Energy Use: Neighbor vs. Neighbor

In a new take on keeping up with the Joneses, startup Opower is partnering with utilities and applying behavioral psychology to energy conservation

By Ellen Gibson

Would you be tempted to buy a Toyota Prius if your neighbor drove one? A growing body of evidence suggests people are more likely to behave in environmentally friendly ways when they see the people around them doing so. Alex Laskey and Daniel Yates, co-founders of software startup Opower, wanted to see if this theory could be applied to household energy use, where there was almost no visibility into consumption.

In the past 18 months, Arlington (Va.)-based Opower has partnered with 21 utilities to incorporate neighbor comparisons into gas and electric bills. Based on the success of pilot programs in Sacramento and Washington state's Puget Sound area, Opower just added two high-profile clients to its roster in October: National Grid of Waltham, Mass., and Seattle City Light. About 1 million households currently receive the reports, which show them how much energy they are using vs. similar households in their neighborhood. (To establish "comparable neighbors," Opower looks at the square footage of the home, its type of heating system, whether there's a swimming pool, and so on.)

The result: Customers in the program have reduced annual energy usage by an average of 2.8%, or the equivalent of 280 kilowatt-hours per year. In its test with the Sacramento Municipal Utility District, the effect has been biggest in households that were the biggest energy hogs pre-Opower: They've reduced consumption by more than 6% on average.

"The Next Wave of Savings"

Opower's business plan is modeled on the work of psychologist Robert Cialdini, whose textbook Influence: The Psychology of Persuasion is a staple of college marketing courses. Most recently Cialdini ran studies in Arizona hotels to see if, using small placards, he could get guests to reuse their towels instead of having them washed daily. Posting signs that said reusing towels is good for the environment had a small impact on behavior. But when he changed the message to say that the majority of hotel guests reuse their towels, the number of people who did so went up 30%. (This is not just a boon for the environment, Cialdini says. The savings on labor, hot water, and detergent amounts to about 71¢ per room daily.) Cialdini, who is Opower's chief scientist, explains the phenomenon this way: "Simple information about what constitutes a good choice is rapidly, almost primitively, processed."

This interest in consumer psychology is a new paradigm for utilities, which for years were run by engineers and, says Laskey, "without regard to customers." Tim Stout, vice-president of energy efficiency at National Grid, admits that most of the company's efforts toward conservation have been tied to infrastructure and hardware—the installation of insulation or weatherization, rebates for more efficient equipment. "When we look at the remaining potential for efficiency," Stout says, "changing consumer behavior is the next wave of savings that needs to be tapped."

Privately held Opower, which was originally named Positive Energy, was founded by longtime friends Yates (who previously founded educational software company Edusoft, which he sold to Houghton Mifflin Harcourt Publishing) and Laskey (who had been running political campaigns). The two raised $1.5 million in seed capital and then $15 million from venture capitalists last fall. The business is now self-sustaining, they say, with 60 employees.

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