Navigant Research Blog

IoT and Millennials

— March 24, 2017

The much studied Millennial generation has some issues with Internet of Things (IoT) devices. A new survey says this cohort of young American adults—ages 18 to 29—is the least likely to own an IoT product. This trend presents a challenge for utilities attempting to promote programs like demand response that can link to IoT products such as smart thermostats, air conditioners, or appliances.

According to the study conducted by the Association of Energy Services Professionals and strategic marketing firm Essense Partners, 85% of Millennial respondents do not own IoT devices. The percentage of non-IoT device owners in the other age groups is as follows: 79% for ages 30-44; 81% for ages 45-59; and 84% for the 60 and older group. The study was conducted among 2,700 consumers.

Among respondents who do own IoT devices, the Millennials also represent the least likely cohort to take part in utility programs. They participate at half the rate of those in the 30-44 and 45-59 age groups, and almost a third of the rate compared to the 60 and older set.

Of course, the main reason for lower ownership of IoT devices among Millennials is they are less likely to be homeowners. Therefore, they are not as likely in the market to buy IoT devices that can help manage energy usage.

But there is another reason lurking around the edges: they are worried the most about the devices being hacked. In a survey conducted by KPMG, 74% of Millennials say they would use more IoT devices if they had more confidence that the devices were secure. Among the other age groups, 63% of Generation Xers hold the same view about device security and nearly half of Baby Boomers (47%) say the same.

Part of the Solution: Device Security Standards

One way to boost confidence among consumers and drive adoption of IoT devices is for industry stakeholders to agree on security standards. An effort that has surfaced recently is being spearheaded by Consumer Reports (CR), which is promoting a digital consumer protection standard, along with its cyber expert partners (digital privacy tools provider Disconnect; privacy policy researcher Ranking Digital Rights; and Cyber Independent Testing Lab). The CR privacy standard has four key features: products should be built to be secure; products should preserve consumer privacy; products should protect the idea of ownership; and companies should act ethically. The full standard is in its first draft, and CR expects stakeholders to help shape and improve it going forward.

The need is evident for IoT device security standards such as CR’s and others like NIST’s Cybersecurity for IoT program and UL’s Cybersecurity Assurance Program. Navigant Research applauds these efforts to create standards, as noted in its report, Emerging IoT Business Models. Utilities would be wise to get behind these efforts as well to ensure that their customers, including skeptical Millennials, gain the confidence to adopt devices like smart thermostats and feel more willing to take part in demand-side management programs.


Preparing for Exponential Technology Innovation: Rethinking Utility 2.0

— March 24, 2017

We are living in an era of exponential technology explosion. Since the performance of these exponential technologies increases rapidly relative to cost and size, they have a knack for completely reshaping markets and societies.

To illustrate, just trace the impact on society from the personal computer through the dawn of the Internet to ubiquitous mobile telecommunications. Connectedness, knowledge sharing, and efficiency across societies have all grown exponentially over the last several decades. There are now nearly 2 billion active users on Facebook, or roughly a quarter of the global population. This is up from 1 million users in 2004—just over a decade ago.

Today’s innovations—artificial intelligence, blockchain, 3D printing, and others—represent the current wave of exponential technologies sowing the seeds of disruption across multiple industries. Collectively, these have catapulted the global economy into what Klaus Schwab of the World Economic Forum describes as the Fourth Industrial Revolution.

Combinatorial Platforms

The utility industry is no exception. Exponential energy technologies like solar PV, artificial intelligence, and blockchain have already crossed the critical threshold of acceptance across the energy landscape. At their intersection lies the potential for a complete paradigm shift across the utility industry—what Navigant Research calls the Energy Cloud. Seven Energy Cloud combinatorial platforms are outlined below.

