Navigant Research Blog

Utilities Need an Innovation Reset

— November 28, 2016

SmartCityUtilities should take a cue from customers: Go ahead and innovate. That is the clear conclusion from a recent study that says consumers want their utilities to be more innovative and expand offerings into the home.

The study, a SmartEnergy IP survey of 1,500 US customers, finds 32% of respondents expect their utilities to adopt technologies that automate energy savings and 20% expect their utilities to build smarter communities. There is a downside in the data, however; nearly 40% of respondents do not view their utilities as innovative, meaning there is room for improvement.

Not all utilities lack for innovation. At Navigant Research, we have chronicled the efforts of utilities willing to pioneer new technologies for customers. For example, Green Mountain Power in Vermont has led the charge with its eHome program, a holistic approach to home energy management that leverages technologies such as heat pumps, solar PV, storage, and EV charging, as noted in our IoT Enabled Managed Services report. Other utilities like Sacramento Municipal Utility District, Oklahoma Gas & Electric, and Kansas City Power & Light are promoting the adoption of smart thermostats as a way of helping customers reduce their bills and promote overall grid efficiency.

Among utilities innovating within their communities, San Diego Gas & Electric stands out for its efforts to create smarter cities from an energy perspective. The Southern California utility, a subsidiary of Sempra Energy, has been collaborating with local city governments on projects that leverage smart meters, demand management, and energy efficiency to lessen the impact of changing load patterns. By working together, the utility and local cities have forged an integrated approach for smarter energy use. Similarly, Duke Energy and ComEd are two other broad-thinking utilities that are leveraging ties with the cities of Charlotte, North Carolina and Chicago, Illinois to foster the same type of smarter community.

While these examples are encouraging, the SmartEnergy IP survey indicates customers in many locations have not seen much innovation from their utilities. Nearly a third are saying that it’s okay to step beyond the normal bounds and offer new products and services that help customers save money and use energy more wisely. There is a message here for regulators as well: customers are ready for innovation, and new rules that enable utilities to expand their product and service offerings would be welcome. It’s time for an innovation reset for utilities.


How Invested Is NY REV in a DER-Centric Energy Future?

— November 10, 2016

Last week, the New York Department of Public Service (DPS) released a report examining the best means of future integration for distributed energy resources (DER). Spoiler alert: it’s not net energy metering.

Instead, under the Reforming the Energy Vision (REV) proceeding, state policymakers want to see the development of a valuation framework for DER that values resources according to benefits that can be achieved by both the utility and customers. This should be done by establishing the holistic value of DER on the grid in the short term and by enabling the configuration of transactive, distributed markets for DER in the longer term. In the short term, proposed value for DER will be focused on two areas:

  • Distribution grid services, which include offsets and deferment of short-term and long-term investment costs.
  • Aggregated generation resources and ancillary services to be sold to the New York Independent System Operator (NYISO) through NYISO markets to optimize generation and transmission operations and costs.

The DPS report stated: “The modernization of New York’s electric system will involve a variety of products and services that will be developed and transacted through market initiatives. Products, rules, and entrants will develop in the market over time, and markets will value the attributes and capabilities of all types of technologies. As Distributed System Platform capabilities evolve, procurement of DER attributes will develop as well, from a near-term approach based on requests for proposals and load modifying tariffs, toward a more sophisticated auction approach.”

Though the recommendation does not completely get rid of retail net metering (which it proposes to grandfather in), this is a significant stepping stone in terms of providing a roadmap toward the active restructuring of an energy market around DER integration.

Initiatives at Odds?

Prior to the report, REV introduced two other efforts related to the accurate valuation of DER. The first, the 2015 Benefit Cost Analysis framework, sought to establish a precise structure for evaluating and comparing different types of investment required to establish a distribution-level market for DER (including both distribution infrastructure and grid-connected DER). A corresponding DPS effort includes a proposal to create utility Distribution System Implementation Plans, which “identify [utility] system needs, proposed projects for meeting those needs, potential capital budgets, particular needs that could be met through DER or other alternatives, and plans for soliciting those alternatives in the marketplace.”

