Efficiency 2.0 Offers Energy Diet Plan with Perks to Consumers
Dangling a carrot in front of a stubborn mule might get it to prance, but energy customers can be tougher to motivate. Armed with an incentive program to encourage conservation, Efficiency 2.0 in New York thinks it has the right kind of lure to curb energy waste.
Our reliance on appliances, mobile gadgets, and computers continues to put pressure on the power grid. Creating motivation to change energy habits is central to Efficiency 2.0’s plan. With discount deals from retailers available to be earned, the company brings the appeal of credit card and air travel reward programs to the energy sector.
Founder Tom Scaramellino launched Efficiency 2.0’s personal energy efficiency rewards (PEER) program in 2009 as a way for utilities to coax residential and small business customers to reduce their energy usage. “We do a lot of the same stuff that American Express does with their loyalty program,” he says.
The PEER program asks customers to commit to energy saving habits such as turning off lights in unoccupied rooms, purchasing showerheads that reduce water flow, and installing solar panels to help power the home.
Scaramellino says PEER operates like a white-label Mint.com—a money management service, but for energy bills. Customers receive e-mail and direct-mail reports that are branded as materials from their utility providers, suggesting ways to better manage their energy usage. “We put folks on an energy savings plan,” he says. The program runs under the auspices of energy companies such as Northeast Utilities in Hartford, CT and Commonwealth Edison, a unit of Chicago’s Exelon. The customers can earn points redeemable for merchandise with participating retailers if they meet certain energy saving goals.
Scaramellino, a Yale Law School alum turned entrepreneur, says the program puts customers on a kind of power diet that shows them how incremental investments in energy efficiency can be beneficial. So far more than 300,000 homes across country participate in the PEER program through their utility companies. Scaramellino says he is aiming to sign up five million homes by the beginning of 2014. “That would have us working with a little under five percent of the U.S. population,” he says, “which would be a significant market share capture for an early stage company like ours.”
Getting five million homes into the program could generate $75 million in annual revenue for his company, Scaramellino says. The utilities pay Efficiency 2.0 based on the amount of total energy saved through the program. “Most folks can’t monetize that kind of online penetration at such a high rate,” he says.
Investors seem to concur about Efficiency 2.0’s prospects. Scaramellino says the company so far has raised just under $8 million through angel investors, small funds, and a strategic partnership. One of the company’s investors is Jason Finger, the founder of SeamlessWeb. He says the concept of coaxing customers to curb their energy use resonated with him. “Behavioral science-based offerings are next generation, value-added businesses,” he says. “The applications can go beyond energy to other things that will be in Efficiency 2.0’s purview.”
Efficiency 2.0 has a staff of 30 and Scaramellino says the company is weighing options to raise more capital to grow its sales and marketing divisions. He hopes PEER’s combination of analytic, marketing, and engagement services that are packaged together, will be appealing to gas and electric utilities that are facing more regulations aimed at reducing power usage.
Scaramellino says legislation has already passed in many states across country—particularly since 2006—that requires utilities to sell less energy. “Utilities that don’t hit their goals of reducing energy use can receive very significant penalties,” he says. Incentives are often offered by states to utilities that do meet their goals, Scaramellino adds.
Part of the challenge is convincing customers to replace older refrigerators and other appliances that gobble power. PEER offers customers recommendations on products they can buy to cut their energy needs. “There is still a large portion of the customer base that is primarily focused on no- and low-cost actions to reduce energy use and isn’t making those big home investments,” Scaramellino says. Efficiency 2.0 may help improve adoption rates he says by enticing customers to make those purchases.
Recommendation programs have worked in other types of consumer markets, he says. PEER’s e-commerce platform suggests energy-saving products to suit the customers’ needs, similar to Amazon’s recommendation system he says.
Scaramellino is not concerned that the country will become so energy efficient that he will be out of business. “We would love to be so wildly success that our service isn’t needed anymore, but that is an incredibly difficult goal to attain,” he says. But capturing five percent of the country’s population would be significant for Efficiency 2.0, he says, because the company operates at margins in excess of 75 percent thanks to its low overhead. “It’s fundamentally marketing and software, we’re not selling any hardware,” Scaramellino says.