Navigant Research Blog

In New Utility Era, Energy Must Be Optimized

— October 26, 2012

At the Itron Utility Week conference in San Antonio, Texas, LeRoy Nosbaum, President and CEO of Itron, described the forces of regulatory mandates, technological innovation, and customer relationships as “colliding with each other.”  In the United States, energy providers are grappling with mandates while working to improve operational efficiency, protect revenue, deliver reliable service, and conserve energy.  As one of the world’s leading providers of smart meters, control technology, communications systems, and software, Nosbaum asserts that Itron is well poised to help utilities meet these formidable changes.  If Itron’s solutions can help utilities change their habits, he may be right.

Just 5 years ago, when the first iPhone had just been released, the realities of the economic slowdown were not yet upon us, and very few knew who Barack Obama was, dead reckoning on reliable energy delivery made sense.  But today, in the haze of grid modernization and changing industry conditions, utilities must become optimizers of energy in order to survive.  At the Itron event, Lloyd Yates, executive vice president of customer relations at Duke Energy, said this means that utilities must fruitfully partner with customers beyond the meter and empower them to have energy “experiences.”  This requires rethinking fundamental business models and recognizing that more than a century of reliable power delivery guarantees nothing for the future.

In the United States, especially, new patterns in energy supply and demand are emerging.  While many areas of the globe will see rising demand, growth in the United States is expected to be just 0.3% until 2035 (as reported by the EIA).  Compound this with rising rates of domestic oil production and an increase in energy efficiency, and it is clear that utilities face difficult decisions.  Yates articulated the choices a utility will have to make:

  • Continue with business as usual, adapt to anemic growth, and lower expectations among investors
  • Refuse to accept that the industry is in decline, raise rates regularly, and risk angering customers until they are driven to off-grid resources
  • Transform the utility by changing the way energy is generated, while working with regulators and customers to optimize the consumption of energy

Yates believes that for utilities to stay on their current path is a perilous mistake.  Modernizing the grid with technologies that smarten the delivery of power is not enough; the customer must now be part of the equation.  The transformation of the grid also necessitates the transformation of the utility – right to the core of how business gets done.

Vendors that understand these changing conditions, as well as the dynamics and uncertainties facing their utility customers, can help drive the innovation that is required.  Strategic alliances and partnerships will be an important part of delivering comprehensive solutions that can create “energy experiences.”  Itron has made convincing moves that demonstrate its understanding of these forces, including a partnership with Cisco to provide an open infrastructure and, most recently, a strategic alliance with C3 to deliver energy management services directly to consumers.  These partnerships will help the utility evolve and adapt to a new era where the energy relationships are fully optimized.

 

In-Home Displays Face Adoption Hurdles

— October 8, 2012

In-home displays (IHDs) help customers track their energy usage.  The consumers can see charts and graphs about their consumption, as well as trends, messages from their energy provider, and other energy awareness information.  These devices promise to help customers save money, while deferring the construction of new power plants by reducing overall demand.  Despite these benefits, as Pike Research has reported, the market for IHDs has been slow to develop and only modest growth is expected over the next several years.  Still, stakeholders are hopeful that, as customer indifference is displaced by the desire to be more efficient and save money, widespread adoption of IHDs will accelerate.  (On Wednesday, October 17, Smart Grid News will present a webinar exploring these issues, entitled “Consumer Engagement with In-Home Displays.”)

The prospects for adoption of IHDs by may be caught in the same trap as many new technology innovations.  New inventions can appear quickly, but diffusion can be frustratingly slow.  The real question is not when IHDs will be adopted, but if they will at all.

Two of the key predictors for the mass-market adoption of IHDs are customer beliefs and attitudes; specifically, how changes in these beliefs and attitudes can significantly alter how a customer wants to behave.  Good intentions alone are not enough to actually change behavior.  The customer must perceive a need to manage their energy. Only then will customers will look for tools to help them act on those intentions. If they believe that IHDs will be useful in helping them accomplish their goals, are easy to use, and engaging and interesting, then there will certainly be life in this market.

To achieve this shift in perception, commercial, utility and advocates must learn to engage customers to provide trusted insights and knowledge about the value of energy efficiency and grid modernization.  The rate of penetration of any technology is exceedingly difficult to compute.  However, there may be ways to accelerate this phenomenon:

Encourage global adoption with social media: Technology adoption used to take years, then months, now days, thanks to the instantaneous communication enabled by social media. The acceptance and enthusiasm of peers plays a larger role in customer adoption today than ever before, and is why innovations like IHDs must be engaging and interesting enough to talk about.

Understand how the common cold spreads: The spread of knowledge transfers through contact, much the way, a cold is spread from one to another.  You still have what you started with (a runny nose), even though you have participated in the diffusion of the cold.  Simply increasing the so-called “contact rate” will significantly speed up the adoption lag.  The more users get hands-on time with an IHD that brings them value, the more likely they are to talk about it.

Demonstrate Ease of Use: Remember that toddlers did more to drive the adoption of the iPad than any other group, by demonstrating its ease of use.  A YouTube video showing a 2 1/2 year old using an iPad had over 1,000,000 viewers.  That helped Apple sell about a million iPads in the first month they were available.

At its most fundamental, if the learning effect can be accelerated, by using multiple models of consumer engagement, the chances of wider adoption of IHDs improve.  With IHDs, though, other significant factors are at work, like price, competitiveness, and regulatory factors.  Right now, utilities are largely driving adoption, but there are lessons to be learned from these deployments, including what resonates with these energy consumers and what does not.  With that information, home energy management companies can then turn to these consumers with a solution that directly improves their lives – not just another gadget.

