Technology + dynamic pricing conserves water too (duh)

Lynne Kiesling

I love this story; it’s like Knowledge Problem + Aguanomics = individual choice, efficiency, conservation, and elegance. Water conservation is a large and growing concern, in large part because our public policy does such an abominable job of creating a framework/market design to send good scarcity signals to diverse individual users, and to enable them to trade rights among those uses. But in many places, water use also means electricity use, because of the large pumping demand associated with it.

That combination of water use and electricity use provided the impetus for a recent pilot study in California:

A pilot study conducted last summer in Palm Desert, Calif., suggests that they can.

The study, financed by the California Energy Commission, asked participants — who were paid $25 a month — to reduce their water use at “peak” times. A peak time refers to the hours when electricity use is at or near its daily high, and therefore especially expensive.

For Palm Desert, those hours are noon to 6 p.m.

The participants were given so-called “smart water meters” that recorded their water use at 15-minute intervals. Crucially, the meters also enabled participants to see how much water they were using — information that is unavailable to most households.

The results were striking: at peak times, participating homeowners used less than half the amount of water as those in the control group. The homeowners’ total use also ended up being 17 percent lower than the control group’s.

There are a few interesting aspects of this study. Note first that the payment to the homeowner was a lump sum. There is not a dynamic price per unit of water consumed, nor is there even a time-of-use peak-off-peak price structure, so the main driver of the observed conservation is the improvement in information visibility to the homeowner. The $25 lump sum payment probably contributed to raising their awareness too. A dynamic price or a TOU price is also likely to reinforce this result.

Second, note that the peak time denoted here was the peak electricity price time. The article indicates that the 50% reduction in peak water use did not lead to a commensurate reduction in electricity demand, although there was some reduction. So the relationship between water use and electricity use is quite nonlinear. One thing to consider is that in the desert a lot of people use evaporative cooling, so there is some margin of substitution between cooling using water and cooling using air conditioning.

Finally, the article points out that by making homeowners more informed and aware of their water consumption, the smart water meters helped them and the water authority to identify unknown leaks. This result was an unanticipated outcome, and identifying those unanticipated relationships is something that decentralized, individual incentive systems do best.


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