by Wayne Pales, Energy Industry Consultant
Energy utilities around the world are scrambling to digitise and provide the best service to consumers in a rapidly changing environment. Here, Wayne Pales outlines the six immutable truths energy utilities need to be aware of, and factoring into their decision making in energy’s new world order.
There are constant reminders of the disruption that is upon us as an energy industry. We face regulatory uncertainty, so can no longer make long-term infrastructure investments with confidence. Policy decisions are hindering our ability to invest in behind the meter solutions. Consumer adoption of new energy technologies such as rooftop solar and battery storage is impacting revenue and changing how networks are managed. And new entrants in areas such as embedded networks will dramatically eat into the traditional revenue models of utilities.
Most of my industry peers believe the above inevitable disruption will happen. The major divide in opinion is when, and to what extent, the impact will be.
All of us have been battling with how to respond. We know at the heart of this we must face into the disruption and increase the lifetime value of our customers to reduce the impact to our business, but there are often competing priorities. We still need to keep the lights on and run the business. We need to satisfy short-term demand from our shareholders and deliver healthy returns. And we need to justify why we are making investments in future opportunities that have an uncertain outcome and may, in the short term, reduce our revenue, increase our operational costs, or both.
Everyone I talk to agrees the future of our industry is uncertain. There are also strong views put forward by a variety of experts, often with opposing positions. Given the conflicting advice, how can we be expected to make the right investment decisions? It can feel safer to remain unchanged until the fog clears when we have more certainty. The problem with this approach is this – the fog will not clear for many years, if ever.
So we need to look for lead indicators that can help us navigate this uncertainty when it comes to the journey from the analogue past to the digital smart cities of the future. These lead indicators are what I call the immutable truths. These immutable truths are the reality that is happening around us, regardless of what we as electricity professionals decide to do. We must take notice of this reality and allow it to inform our smart grid investment decisions. These truths need to be at the heart of our smart grid hypothesis and our journey to smart cities.
Jeremy Rifkin, in his book The Zero Marginal Cost Society, writes about the coming together of the Communications Internet, the Energy Internet, and the Logistics Internet in an Internet of Things, and he discusses how this will transform our society. I believe there are six immutable truths that we, as an industry, need to factor into our investment planning decisions in the coming years.
The six immutable truths are:
- New energy technology is getting cheaper, smaller and more efficient
- Everything is becoming connected
- The growth of data is increasing insights into companies and consumers
- Energy consumers strive for greater choice and control
- Energy consumers expect simplicity
- Reducing the impact we have on our planet is an increasing part of investment decisions
How we decide to interpret these truths is up to us, but we must not ignore them. External forces used to be relatively predictable and constant. Historically, energy demand would increase in line with the economy. Customer power consumption would follow standard patterns. Back then, the environment was not a consideration, and investment planning in the grid was fairly straightforward. Today, we must take a serious look at what is going on around us, and have this inform our investment planning decisions.
New energy technology is getting cheaper, smaller and more efficient
Whatever unit you use to compare, new energy technology is getting cheaper, smaller and more efficient. Solar technologies are the best example of this, with battery storage following suit. All the main car manufacturers have now committed to electric vehicle investments which will mean the price of electric vehicles will drop. The lower the price point, the more people will purchase an electric vehicle. The more people buying electric vehicles, the more investment will be made to make them better and cheaper, and on the cycle goes.
The connected home is starting to experience the same trend, with Amazon, Google, Microsoft and Apple all vying to dominate the home through hubs that connect to smart devices and use digital virtual assistants to control them.
In the not too distant future, we will see solar technology move from rooftop panels to solar pavements, solar paint and solar tiles, among others. High-rise apartment buildings often placed in the too hard basket for the introduction of solar and storage are now within reach. For example, start-ups like Ubiquitos Energy announced solar glass that could be used in apartment buildings to replace regular glass. Projects have emerged where solar and storage are being introduced in multi-residential complexes. These projects are breaking down the traditional barriers to entry where solar and storage would only be feasible when installing in a single household.
Everywhere we look, new energy technologies are becoming more accessible to households and businesses
Everything is becoming connected. There is an enormous amount of hype associated with the internet of Things, a term first coined by Kevin Ashton in 1999. The term has been around for many years, yet there is still no globally agreed definition. For this article, I refer to the definition by the Oxford English Dictionary, which states the Internet of Things is “the interconnection via the Internet of computing devices embedded in everyday objects, enabling them to send and receive data”.
On the grid side, we see deployments of smart meters and other sensors across the network. The idea is to generate much more granular and timely insights into operations and consumer behaviour so that we can make more accurate and timely business decisions.