Click here to register for the Smart Grid News webinar, “Consumer Engagement with In-Home Displays.”

 

LIFX Reinvents the Light Bulb

— September 24, 2012

Have you ever thought about “experiencing” your light bulbs?  Not many of us would admit to it, but a couple of guys from a Melbourne garage did, and they are redefining the soul of lighting applications in a way unseen since the Savoy Theatre first lit up in the late 1800s.  Their goal is to make energy-efficient light bulbs sexy.  Launched on Kickstarter on September 15th, 2012, the project, “LIFX: The Light Bulb Reinvented,” has already pulled down $1.3 million from almost 9,000 backers – and the funding period runs until November 14th.  Since their initial goal was to raise $100,000 to back the first release of “the smartest light bulb you’ve ever experienced,” it looks like the LIFX Labs dream of reinventing the light bulb may become a reality.

Basically, Bosua has applied the Internet model of persistent connectivity to illumination.  LIFX uses both WiFi (802.11n) and IEEE 802.15.4 (which ZigBee also employs) to create a mesh network of light bulbs that are efficient (LED lights are highly energy efficient and have a long service life), multi-colored, and can be finely controlled with an iPhone or Android device.  To create the network, a master bulb connects to a standard router, which then communicates with all the other bulbs in the network using the open LIFX protocol.  The company plans to provide a software development kit and a hacker kit, so app developers will be able to create new experiences for the owners of LIFX bulbs.

Driven to reduce the wastage created by existing lighting technologies, Phil Bosua, the inventor of LIFX, tapped into the secret of creative explosion — he got out of the way.  When I talked to Bosua, I was struck by how he and his team put their biases aside to associate seemingly unrelated concepts to help create a better light bulb design:  light switches are boring, smartphones are cool, saving money is good, and mood lighting is sexy.  Bosua says, “The guiding force wasn’t cleantech, but to make a light bulb that fit into the culture.  The cleantech technology happened to be the best technology.”

Utilities and social scientists have been trying to figure out for years how to engage consumers in taking energy efficiency measures, including giving away compact fluorescent lightbulbs (CFLs).  And, to be sure, it’s likely that (at least initially) LIFX will be out of reach for many homeowners at about $69 a bulb, or in a kit of 1 master and 3 slaves for about $49.00 for each bulb.  However, unlike with CFLs, which have strange colors, long run-up time and excitable mercury vapor, with LIFX LEDs we can anticipate energy savings of up to 75% to 80%, have access to control applications from our favorite app store, enjoy high quality light, and avoid shopping for new bulbs for 25 years.

Without expensive studies and pilots, LIFX understood the emerging home environment as the context for their market.  After all, when’s the last time you got off your couch to change the channel?  Why shouldn’t it be the same for the lights in our homes?  The Kickstarter audience overlaps precisely with the demographic adopting smartphones in increasing numbers.  By imaginatively and emotionally connecting with their potential market, LIFX turned on thousands of people willing to give their attention and money to their cause – and may turn on energy-efficient lighting in the process.

 

The Adaptable Utility: In a Darwinian Era, Only Evolving Companies Will Thrive

— September 17, 2012

Utilities are facing a learning curve, but to paraphrase Darwin, it’s not the strongest that will survive, but the most adaptable.  In most utilities, the relationship between the utility and the customer is largely transactional; the provider delivers electricity, gas or water and the customer pays for that service.  However, as the grid modernizes and consumers become increasingly vocal and expressive, asking the customer to interact with the utility in the way that’s easiest and most efficient for the utility is no longer a viable strategy.   Control, persuasion, and influence have run their course; instead, helping consumers achieve benefits efficiently and effectively is at the heart of consumer empowerment and utilities’ success going forward.  (For more on this topic, sign up for this upcoming webinar on Smart Grid News, titled “Lessons from the Real World: Understanding and Engaging with Your Customers,” on September 25.)

The empowerment of energy consumers is an opportunity to drive innovation in the utility that can create operational and competitive advantage (where there is competition) by interacting with people on topics related to energy information, efficiency, safety and new product offerings.  The digitization of the customer voice, powered by individuals’ ability to access information on almost any topic instantly, is a potent determinant for the success of customer relationships.  The interactivity of social networking creates a collective customer experience where customers discover new products together and share their experiences and their opinions.  Anybody who has ever gone to Google for help with a computer problem understands this; like-minded users are often better qualified to help other customers than company employees.

By recognizing the fact that customers can and will advise each other, utilities that seamlessly integrate company expertise in a manner that facilitates customer collaboration will create gratifying experiences for their customers.  As the Smart Grid News webinar will explore, utilities can increase customer satisfaction and loyalty at a lower cost than traditional means of reputation management, differentiation and marketing.  To realize a return on investment from these new processes, utilities must adapt their customer interaction practices and develop systems for the analysis of results that allow for adjustment and fine-tuning of useful and meaningful messages.

Realizing that current marketing practices like “message exposure” and “captive audiences” may in fact be creating worn-out and bored customers is the first step in moving toward customer empowerment.  Utilities must become customer-centric for real engagement to work.  The primary difficulty is accepting that there is a loss of control perceived in turning the organization to an outside-in focus.  This fact underscores the need for a comprehensive approach to creating cultural change that acknowledges the fact that customers are strategic assets, not captive ratepayers.  Adaptable utilities will figure out how to optimize and exploit innovative and emerging application platforms to deliver tailored marketing strategies, tools that make it easy for customers to understand the product offerings that help them modify their consumption patterns, and merchandising techniques that provide information, interaction, and customization.

 

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