Emerging Exponential Technology Platforms for Utility 2.0

iDER: Integrated distributed energy resources; IoT: Internet of Things

(Source: Navigant Research)

This Fast Company magazine article captures why exponential technologies pose such a unique threat to business-as-usual thinking:

  1. Often benefiting customers by empowering them with more choice and control, exponential technologies fundamentally disrupt the balance of power and reconfigure traditional power structures. This democratization process, in turn, fuels further exponential (not linear) innovation.
  1. They are wildly controversial. This is owed in part to the fact that they are decentralized—or driven forward by a diverse network of individuals working together.
  1. They take transparency to new heights. Exponential technologies are inclined to make patents public (Tesla) or rely on open source code (Bitcoin). This erodes the competitive advantage of incumbent solutions, putting pressure on traditional business models to evolve.
  1. They create exponential potential. This is typically initiated by a groundswell to advance networks among end-use actors. When the aforementioned traits are strung together, conventional value networks in the power industry disintermediate between sources of generation and end consumers.

Utilities are not oblivious to these trends, but galvanizing an integrated organizational response remains challenging for an industry built on a one-way, centralized infrastructure 150 years in the making. As European utilities have shown, balancing necessary investments in new and existing physical assets with the need to diversify business models is not mutually reinforcing—at least in the long run.

Organizational Reboot

Of course, utilities don’t have the luxury of temporarily shutting down for a business model reboot. As one industry expert explains, “It’s like trying to swap the plane’s engine midflight.”

While tapping into new growth opportunities remains vitally important, it’s not always clear which applications or use cases are poised for exponential growth. For each home run, there will be many more failures.

Rather than investing in one-off technologies, focusing on combinatorial platforms will flatten the learning curve for utilities. For example, smart cities offer utilities a test bed for deploying and building value in a quickly evolving landscape—whether across familiar applications (e.g., aggregating load from high performance buildings into a dynamic virtual power plant) or across less familiar ground (e.g., owning and operating fleets of automated EVs).

Regulatory regimes will need to both value and reward utility forays into business model innovation. For their part, utilities should consider implementing an agile investment framework to manage risk in a rapidly evolving technology landscape. By doing so, utilities can minimize their risk exposure while staying ahead of the curve with respect to exponential innovation.


Purchase Incentives More Cost-Effective for E-Bikes Than EVs

— March 24, 2017

Electric bicycles (e-bikes) continue to be the highest selling EV on the planet, with nearly 35 million unit sales forecast for 2017. Increasing urbanization and a desire from consumers and city officials to move away from cars for motorized transportation are opening opportunities for alternative mobility devices. E-bikes are uniquely positioned to be a primary benefactor of this trend since they are low in cost relative to cars, do not require licensing, have no emissions, and can take advantage of existing bicycling infrastructure. The European Cyclists’ Federation (ECF) published a report that shows e-bikes are a particularly cost-effective way to decarbonize the transport system through incentives. However, e-bikes have received little in the way of purchase incentives within most countries’ electric mobility strategies.

Germany has spent an enormous sum of money on electric cars, with unimpressive results. The country spent €1.4 billion ($1.5 billion) through 2014 on R&D and added an additional nearly €1 billion ($1.07 billion) subsidy scheme in 2016. Yet, there are just 25,500 pure EVs on the road in Germany. Meanwhile, e-bike sales exploded in the country during the same period with virtually no subsidies, aside from a few small pilot projects. Over 2.5 million e-bikes are in use in Germany, and Navigant Research expects nearly 650,000 unit sales for 2017. One wonders how much higher this figure could be if e-bikes had the same public financial support as EVs in Germany.

Differences in E-Bike and EV Policy, Germany: 2016

(Source: European Cyclists’ Federation)

New E-Bike Purchase Incentives in Europe

Several new e-bike purchase incentives have popped up across Europe, providing a boost to the industry and demonstrating new confidence in e-bikes as a cost-effective way to reduce traffic congestion and greenhouse gas (GHG) emissions. France announced a $200 subsidy for e-bike purchases in February 2017, and earlier in the year, Oslo, Norway began a $1,200 incentive program for electric cargo (e-cargo) bikes. Austria has offered an e-bike incentive program for numerous years. The ECF estimates roughly 25% of early e-bike purchases in the country’s crucial market uptake phase, around 2010-2011, were supported by financial incentives. Austria has one of the highest sales rates of e-bikes per capita in Europe, third behind the Netherlands and Belgium.

