Navigant Research Blog

In Transformation, Utilities Seek Customer Segmentation

— June 5, 2014

It’s no secret that American utilities are in the midst of an industry transformation.  This process, triggered in part by fears of a death spiral induced by the spread of distributed generation, requires adherence to increasingly demanding energy efficiency and renewable portfolio standards, and increased customer interaction and communication.  This reality has caused utilities to re-examine their existing business models, which have informed their policies and business practices for nearly a century.  The customer is now at the heart of the business plan.

A large part of meeting efficiency standards is better demand-side management on behalf of utilities, which requires effective insight on and communication with customers, as well as infrastructure upgrades that support increased grid reliability and the integration of renewables and microgrids.  In order to meet these challenges, utilities must understand the wants and needs of different consumers and the monetary value of servicing specific needs to specific customers.  Utilities are mandated to serve their customers (even in Texas, sort of) ‑ but how well can they serve specific groups of customers, how can they leverage consumer segments for efficiency and reliability programs, and what grid technologies out there are the most cost-effective in doing so?

Getting to Know You

Much of utilities’ segmentation strategy has traditionally relied on clustering customers based on simple demographics, geography, and reliability requirements.  But these strategies are typically one-dimensional and aligned with a single operational goal.  In integrating more advanced (and expensive) grid infrastructure  and demand-side programs, customer segmentation must be multidimensional and aligned with firmwide objectives.  Segmentation needs to incorporate some of the softer customer characteristics, including values, depth of energy knowledge, interaction with social media, residents that rent versus own homes, and communications preferences, to name a few.

These characteristics are quite disparate, and this list is only skimming the surface in terms of potential segmentation dimensions.  Having this sort of open canvas can be intimidating for utility marketing managers, and rightly so.  However, instead of identifying potential dimensions and then working to gather data directly from utility customers to sort them into segments (a process akin to releasing a flock of messenger pigeons with surveys attached to their necks), advances in data gathering and analytics can streamline the process of mining multiple sources of data, recognizing patterns that can potentially define customer segments, and then categorizing these groups for utility marketing purposes.  Navigant Research outlines a number of vendors and considerations for this form of customer segmentation in our report, Smart Grid Data Analytics for Consumer Engagement.

In this way, utilities can develop meaningful segmentation based on multiple attributes that can actually inform business decisions across programs and investments.  Because they operate in a highly regulated environment, utilities are largely unable to make investments where cost-effectiveness is in question.  Infrastructure upgrades and new programs must deliver value by accurately targeting receptive groups of customers.  But the questions remain: How to partition off these groups and how to define them? By way of big data analytics, utilities can define new segments that could help marketers feel less bewildered by and fearful of the actual results.


Silver Spring Launches First Utility App Store

— January 30, 2014

As utilities strive to inexpensively increase the benefits and functionality of smart grid deployments, IT developers are being pressed to develop innovatve solutions.  Silver Spring Networks has just introduced its SilverLink Sensor Network, a cloud-based analytics and networking platform that represents the first ever utility app store.  Based on an open API, the platform can be overlain on existing communications networks.  Silver Spring is positioning it as a low-cost but highly customizable option for utilities that want to unlock the value of data gathered by smart meters, or advanced metering infrastructure (AMI).

The modular selection and development of SilverLink’s smart grid apps will allow utilities to customize smart grid functionality that’s enabled by meter data.  For example, customers can view and adjust current home energy use, utilities can monitor and manage assets, and managers can oversee operations and workforce planning.  Silver Spring is putting significant effort into developing strategic partnerships with analytics developers, such as Plotwatt, ONZO, Sentient, and AutoGrid.  The results of these partnerships will vastly expand the choices available for specific applications— the utility version of having numerous options when seeking out an app for editing photos on your smartphone.

Crawling through the Data

An interesting development in data collection and analysis is the platform’s “crawling” method of sorting through data to recognize (and potentially automatically respond to) unique grid events.  While Silver Spring does not disclose proprietary details on its data search, it has likened it to Google Search and Twitter Trending, both of which index sites and posts based on frequency and credibility gained from associated links and mentions.

For utilities, this means the establishment of a meter data search that can prioritize information based upon the applications selected by the individual organization.  For example, if a utility wants to use the platform for real-time condition monitoring, smart meter data can be accessed and automatically filtered to gain insight into substation health through the analysis of voltage and load from individual endpoints.

