How Utility Companies Can Benefit From Smart Home Devices
The rise of the renewable source connected to the grid, the development of distributed energy resource (DER) solutions, energy markets deregulation, technology innovations, new customers’ behavior, etc. are changing the traditional business model of electric utilities.
Electricity demand is slowing down
According to Eurostat report in the between 2004 and 2014 household electricity consumption fell by 1,3 % in all EU-28 countries. There was a great reduction in Belgium (almost 29%), Sweden and UK (more than 10%). The trend of decreasing electricity demand has been observed in Germany since 2011 too. Total electricity demand in U.S.A. is projected to keep slowing down between 2016 and 2040 according to Annual Energy Outlook 2017. The reasons for this trend are different but the most important are: regulatory energy efficiency measures, as well as innovative household devices (e.g. smart home solutions) and new appliance standards.
DER solutions and independent communities
There is a growing number of energy communities in the USA which are considered to be “green power communities” – cities, villages or counties in which the local government, business, and residents collectively use green power. The European Federation of renewable energy cooperative -REScoop.eu has already a member network of 1,250 renewable co-operatives and their 650,000 citizens.
Energy efficiency policies help households save money on energy bills
EU is in the process of updating its Energy Efficiency Directive which purpose is to set 30% energy efficiency target by 2030. The reports show that energy intensity in EU industry decreased by 16 % between 2005 and 2014. In the meanwhile European households are expected to save almost 465 euros annually from electricity bills due to more efficient appliances.
Electric utilities experience customer behavioral changes. According to the latest Accenture’s (https://www.accenture.com/us-en/insight-new-energy-consumer-thriving-new-retail-ecosystem) Energy Consumer Research:
- 82 % from interviewed customers would be more satisfied if offered an in-home system that automatically limits electricity usage at peak periods.
- 79% percent would be more satisfied if offered an in-home device providing energy usage feedback and suggesting customized products and services.
- 61 % would sign up for an app that can remotely monitor and control home elements
Citizens are becoming more active and demanding. The prosumers (electricity consumers who produce their own energy) do require more energy democracy and are pushing the transformation of energy markets.
Due to new technologies and connected renewables, the grid is turning from a “wire for electricity” to a platform with connected devices, prosumers, smart meters, electric vehicles. Data collection and analytics, smart and interconnected devices will allow advanced energy management and smarter energy use, reducing utilities’ kWh sales even further.
The “utility death spiral”
All these factors are just a part of the big picture of the energy revolution that is going on. Peter Klein calls them “disruptive challenges”. When grid costs go up while in the same time capital costs for renewables go down, more customers are willing to be energy self-supplied. This leads to higher grid costs for the remaining customers who will have the reason to also leave the grid. In the meanwhile assets’ maintenance costs are a permanent part of the utility budget. This repetitive process is called the “utility death spiral”
In order to escape from the utility death spiral, traditional electric utilities need to adopt new business models and go out of the box. Smart home devices offer differеnt ways for saving utilities operational costs or improving customers’ engagement. Here are some examples:
- Demand response: Smart thermostats like Nest or devices like Bobbie help utility companies to develop demand response programs and shave the peaks, as well as lower the costs for balancing the grid.
- Customer behavior tracking: through smart home devices utilities can collect ” behind -the- meter” data about their customers’ behavior at home and develop personalized tariffs and energy engagement programs.– the way they consume energy and apply for EM programs – see them here.
- Sales business opportunities: already many utilities are selling third party’s smart devices and products to their customers and thus generate additional revenues, e.g Italian multi-utility Estra, San Diego Gas and Electric, Scotish utility, etc.
Smart home devices give a great opportunity to utilities to grow by developing new services (e.g help customers manage electricity bills) or managing their costs (e.g. demand response). However, electric utility companies do not need to become IoT market players but establish partnerships with third party companies providing home automation and take advantage of the growing home automation market.