6 minute read 15 Jul 2019
Young woman pumping gas

Why the environment is a consumer priority, but affordability is paramount

By

Mitch Fane

EY US Energy Markets Leader

Energy and transactions leader; client-focused and sector-minded; broad experience across oil and gas, power and utilities, renewables and more.

6 minute read 15 Jul 2019

Energy consumers are concerned about climate change — and their pocketbooks. How can companies interpret these potentially conflicting messages?

Across the US, energy consumers are caught between two desires: protecting the environment while keeping energy costs in check. These competing dynamics have also flummoxed energy companies as they attempt to serve two masters — keeping shareholders happy by delivering the profitability they demand while meeting consumer energy needs in a dynamic market.

The US Fuels of the Future survey — based on responses from 1,500 consumers and 102 corporate energy decision-makers (EDMs) across the US — shows that despite significant concern over the environment and climate change, Americans overwhelmingly focus on price first.

Feelings on fuels

As consumers have more options — from fueling vehicles to powering homes and businesses — consumer preference and the willingness to put their money behind those preferences become increasingly important. So how do American consumers feel about their fuel choices?

The majority of consumers believe natural gas is the most affordable and reliable fuel. This is important since 41% of consumer respondents ranked affordability as the most important quality of a fuel source (whereas 28% ranked reliability as the most important quality). While a majority of consumers agree environmental friendliness is important, only 10% of respondents ranked it the most important quality of a fuel source.

Although energy costs in the US are lower than many parts of the world, many consumer survey respondents struggle to make ends meet — one in five respondents said affording energy for their car (18%) or home (22%) is difficult each month.

Cost-conscious customers

26%

of consumers struggle to afford energy for either their vehicle or home each month — yet they’re concerned about the environment and would pay a bit more for lower-carbon options.

At the same time, environmental concerns are growing in priority. Around three in four consumers expressed concern about the environmental impact of their transportation or home energy use. Further, respondents said they were willing to pay more for less carbon from the fuel source they use in their vehicles and on their electric bills. Interestingly, concern for environmental impact is higher among those who have difficulty affording energy compared with those who easily afford it, and the former are also willing to pay more, up to a point, for offerings with a reduced carbon impact.

From the corporate perspective, not surprisingly, EDMs prioritize reliability and then affordability in a fuel source, and are similarly keen on natural gas. Interestingly, EDMs rank all nonrenewables (natural gas, oil, nuclear and coal) as more affordable and reliable options than their renewable counterparts. Yet even they are willing to pay a bit more for an option that has less of a carbon impact, as the chart below indicates. 

Cars, homes and businesses

Consumers’ concern with affordability and reliability are evident in their transportation and energy efficiency choices as well.

Currently, vehicle owners in the survey primarily use a gasoline- or diesel-powered vehicle (98%).  Yet 33% prefer a traditional or plug-in hybrid, and 13% would prefer electric. When asked about the future, 36% of respondents still hope to be driving a purely gasoline-powered vehicle, compared with 30% who want to use a traditional or plug-in hybrid and 23% who want an electric vehicle. 

According to respondents, the primary hurdles to electric vehicle ownership are expense and the lack of charging stations. In fact, 50% of those who do not wish to own an electric vehicle in the future believe there will never be enough places to charge electric vehicles, and 42% believe the range of electric vehicles will never equal those using traditional fuels. Further, among those who want an electric vehicle, 68% say they are too expensive — even though there are currently 22 models for sale in the US, half of which have a list price below $39,000. The survey shows there is a definite need for public education about the progress manufacturers have made on electric vehicles. 

In the US, more than 20 electric vehicle models are currently for sale, including options within a middle-class cost range. But even among those interested in buying electric vehicles, 68% of consumers say they are too expensive.

Shifting from mobility to homes and offices, many of the same dynamics remain in play.

The most common energy-efficiency upgrades to homes involve installing fans and energy-efficient appliances, while businesses mostly perform regular maintenance, switch to LED bulbs and replace old equipment.

Improvements solely for the sake of energy efficiency — such as installing solar panels and adding heat-absorbent roofing materials — are the least likely to actually be made, despite being the most impactful. Energy efficiency improvements would most typically occur as part of broader projects, not for their own sake.

Cost is a significant hurdle as 61% of consumers report the expense to undertake more efficiency projects is too much, and 27% believe it will take too long for savings to pay for the initial expense. Yet, among homeowners, these upgrades are desirable — 64% plan on or want to install solar panels, and 80% of respondents could be incentivized to make energy-efficient home upgrades through tax credits or a discount on homeowners insurance.

On the corporate side, companies have been most likely to maintain or replace equipment in a bid to be more energy efficient. Less tangible actions, such as having employees unplug their devices when not in use and measuring the company’s carbon footprint, are much less common. All of these less-tangible actions are steps EDMs wish to take, but comparatively few have actual plans to.

Asked why they’ve not taken more steps to be more energy efficient, EDMs cite the upfront expense and the time required to recoup the cost. Another factor for power and utilities and real estate companies to consider: nearly half (46%) of EDMs haven’t taken more steps because they do not own the buildings they operate from, suggesting that commercial landlords are the most promising target for energy efficiency upgrades.

What’s next in energy?

The survey results suggest that when it comes to making changes in their energy usage, both consumers and EDMs tend to be reactive rather than forward-thinking. For energy companies, this is an opportunity to create a deeper relationship with customers by getting behind the meter or the gas pump and leading energy customers to change.

This is a significant, but necessary, change for a sector historically disconnected from its customers. By serving as energy consultants rather than suppliers, energy companies can help customers lower costs and reduce their carbon footprint — while strengthening their own market position.

 

Summary

As technology offers newer and cheaper solutions and climate change concerns gain steam, American consumers are open to alternative energy choices but prioritize energy costs. Amid this backdrop, companies in several sectors should be constantly reassessing their offerings to capture consumer demand and dispel lingering misperceptions around energy.

About this article

By

Mitch Fane

EY US Energy Markets Leader

Energy and transactions leader; client-focused and sector-minded; broad experience across oil and gas, power and utilities, renewables and more.