We are now even seeing a push towards distributed computing and the ability for intelligence to be deployed at the edge of the network and for that device at the edge to make decisions independent from the back-office systems. The move to distributed computing means utilities can now leverage technology to gain insight and take action in near real time, anywhere in the network. On the consumer side, we are seeing home appliances connecting to the Internet, such as smart air conditioners and smart thermostats.
As mentioned earlier, we are seeing a move by major consumer technology players such as Apple, Amazon, Google, and Microsoft trying to play a vital role in connecting all home smart devices to a central hub to simplify management and reporting to the consumer. For the utility and consumer together, every aspect of the home and power grid are becoming connected.
The growth of data is increasing insights into companies and consumers
The more we deploy connected technologies, the more data there is to consume. This data, often referred to as big data, will enable organisations to gain levels of insights into their company’s performance and consumer behaviour never seen before.
As an example, in utilities, we see the rapid adoption of condition-based maintenance – a move away from time-based maintenance where a utility would schedule a piece of equipment to be assessed or replaced, to a model where they replace or repair components when the device itself provides lead indicators that it is about to fail. This approach can significantly reduce the maintenance costs of a utility.
On the consumer side, insights can be used to ensure customers are on the most suitable tariff, to help determine if they would benefit from rooftop solar and battery storage. For these reasons, securing advanced analytical capabilities, whether through partnering or developing in-house, is a vital component of the smart grid.
Energy consumers strive for choice and control
As with most things in life, we humans do not like being told what we can and cannot do. We want to have choice, and we want to have control over our decisions. This immutable truth can, at times, conflict with another immutable truth, the desire for simplicity.
Often utilities create such a wide and varied range of products that customers became overwhelmed and frustrated, and so look to take more control. There is a growing desire for greater control over how we generate our electricity and how we pay for it. In many parts of the world, the drive to go off-grid comes out of a feeling of frustration that the consumer feels they are locked-in and have no choice with their current utility. These off-grid investments come in the form of solutions such as rooftop solar and battery storage to reduce reliance on the utility. The first step is the desire to lessen dependence on the utility and take back more control. The second step will be to leverage software to optimise the combination of grid and off-grid energy available to them.
The third and emerging step is the desire to trade excess energy with others in the community. Consumers buying and selling decisions won’t always make economic sense. Someone may want to purchase electricity from their child’s school, their local church, or community centre as a way of supporting them. Don’t ignore the occurrence of this trend just because the math doesn’t add up. People will start to head down this path, even if it costs more than their current electricity plan, as they feel they are giving back.
Energy consumers expect simplicity
No longer do people take the time to study how things work. As Elon Musk famously said, “Any product that needs a manual to work is broken”. Consumers expect solutions to be intuitive and take as few steps as possible to achieve an outcome.
When it comes to electricity, people want to have “set and forget” solutions. They want a cost-effective, reliable solution. They want that solution to have minimal impact on the environment. And they want all of this without having to change the way they live.
We have tried for years to educate people on the need to change their energy consumption behaviour. While education is still important, and some people take action, the message is not getting out fast enough. I’d argue that with the introduction of solar and storage technologies, people are potentially going to start to consume more, as they won’t see the need to conserve the usage of renewable energy. For utilities to gain traction with consumers, they need to design products and services that minimise the reliance on the consumer doing anything.
The old paradigm that low-cost electricity is the primary goal is changing
Don’t get me wrong, the amount people pay for their electricity is still, in the vast majority of cases, the consumer’s primary concern. What I have been seeing is a growing consumer base where, in addition to cost, they want to partner with organisations who provide green energy, and where the organisation is active in giving back to the community. These are often people with greater disposable income, and while they may be in the minority of your customer base, they may just be the majority regarding opportunities for new revenue streams.
The problem with only focusing on the traditional, price-sensitive consumer is it becomes a race to the bottom where nobody wins. Just focusing on driving out costs and meeting the immediate demands of the majority of your customers will result in missed opportunities, and eventually being surpassed by new entrants and alternate solutions.
The smarter grid of the future
A smart grid has to cater for a reality where it will be more and more connected with technologies it does not own, manage or operate. A reality where the lines between what is part of the grid and what is not become increasingly blurred. It will be a grid that interacts with external Internet of Things platforms that are part of a broader smart city. It will share energy data with third parties so that those third parties can deliver new services to consumers, as well as back to the utility. The smarter grid of the future will be a collaboration with many partners, across many industry verticals, all sharing data with each other. The smarter grid will ultimately be a platform that manages the movement of electrons and data from multiple points of generation to multiple points of consumption.
Wayne Pales has worked in the energy industry for over fifteen years in senior management at gas and electric utilities in Australia and Hong Kong, with exposure to China and India. He is the co-author of the book Building blocks to a digital utility, a step-by-step guide to help utilities develop long-term strategies that embrace behind the meter technologies. He currently consults to utilities in Asia and Australia, using energy data to deliver measurable customer value.