Navigant Research Blog

British Gas-AlertMe Deal Signals More Home Energy Consolidation

— March 11, 2015

British Gas’ recent acquisition of AlertMe, a London-based provider of energy and home automation services, signals that home energy management and connected home technologies continue to attract significant investments. Utilities and others are seeking to provide consumers with new tools to more efficiently control energy usage and automate their homes.

The deal brings AlertMe fully under the control of British Gas, a subsidiary of Centrica, the leading energy service company in the United Kingdom. Prior to the acquisition, valued at about $68 million, British Gas was already using AlertMe’s platform. It had also been a strategic investor in AlertMe since 2010, owning about 20% of the company. British Gas leverages AlertMe’s technology for Hive, a service that enables the utility’s customers to control their home’s heating and hot water systems remotely using a smartphone, tablet, or web browser.

AlertMe was attractive to British Gas because its products and data services are used in 500,000 homes. What’s more, the platform is interoperable, able to connect disparate devices like thermostats or door locks made by different manufacturers. And AlertMe supports a range of networking protocols, including Z-Wave, ZigBee, Wi-Fi, and cellular, giving it flexibility.

Still a Crowd

The acquisition has implications in the U.S. market, as well. Home improvement retailer Lowe’s has used AlertMe technology as the underlying software platform for its Iris connected home service since 2012. AlertMe will continue to support Lowe’s and its Iris customers. Also, since British Gas’ parent Centrica owns Direct Energy, one of the largest residential energy retailers in North America, British Gas expects to offer the AlertMe technology and service to those customers as well.

In a wider context, this acquisition by British Gas underscores the increasing importance companies are placing on home energy management and the connected home. France-based utility GDF Suez recently invested $7.2 million in Tendril, a Colorado-based company specializing in cloud-based technology for personalized energy services. GDF Suez intends to use the Tendril technology for customers in Europe. In addition, solar panel manufacturer SunPower has invested in Tendril, committing $20 million to the company and agreeing to license Tendril’s technology. Similarly, Sunnyvale, California startup Bidgely, a firm specializing in energy customer engagement and analytics, has gained traction, winning new deals for its cloud-based technology with Texas-based utility TXU and Illinois-based ComEd.

Nonetheless, the energy management-connected home space is still quite crowded, with big non-utility players such as Google (Nest), AT&T (Digital Life), and Samsung (SmartThings) making plays and a number of smaller energy tech firms, such as EcoFactor, Ceiva, ecobee, and Tado, trying to compete as well. Consolidation is at hand, and we can expect to see similar deals as the market matures.

 

ConEd Details Its Smart Meter Plan

— March 11, 2015

Con Edison, also known as ConEd, one of the largest U.S. investor owned utilities, has provided details of its planned rollout of smart meters over the next several years. Contained in ConEd’s recent rate filing with the New York Public Service Commission, the plan reflects a comprehensive strategy to make smart metering the backbone of future customer engagement, as well as improve outage restoration, enhance operational performance, and ease the integration of distributed energy resources such as rooftop solar.

The utility envisions an advanced metering infrastructure (AMI) deployment over 8 years at a cost of about $1.5 billion—about $8 million this year, $69 million in 2016, $174 million in 2017, $317 million in 2018, and $306 million in 2019. Projected spending details beyond that have not been made available. The approximate number of meters involved is 3.4 million.

Aligned With the Vision

Con Edison’s AMI deployment plan also aligns with the state of New York’s wide-ranging Reforming the Energy Vision (REV) initiative, which was announced last year by Governor Andrew Cuomo. The REV initiative is aimed at transforming the state’s electric grid into a more customer-oriented industry, featuring “market-based, sustainable products and services,” with an emphasis on enabling clean distributed power generation. Smart metering, with its two-way communications functionality, is a key technology for facilitating this type of flexible, modern grid.

Even though smart meters have been around for a number of years, no deployment lacks naysayers, nor controversy. Con Edison is likely to face opposition from consumers who have concerns over health risks, privacy, and the accuracy of the data smart meters provide—concerns the industry says are unfounded.

Take Your Time

For smart meter manufacturers and infrastructure players like Landis+Gyr, Itron, General Electric, Elster, and Sensus among others, the ConEd deployment represents a significant potential opportunity. The utility is expected to announce the bidding process in the coming weeks. Given the large scale of this project, it is possible the utility will choose several vendors or a primary contractor and various partners.

At 8 years, the anticipated timeline for ConEd’s smart meter deployment appears prolonged. Other large U.S. utilities—such as Pacific Gas & Electric, San Diego Gas & Electric, Oncor, and CenterPoint Energy—have rolled out smart meters in 4–6 years. But ConEd may be playing it safe, giving itself enough of a time cushion to overcome the inevitable hurdles and detours.

ConEd’s smart meter plan hinges on regulatory approval, but regulators are inclined to be in favor, especially since the deployment fits in with the state’s REV initiative. And despite the considerable costs involved, smart meters provide benefits to both customers and the utility, and tend to outweigh any drawbacks.