The SilverLink technology illustrates the convergence of IT and operational technology (OT) by using the smart meter as a networked sensor that transmits data directly into the IT platform.  It also meets growing demand from utilities that invested heavily in smart grid upgrades after receiving federal funding through the American Recovery and Reinvestment Act (ARRA), but have yet to effectively leverage these new AMI systems to meet diverse system and organizational needs.  (Navigant Research discusses these trends in depth in three recent reports, Smart Grid IT Systems, AMI and Distribution Automation Integration, and Smart Meters.)  One key question raised by the release of this platform is whether such technology developments will reduce utilities’ hesitation to deploy new AMI systems, a smart grid market segment that has seen a significant slowdown over the previous year as many systems have struggled to produce significant cost benefits.


In Energy Crisis, Japan Turns to Demand Response

— January 3, 2014

Besides gaining recognition over the years for some rather odd technological innovations, Japan has come into focus as an innovator in advanced smart grid capabilities.  Most recently, announcements of demand response (DR) projects in Japan have permeated the energy news reports.  Accenture, Schneider Electric, Comverge, and EnerNOC have all begun major projects in research and development (R&D) and DR pilots in the country over the past 6 months.  In early December EnerNOC said it will partner with Japanese general trading firm Marubeni to deploy DR for peaking capacity and load balancing for commercial and industrial (C&I) customers.  Comverge is engaged in R&D for DR in Japan, working under the sponsorship of Japan’s Ministry of Economy, Trade and Industry, while Schneider will partner with Tokyo Electric Power Company (TEPCO) to deploy 50 MW of industrial DR.

Amid Japan’s unfolding energy crisis, some have wondered why the DR market has remained in an exploratory state – and arguably still remains in one.  Since the Fukushima Daiichi disaster in 2011, the country has scrambled to replace over 30% of the country’s energy resources with increased imports of oil and natural gas.  The U.S. Energy Information Administration estimated that 2012 Japanese liquefied natural gas (LNG) imports accounted for 37% of all global shipments.

Stretching Scarce Resources

Prior to Fukushima, Japanese policymakers imagined the smart grid as a means of incorporating increased renewable sources such as wind and solar, as well as low density energy sources such as geothermal, battery systems, and hydraulic power.  While these resources are still being developed and promoted (especially wind), there is a clear need to employ smart grid capabilities for energy efficiency and curtailment in order to conserve energy and keep costs at a manageable level for utilities and customers.

So what would DR look like if employed throughout Japan?  Accenture’s DR billing system will support building energy management systems and electric vehicle ancillary services, while companies like Toshiba and Panasonic are working to integrate other smart city technologies into Japan’s energy infrastructure.  With automated DR technologies rapidly evolving, the nation’s potential to leverage this burgeoning infrastructure to respond to its energy shortage is promising.


Transmission Projects Overcome Regulatory and Financial Hurdles

— December 11, 2013

In early December, Northeast Utilities subsidiaries Connecticut Light & Power and Western Massachusetts Electric announced the completion of the Greater Springfield Reliability high-voltage transmission project.  The upgraded 39-mile transmission line is now serving customers across the two states, increasing previous capacity of 115 kV to 345 kV.  The construction of the line, one of four transmission lines, included in the New England East-West Solution (NEEWS), reportedly came in about $40 million under its original budget of $718 million – a relief to electric customers across New England financing the project through rate increases.

Events such as the 2003 blackout in New York City and Tropical Cyclone Sandy have highlighted the need to improve transmission infrastructure in the Northeast as a means for increasing reliability across the Eastern Interconnect Grid.  In addition, growing interest in renewables has raised concern in a region where renewable generation assets, in particular wind, are often located far from demand.  Last month, ISO New England Inc. released its 2013 Regional System Plan with details through 2022, citing reliability and efficiency as the primary challenges to New England’s grid, and calling upon transmission improvements as a necessary solution to these problems.

Cost Benefit Analysis

Despite the clear need to upgrade transmission lines in the Northeast (and across the nation), the issue of cost allocation (i.e.,  who foots the bill) has delayed the process of approving new projects and upgrades.  Order 1000, issued by the Federal Energy Regulatory Commission (FERC) in 2011 and intended to promote inter-regional transmission planning through increased regional collaboration and more uniform regional cost allocation, is currently being challenged by influential parties, such as the American Public Power Association, in the U.S. Court of Appeals – D.C. Circuit.  The problem is that state and local regulators do not want utility customers to subsidize transmission facilities that don’t directly serve them, or that produce highly disproportionate costs compared to reliability benefits.

In addition, other risks associated with transmission investment, such as long lead times and high potential for litigation surrounding siting and permitting, block potential (and needed) projects.  The FERC has struggled to negotiate these financing and cost allocation challenges during the past decade.  With Order 1000, the Commission is pushing states to move toward regional markets and planning, which would provide more certainty to investors on the recouping of costs.  As projects such as Greater Springfield and NEEWS are completed, the assessment of system-wide benefits will certainly provide key data to support — or deter regionally planned (and paid for) transmission upgrades.


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