concern about the data and what businesses or governments or whoever is collecting about consumers. I know the cyber risks are something that you all are really sort of keyed in on in this study as well.

MARLENE: Yes. We do see increasing use of social media to get energy-saving tips, but also using an energy-management app and then home automation. That's starting to evolve. It's slowly emerging. It hasn't necessarily taken off, but 61 percent of active home-automation users surveyed are increasingly concerned about privacy and security. And what's interesting is millennials are the ones who are most likely to use those home-automation devices than other age cohorts, and so there is a driving concern around security and privacy.

STANLEY: And something that's consistent with your comment and thought of the increasing concern is that weather is probably a predominant factor in outages, but 39 percent of the residential population link outages to cyber issues. So there is this education on the opportunity, but also on those risk factors that are hindering people from engaging.

TANYA: I'm curious. When consumers say what they're doing to address their use of energy, and this is not in your study, but I'm curious if you're aware of any studies that examine what they're saying they're doing and what they're actually doing, because we all know what the socially desirable answer is: “Sure! I'm trying to save the planet right.” But I wonder if they're actually doing what they say.

MARLENE: That's a good question. We have asked time and time again in the survey about what they do. I'm going to better insulate my home. I'm going to put more energy-efficient windows in. I'm going to also install solar. I'm going to buy energy-efficient appliances. But then we never saw an increase in that. We started to ask, “What is holding you back from implementing these options?,” and they say cost, and also time and effort. So, from our survey it's clear that people want to consider other options, but they don't necessarily go forward with those because of the cost and time.

TANYA: I can totally feel their pain having just replaced every single window in my house with energy-efficient windows, and it is no small task—financially and otherwise.

STANLEY: Exactly. But at a macro level, the data shows maybe a plateauing of engagement, but in the past several years, low commodity prices have had a significant impact. When you have natural gas and gasoline at what you would call moderate to low prices, there's not that motivation. You'll see points in this study around EVs [electric vehicles] and probably even around solar where if there's an uptick in the commodity price, if there's an uptick in gasoline, if there’s an uptick in in natural gas, you will probably see a change in behavior. There are some macro trends that are also at play here that need to be considered. I’m not saying that the consumer is not involved. The consumer’s involved, but they're involved in an environment. Overall what we see both business and the residential consumer involved in is this push toward electrification. They're trying to find ways to enable that with both technology and new sources.

TANYA: We’ve spent a lot of time talking about consumers, but I want to dig more into that business side of things. What else do you see businesses say that they're doing to address climate change and to reduce their carbon footprints?

MARLENE: One thing they're definitely doing is getting involved in onsite generation. More and more of them are using co-generation, onsite renewables, battery storage, fuel cells in order to produce electricity onsite. That provides a reliable electricity source and it also helps with cost. But increasingly, they are also procuring more renewables. Forty-seven percent of businesses said they are going to procure more renewables going forward, and that's because their customers are requiring and asking them to do that. And those who aren't currently intending to procure more, if you add battery storage on to those renewables, they expect to have a greater uptick in renewables. Renewables are a very big focus for businesses in our survey and we think that will continue going forward.

STANLEY: I’ll add that electricity consumption is at the top of the list, but what you'll see in this year's survey is water jumped up significantly. Businesses are quickly realizing water is a scarce resource. Water is a commodity that is costing more as compared to inflation. What we're seeing is multiple commodities being managed aggressively, in addition to just electricity, and water jumped up significantly this year as a commodity to be managed.

TANYA: That's really interesting. I was going to ask you about water, because I think that's one of those things that if you're in a place that doesn't necessarily struggle with water access you don't think about it. But if you're in a place like Arizona or where I am—Alabama, Florida, and Georgia—it's a much bigger issue.

MARLENE: But I would say our study shows it’s really more widespread because 75 percent of businesses now have a goal around water management: They want to reduce their water consumption. So that to me would say that's really much more of a US-wide perspective than I think we even thought. We were surprised at that result.

STANLEY: Right. You have geography constraints and specifications around water and natural resources, but as you were speaking to the business community the consumption of water—pick your favorite manufacturing, pick your favorite product—the percentage of water or let's say inputs into these things are motivating businesses to look at how they reduce consumption and put it as part of the portfolio that they're managing.

TANYA: I know you have been tracking the use of electric vehicles. What does that look like in businesses these days? Are EV fleets being deployed pretty robustly or are there still some barriers to that deployment?

STANLEY: There are barriers, the main one being cost. You have cost, recharging, and range as factors that people are evaluating. The survey shows 26 percent were extremely interested or very interested in buying electric vehicles—and that 26 rises to 44 percent if there’s an increase in gasoline prices. As infrastructure is built out, we definitely see the rise of EVs. Now businesses in the study were somewhat flat in regards to the question of, “Are you changing your fleet to all electric vehicles?” That was flat; however, there was an uptick in the infrastructure that they're putting in place for their employees to charge and that they're making available to those who are not their employees. So again these forces are addressing at least some of the concerns—cost, range, and recharging—so I’m pretty bullish on the outlook for electric vehicles.

TANYA: How much of this is motivated by economic reasons? They want to save money. They want to realize gains. And how much of it is just sort of, “It's the right thing to do for the environment and for the world?”

STANLEY: In the survey for the business community, 50 percent clearly say number one is to reduce costs. But just “do the right thing” did jump up to second as a motivating factor, and it jumped up 11 points, which is significant for our survey. Businesses are seeing a return on the investment. Two-thirds of businesses’ consumers are saying engage in renewables. When the customers speak, businesses tend to listen. When stakeholders speak—i.e. investors—businesses tend to listen. Also, you've had a significant increase in technology innovation that has allowed things to be adopted. More companies are involved in onsite generation and they're seeing results not only in terms of cost, but also in terms of availability [and] price sensitivity. These things begin to play. When manufacturing companies generally have somewhere between 25 to 30 percent of their manufacturing costs tied up into some form of energy, it’s a significant impact.

MARLENE: Another point to note is we do ask businesses why are they focused on energy management. One of the top reasons is to stay financially competitive. The second one is that it's important from an image perspective. They know people are looking at what they're doing in terms of cutting cost, looking at technology including renewables, and so they're focused on it.

TANYA: We've got a lot of smart technologies being used by consumers and a lot of data being used by businesses, but we can't ignore the cyber risks involved. There's the possibility of data breaches, but there's also hacking of systems, and particularly in the energy sector hacking of systems is a real concern. What are you hearing from the businesses that you surveyed on this idea of cyber security?

STANLEY: Let me speak to the residential side first and Marlene might have touched on this. Sixty-one percent of respondents say privacy is a concern and 46 percent of them say cyber definitely prevents them or is a concern in regard to their behavior or engaging in home automation.

On the business side and provider side what we're seeing across the board is the hardening of the assets. [There are] significant regulatory efforts in regard to protocols that are put into place and when utilities are looking at new technology like digital, significant capital is going into the resilience, the protection of their network, but also access then to the consumer.

MARLENE: The power and utility sector is ranked in the top three of industry sectors being targeted by cyberattacks, so I think people have a valid concern with regard to that. 4 What we saw with businesses is about 50 percent of them expressed concern about interruption of their company's electricity supply due to a cyber event involving the electric grid. People are aware of this. More and more we hear about cyber concerns, so it is impacting both consumers and businesses.

TANYA: That was Marlene Motyka and Stanley Porter. You’ll find the full results of their 2019 Resources Survey at deloitteInsights.com. Also, check out Twitter for a link to the study and lot of other interesting stuff. We’re at @deloitteinsight and I’m at @tanyaott. I am Tanya Ott. Catch you again in two weeks.

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