Energy management business models
By Tom Kerber, Director, Research, Home Controls and Energy, Parks Associates
Electric utility business models are rapidly becoming outdated. The proliferation of distributed generation, electric vehicles, and home controls technologies; the full participation of demand response assets in power generation markets; and national goals on energy and climate change are straining the traditional business model.
Tom Kerber, Director, Research, Home Controls & Energy, Parks Associates
Traditional energy management programs use economics as the primary consumer value proposition, i.e., the return on investment in the form of energy savings. Selling products and services has been challenging because consumers are not naturally in the market for energy-saving devices and they are notoriously price sensitive to energy-related solutions. If the return on investment is not apparent or relatively sizeable, consumers simply will not pay for it. As a result, the utility channel has struggled to develop messaging and a strong selling process to bring these products and services into the mainstream.
However, given the advancements in technology outside the utility industry, the emergence of standards such as OpenADR, and the growing deployment of connected devices and home control systems, there are multiple opportunities for utilities to change their approach to energy efficiency and demand response programs.
Energy Consumption Information
There is a growing group of companies focused on providing data to drive changes in consumer behavior to conserve energy, but doing so requires funneling relevant and actionable information. The traditional electric bill is woefully insufficient in this task. Consumers who want to be proactive are left on their own to determine how to reduce their bill, and they must wait 30 days to find out if their actions are effective or not.
If the return on investment is not apparent or relatively sizeable, consumers simply will not pay for it.
Disaggregation technology can be used here to improve the effectiveness of energy consumption feedback programs. Disaggregation uses the unique load profile of individual appliances to determine the portion of the total bill from each appliance's use.
With this information, consumers can understand how each appliance contributes to the overall bill, which allows them to better understand how to reduce consumption. They can also use these data to estimate the annual savings if they are considering replacing an appliance, providing an important feedback mechanism necessary to motivate action.
Because disaggregation solutions are cloud based, the cost of providing these services is very low, less than $1 per user per year. With costs that low, disaggregation service providers can afford to collect payment for the service only when the customer or third-party benefits, making broad adoption very likely. As a result, monetization of disaggregation can come through many channels. Utilities, consumers, and manufacturers all can derive significant benefits from disaggregation information.
Connected Devices and Systems
The proliferation of IP devices in home and on the house gives both companies and consumers access to loads of data about the household, energy consumption, and the devices within. Manufacturers are adding new capabilities and features to differentiate their products, capabilities that can be applied to reduce energy consumptions and shift demand.
In addition, security and broadband service providers are entering the market for home monitoring and control systems. The marketing muscle of all the major telephone and cable companies, combined with the largest security service providers, is growing awareness, rapidly expanding the market. Low-cost wireless technologies are bringing price points down to appeal to the mass market.
Adding connectivity to devices has also created mountains of data that can be mined and used to create new products and services. For example, energy modeling software can detect when an appliance is in disrepair. There is huge value in information, and many companies are finding a way to leverage that data to drive the next wave of energy management solutions.
Demand Response Markets
Connectivity not only brings convenience and control to the consumer, it also enables verification and measurement of any control action in near-real time. The ability to verify load shed in real time will change the way that utilities approach demand response programs.
Developing a more cost-effective approach to executing demand response is one of keys to advancing the industry.
As real-time measurement and verification become a reality, utilities can transition away from demand side management programs to demand side management markets. For example, the utility would establish a monitoring and verification system and then ask vendors to bid on load reduction in a quarterly auction. The utility would select the lowest-cost approach to load reduction and work up the list until it met the load reduction target. Companies would be paid based on their performance measured by the monitoring and verification process.
Developing a more cost-effective approach to executing demand response is one of keys to advancing the industry. One of the key technologies that will reduce overhead associated with demand response is the automation of energy transactions. Automating energy transactions will enable an energy marketplace, permitting smart appliances and thermostats to act on their owner's behalf and participate in the demand response market.
Demand response programs at the wholesale level are already changing. ISOs are beginning to use DR to sell back excess power from renewables. In addition, ISOs are putting processes in place to comply with FERC rules to give demand response equal footing with generation in real time, day ahead, and forward capacity markets.
Given the huge variation in how the over 3,000 U.S. electric utilities are pursuing demand response as well as the FERC rulings on integrating demand response into the power markets, it is likely that the private sector will develop platforms that will enable individual homes to participate in the wholesale power market. Open markets may include integrating wholesale and retail markets, allowing residential consumers to participate in wholesale markets without going through the utility. Platforms that enable the transition to open markets will eliminate technical, financial, and physical barriers to entry and create markets for numerous energy management solutions.
About the Author
Tom Kerber has worked in the utilities industry, the consumer goods industry and for Motorola in the telecom industry. He holds an MS in Software Engineering from the University of Texas and a BS in Systems Engineering from the United States Naval Academy. His roles in product strategy for a home controls company as well as experience in the utilities industry and the telecom space provide him with very strong qualifications to serve our energy and home controls clients' needs.