The increasing number of e-bike incentives in Europe demonstrates the growing recognition by European policymakers that e-bikes can be a more cost-effective technology to incentivize over EVs within an electric mobility strategy. On average, e-bikes cost less than 8% of the price of an electric car, according to the ECF. This, coupled with the lack of licensing requirements, make adoption much easier for consumers.

Studies Show

As noted in a previous blog, a consumer survey conducted by the Oregon Transportation Research and Education Consortium (OTREC) showed that the primary reason respondents bought e-bikes was to replace car trips—not bicycle trips. E-bikes offer enormous potential to replace cars. One study by the German Federal Environmental Agency shows that e-bikes are faster than cars for distances of up to 10 km (6.2 miles) in an urban environment. The trends in Europe in conjunction with conclusions from these studies suggest that more countries should incentivize and promote e-bikes if the goal is to reduce GHG emissions and traffic congestion in a cost-effective way.


European Utilities Are Moving toward New Energy Platforms at Different Paces: Part 2

— March 22, 2017

The energy industry is experiencing a profound transformation as the sector moves toward more intelligent, more distributed, and cleaner use of energy. Utilities’ traditional business models are being challenged by disruptive firms offering new services that leverage more advanced technology, as described in Navigant’s Energy Cloud analysis in its Navigating the Energy Transformation white paper. In the first post of this blog series, I described six new energy platforms underpinning the energy transformation. In this post and in the next post, I will show that some European utilities have been more active than others in partnering with, and investing in, companies offering new energy platforms. Finally, I will argue that in order to be successful in the transition toward a smarter, more digital energy future, utilities will need to strategically adopt the most relevant new energy platforms.

I analyzed the level of activity for eight of the largest European energy utilities engaging with companies offering new energy platforms. Partnerships, which often take the form of exclusive contracts, and investments, which are characterized as direct capital into companies, were grouped and assessed. Note that only partnerships and investments announced in 2015-2016 were included in the analysis; any previous announcements do not appear. The analysis also excludes any internally developed products and services that may fit in the new energy platforms.

(Source: Navigant Consulting)

The matrix above provides a high level overview of the major European utilities’ strategic positioning within and across the six energy platforms. Distributed Energy Resources (DER) Integration and Electric Mobility are the two energy platforms with the highest level of activity from the major European utilities. Internet of Things (IoT) and Smart Cities are platforms where European utilities are more moderately active, while Transactive Energy and Telecommunications Networks feature the lowest level of activity. Of the eight European utilities covered, ENGIE, Total, and E.ON/Uniper are most active in DER Integration, while Enel, RWE/Innogy, and Vattenfall are most active in Electric Mobility. ENGIE also stands out as being particularly present in IoT and Smart Cities. Although Centrica and EDF appear to be relatively less active in new energy platforms, one should recognize that they have been developing new products and services internally rather than externally—an element that is not captured in this analysis.

The relative activity in partnerships versus investments varies across energy platforms. Electric Mobility activity consists almost entirely of partnerships—where companies prefer signing agreements with automakers and charging infrastructure developers. In contrast to some of the other platforms, utilities may not consider Electric Mobility to be a core business and so are less prone to directly invest in this new platform. This is the case of Enel with Nissan and RWE with Volkswagen. On the other hand, almost all of the European utilities’ activity with the IoT platform has been through investment. For example, Centrica acquired water leak detection and flow monitoring company FlowGem and added it to the Connected Home portfolio Centrica offers to British customers.

In the next post of this blog series, I will show that the majority of partnerships are with companies located in Europe, while most of the investments are made in organizations based in North America.


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