Navigant Research Blog

The Customer Interface in the Cloud

Mackinnon Lawrence — May 12, 2015

As described in Navigant Research’s recent white paper, The Energy Cloud, the power grid is undergoing a fundamental transformation to a decentralized architecture. This shift will bring profound changes to traditional stakeholder relationships. Specifically, the broad array of residential consumers—most of whom are beholden to their utility service providers and lumped together as a monolithic entity in traditional rate design—are emerging as one of the key underlying drivers of this change.

For utilities and stakeholders responding to this shifting market, early battles are being waged to lock-in consumer engagement. As Tesla’s recent Powerwall announcement demonstrates, in this emerging landscape, brand matters. Interface matters. Ultimately, as described in a recent article in Intelligent Utility, future customer engagement strategies will have to be diverse, flexible, and multichanneled. But above all, these strategies must seek to facilitate a connection between the residential consumer and the products and services they demand.

Prosumer Defection

Empowered by greater access to tools and direct marketing from intrepid companies, residential customers are exercising more control over their electricity usage and spending and over when and what type of power they buy. In some cases, these consumers are demanding the ability to self-generate and sell onsite power back to the grid. The dramatic rise of solar PV has demonstrated that, at the right price, consumers will embrace choice and ownership over their energy consumption patterns.

A growing minority of energy prosumers, meanwhile, are cutting out the utility entirely. As zero-energy homes demonstrate, when the capabilities of rooftop solar and other distributed energy resources (DER), energy efficiency improvements, and home energy networks are integrated, the resulting network can render the traditional utility-customer relationship obsolete. When aggregated across a distribution network, utilities take notice—which is exactly the scenario described in the Rocky Mountain Institute’s Economics of Grid Defection report.

Renew and Replace

Customer empowerment is not unique to the power sector. As markets mature, the industrial model of companies owning and people consuming is often undermined by technology innovation. This typically results in a power shift in favor of customers. In the power sector, companies like NRG Home are positioning for just this scenario.

While the initial adoption phase of customer empowerment has ushered in a broad transformation on the grid through energy efficiency and DER, the next phase, replacement, will bring about a far more profound shift. Ford’s Model T proved that customers were willing to embrace the automobile over horse and buggy, for example. As disruptive as this was, the next hundred years proved that customers will exercise greater scrutiny and demand for product diversification, giving rise to a $1 trillion dollar industry.

During this replacement phase, companies invest to compete both for existing customers and for the customers of competing entities. They refine their product lines and cater to increasingly specific segments of the market. Some bundle services to drive value. Others sell no tangible products at all and instead provide access or an interface.

Who Needs Products?

Meanwhile, residential consumers are moving beyond the static behaviors accounted for in traditional utility rate design. Regardless of the market or circumstances, over time, consumers become more sophisticated and knowledgeable about the products they consume. They exercise greater scrutiny around quality and sourcing. They seek value and convenience. Eventually, they come to expect that technology will cater to their preferences.

Ultimately, presented with more choice with respect to price, quality, attributes, and features, consumer’s preferences and demands begin to define product lines. It’s the coming replacement market for demand-side energy solutions. In the home, for example, consumers have responded to product diversification in seemingly banal appliance markets like washers and dryers and more recently thermostats and smoke alarms.

It takes a long time to break down something as longstanding—and with as many private sector and government interests—as the power sector. But as the emerging energy cloud demonstrates, it’s happening; people are opting for more control over their energy dependence.

As customer engagement strategies mature in the energy cloud, there are important lessons to glean from the fast-expanding sharing economy where consumer entrepreneurs are competing with well-established entities. Interestingly, some of the fastest-growing companies facilitating these transactions—Uber, Facebook, Alibaba, and Airbnb—own no products at all.

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