Electric water heaters represent a significant untapped energy savings opportunity for utility retail programs. Driving higher market penetration of efficient water heaters is particularly important as other sources of savings in the residential sector sunset. However, consumers virtually never proactively seek an energy-efficient water heater. Roughly 90 percent of water heater purchases are related to external circumstances (e.g., emergency replacement, remodeling, new home), and 72 percent of consumers shop at just one store before making a purchase1.
Since most residential customers are not actively searching for high-efficiency water heaters, they are not prepared to buy one when it fails. Those that do purchase incentive-eligible equipment often have high rebate breakage rates, forgoing the extra steps of submitting rebate forms after their equipment is installed.
With low market penetration and underperforming water heater rebates, how can utilities convert these panicked product buying cycles into long-lasting program savings that improve customer satisfaction?
An upstream model overcomes some of the challenges and realities of downstream and midstream retail approaches by shifting the incentive from the customer to the manufacturer, while still putting some money back in the customer’s pocket. New upstream program designs emphasize strong manufacturer relationships and easy transfer of data, so utilities can still gain insights into their customers’ actions and adoption of products.
In close collaboration with retailers, upstream programs incent manufacturers to influence both the prices and market availability of efficient water heaters. This drives more high-efficiency equipment into the market while making them more price-competitive with non-efficient alternatives. In a typical scenario, an efficient water heater could save a household of four about $3,500 over the lifetime of the equipment compared to a standard electric heater, with an average payback period of only two years2. So customers can invest in energy efficiency today and enjoy the savings tomorrow.
With the right program design, utilities can persuade customers to purchase cost-effective, efficient water heaters and secure savings, enabling rapid market transformation across the supply chain.
Laying the groundwork with water heaters today will have benefits beyond energy efficiency tomorrow. Water heaters are no longer just a collection of metal containers and pipes. Many are becoming increasingly ‘smart’ and connected, which opens additional opportunities for utilities to have a continuous dialogue with their customers, such as engaging them in demand response programs and educating them on energy saving opportunities. This type of connectivity and increased customer adoption can also proactively alert customers of issues and diagnose them ahead of failure, breaking the cycle of emergency replacements (one example can be found here).
What do you think of upstream water heater retail programs and how they are being leveraged by utilities? If you have any questions or thoughts we’d love to hear from you – reach out to us today.
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