Reducing electricity bills with people power

Reducing electricity bills is more effective if consumers join forces when negotiating better deals. If large groups of consumers switch energy suppliers, they tend to end up with lower bills compared to those who try to cope on their own, researchers Heriot-Watt University in Scotland, the University of Southampton in England, and the Centre for Alternative Energies and Atomic Energy in Paris found.

As utility bills in the UK continue to rise, placing more strain on household budgets, thousands of customers are joining forces into collectives and switching suppliers or negotiating for group buying schemes..

Examples of such schemes include Big Deal, People Power, and Which?’s Big Switch. They have helped tens of thousands of customers pay up to one third less than they would otherwise have done on their electricity bills.

Forming more effective groups

In this study, the research team proved that these schemes work. They put forward a model to help consumer form more effective buying groups and minimize the potential risks from switching.

Current schemes have one major problem – the one tariff may not suite every customer. In several cases they may have been financially better off by not switching suppliers.

Dr. Valentin Robu, from Heriot-Watt University, explained at the AAAI Artificial Intelligence conference in Canada this week:

“Electricity suppliers buy from the wholesale market where electricity prices are considerably lower. There are a number of ways they sell this onto consumers but typically they predict the amount of electricity required and pass on premium prices to consumers to cover any risk associated with over or under buying, allowing them to make profits.”

“Crucially, this is where group buying is important. While everyone has potentially some uncertainty about their future consumption, our work shows that, by grouping together, consumers can gain size and market power and reduce their risk and access better prices.”

Prediction-of-use tariff

Consumers begin with a “prediction-of-use tariff” in the new group buying models. It predicts their future electricity consumption using their usage history. Base on those patterns, consumers can then choose to join one of several different types of consumer groups with different tariffs, ranging from:

  • Predictable: ideal for those with a structured tariff where they pay less per unit of power forecast in advance, but a greater penalty if they consume too much or too little.
  • Unpredictable: suited better to a flat tariff, which is the same as the existing flat rate supplier tarrifs, in which the consumer just pays per unit consumed, irrespective of his/her prediction.

The team gathered and analyzed data on the consumption trends of approximately 3,000 UK domestic consumers. They also applied techniques from the fields of coalition theory and artificial intelligence to help find the best solution for each consumer.

The Research Team

The research team.

Consumers reluctant to switch

Dr. Robu said:

“While we now know how to efficiently form buyer groups to reduce each customer’s electricity bill, previous research and practice shows customers are often reluctant to switch providers. Even if we can calculate what the most efficient decision would be consumers worry about loss of convenience and uncertainty of the future benefits.”

“Our next challenge is to design smarter systems that not only propose the efficient tariff groups, but also “nudge” people towards making the optimal choice for them.”

The ultimate aim of the team is to utilize artificial intelligence to design tools that enable electricity consumers to choose their ideal tariff and allow them to identify other similar consumers in their group.

The study, titled Efficient Buyer Groups for Prediction-of-Use Electricity Tariffs, was written by Valentin Robu, Meritxell Vinyals, Alex Rogers and Nicholas R. Jennings.