HECO & Solar….Embracing TOU: Nudges, Rates, and Renewable Energy
Hawaiian Electric Company is about to embark on a significant experiment: a pilot program introducing time-of-use (TOU) pricing. Designed to reduce electricity prices during daylight hours when solar power is abundant and increase them during the evening when the sun sets and demand rises, this initiative could reshape how 17,000 customers consume energy. If you’re among the chosen, you’ll be automatically enrolled unless you opt out.
The Power of Nudges
This enrollment method leans on insights from behavioral economics, particularly the power of nudges. This subfield of economics—merging psychology and economic principles—reveals our propensity to stick with default options. Consider 401K enrollments: many employees won’t opt-in even with lucrative matching offers. However, change the system to auto-enroll with an opt-out provision and participation skyrockets.
Richard Thaler, a Nobel laureate, and Cass Sunstein wrote the best-seller Nudge, which popularized this concept. These ideas were so influential that the Obama administration created a special unit to incorporate such nudges into public policies.
Nudges, however, are double-edged. They can guide us towards beneficial choices, but they can also exploit inattentiveness. Setting a default that isn’t in a person’s interest risks backlash and mistrust. This ethical consideration is paramount, especially in public policy.