 

Despite Bumpy Road, Smart Meters Deliver Benefits

— January 13, 2015

As 2015 begins, it’s clear that smart meter investments around the globe will continue to play a key role in the transformation of electric utility grids.   A new report by the Federal Energy Regulatory Commission (FERC) notes that the penetration of smart meters in the United States continues to climb.  As those deployments have unfolded, utilities and industry stakeholders have gained valuable experience in integrating the latest technologies that enable new grid and consumer applications.

As the FERC report notes, smart meters enable a number of applications that enhance a utility’s operational efficiency, including remote meter reading, remote meter connections and disconnections, tamper and outage detection and notification, voltage monitoring, integration of distributed energy resources (especially solar PV) through net metering, and time-based rates.  Advanced metering also provides demand-side benefits, such as deferred capital expenses, improved utilization of capital assets, reduced electricity generation, reduced environmental impacts, and more options for customers to manage consumption and lower costs.

Restorative Powers

Many of these smart meter benefits form the basis of what we described as smart metering 2.0 in Navigant Research’s free white paper, Smart Grid: 10 Trends to Watch in 2015 and Beyond.  Installing meters – just the first step in transforming the grid – lays the foundation for enhanced consumer engagement, demand response capabilities, and overall utility efficiency.  One recent example came from Pacific Gas and Electric (PG&E), which credited its smart grid technology for the quick return of power to half a million customers who had electricity knocked out when violent storms rumbled across Northern California in mid-December 2014.  The company said it restored power to more than 95% of those customers who lost power in less than 48 hours.

Outside the United States, smart meter deployments will expand in 2015.  In Japan, for instance, Tokyo Electric Power Company (TEPCO) is expected to accelerate its smart meter deployments as it attempts to install 27 million devices by 2020.  Japan’s nine other major utilities will soon follow with initial deployments that will eventually lead to a total of 80 million smart meters nationwide by 2024.  In Europe, France’s national utility Electricité Réseau Distribution France (ERDF) is expected to ramp up smart meter deployments as well, and deployments in Spain are expected to continue apace.

Best Laid Plans

But deployments don’t always go as planned, and schedules can get bumpy.  In Britain, for instance, the rollout of smart meters was supposed to accelerate in 2015, but another delay has pushed back the massive deployment until 2016.  In Germany, smart metering remains on a slower track since regulators said utilities can conduct deployments in a targeted way.  And even in places where smart meters are now common, such as Ontario, Canada, the debate about their value relative to the cost continues.

Nonetheless, investments in smart meters and related grid technologies will expand in 2015 and in the following years (see Navigant Research’s report, Smart Meters, for a detailed forecast).  New deployments will face challenges, especially large and complex ones like the one in Great Britain, which includes gas meters along with electric ones, and in Japan, where several communication standards are in play.  Even so, the value of smart metering technologies is undeniable, and they will continue to be a foundational piece of future smart grids.

 

The Trouble with Trying to Reduce Residential Energy Consumption

— January 5, 2015

A recent story in The Wall Street Journal (subscription required) reminds us of the difficulty in trying to reduce energy consumption.  The story, by Jo Craven McGinty, notes that after 3 decades of effort aimed at lowering residential energy use in the United States, the overall level of consumption is still about the same, about 10 quadrillion BTUs per year.

Taking a deeper look, however, there is some positive news in the data.  While overall consumption is nearly unchanged, the average energy consumption per household has decreased, dropping to about 90 million BTUs a year in 2009 (latest year available) from about 114 million BTUs in 1980.

So, what is going on? Several things: newer homes tend to be larger than older ones.  And though they have more efficient envelopes and systems (double-pane windows, improved insulation, and efficient heating-cooling systems), it takes more energy to heat larger spaces, and the proliferation of devices in homes has required more energy use.  We now plug in more TVs, computers, DVRs, mobile phones, and second refrigerators.

The Efficiency Paradox

While our homes are more efficient, this is offset by an increase in energy consumption, a phenomenon called the rebound effect, or the Jevons Paradox, which holds that an increase in efficient use of a resource, like energy, can result in greater use and reduce the benefit.   This is not a hard and fast rule, and it is often debated among economists.  Nonetheless, there is a propensity toward squandering some efficiency gains once realized.  For example, when gas prices drop significantly, the cost per mile is lower, and people are more inclined to drive further or faster.

As McGinty points out, Americans receive mixed messages, being hectored to conserve energy while also being constantly invited to buy new gadgets and appliances that require energy.  This is evident in the U.S. Energy Information Administration data showing how consumption by type has changed.  In 1993, appliances, lighting, and electronics accounted for 24% of home consumption, which rose in 2009 to 34.6%.  Space heating was 53% of home energy consumption in 1993 and decreased to 41.5% in 2009.

Annual Residential Energy Consumption by End Use, U.S.: 2009

                               (Source: U.S. Energy Information Administration)

Helping to reduce residential consumption lies at the heart of home energy management systems and represents a key goal of utility energy efficiency programs.  No one is suggesting these efforts should stop just because the net result can seem frustratingly ineffective, or merely incremental.  But, as noted in Navigant Research’s report, Home Energy Management, one of the inhibitors to wider adoption is the uncertainty around net benefits.  Some argue that one way to avoid the rebound effect would be a tax to keep the cost of energy use the same.  But that would be a hard sell.

 

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