But these tasks and initiatives seem to run counter to what the state is actually enabling utilities to invest in. As of now, the only major investment projects in New York seem to be for advanced metering infrastructure (or smart meter) deployments. On the other hand, REV demonstration projects have been single use cases and limited in scope. To take on the task of granular, accurate valuation—one of the most complex technology challenges associated with DER integration—might require a bit more upfront and direct investment.


Hope for Utilities with Decreasing Electricity Sales

— July 14, 2016

Cyber Security MonitoringUtilities today face a number of challenges in the changing energy landscape, but across the world, there is one disruptive and broad trend that could break down the traditional electric utility business model: the decoupling of electricity sales with economic growth. Traditionally, population and GDP growth have driven growing energy demand, as my colleague Jan Vrins points out in the blog series, “Take Control of Your Future.” However, over the past decade, the trend line between GDP and energy consumption has separated. Additionally, decreasing or stagnating electricity demand and sales are occurring as the base of customers worldwide is growing, meaning this phenomenon is not happening because the number of customers are decreasing, but because of the more efficient use of energy.

This phenomenon is seen largely in the United States, though studies show a lack of demand for electricity is also occurring in other developed countries in Europe and Asia Pacific. For example, in the European Union (EU), seven member states saw household electricity consumption fall between 2003 and 2013, generally by less than 10%. However, countries like Belgium saw a reduction in consumption of nearly one-quarter (23.9%), according to Eurostat. Among other factors, this reduction can likely be attributed in part to the use of energy-saving devices.

In Asia Pacific, Japan’s consumption of power in August fell to its lowest point since 2003, hitting just 74.6 TWh, and industry specialists expect to see a continuing decline in utility profits. The country has already begun taking steps to mitigate this by diversifying business segments and pursing other energy-related opportunities. Though these measures are technically power consumption versus electricity sales, they represent the idea that declining demand for power—especially for consumers in an economic environment that fosters less electricity usage year-over-year—is likely to challenge revenue growth for power companies.

Stagnating Electricity Sales

In the United States specifically, retail sales of electricity have stagnated, growing less than 1.5% from 2006 to 2015, according to the U.S. Energy Information Administration (EIA). However, the U.S. economy has climbed ahead, growing 11.84% between 2006 and 2015, according to the U.S. Bureau of Economic Analysis. Though this is not a vast amount of growth over a decade, in comparison to electricity sales growth, it is much more substantial; essentially, electricity sales grew at rate just higher than the rate that the GDP has grown annually. This shows that the relationship between economic growth and electricity sales is no longer connected.


 (Source: U.S. Energy Information Administration)

This is challenging for utilities, as many in the United States still rely on building grid infrastructure and increasing the rate base to turn a profit. Slowed or stagnated growth in electricity demand means less need for generation, less investment in infrastructure, slower growth in the utility’s rate base, and, therefore, a threat to revenue. This is happening to utilities all around the country. ISO-New England forecasts that its region’s overall electricity demand is expected to fall by 0.2% annually over the next decade, from 128,014 GWh in 2016 to 125,213 GWh in 2025. PJM has reported that it has retired 26,000 MW of generation infrastructure since 2009, nearly 14% of its generation fleet. NYISO forecasts that energy use in its territory will decrease from 163,514 GWh to 159,382 GWh between 2013 and 2016, stating that its year-over-year growth in the overall usage of electric energy from New York’s bulk electric system is expected to flatten or decline slightly over the next decade.

Despite this challenging forecast, utilities still have options for alternative revenue streams. Utilities can begin to prioritize investments in energy efficiency and distributed energy resources (DER). By offering an integrated package of energy services to customers and becoming a service provider outside of electricity, utilities have a chance to be successful in the future, according to the Rocky Mountain Institute. In order to survive, utilities must learn to align their interests in maintaining revenue with the interests of customers who want clean, affordable energy. This idea is laid out in Navigant’s white paper Taking Control of Your Future: Navigating Megatrends and Tipping Points in the Utilities Industry.


The Human Benefit Potential of LED Lighting

— July 1, 2016

LEDsHumans are visual creatures. Accordingly, the type of light we are exposed to can affect human behavior. Unfortunately, though, the extent to which light affects the brain is not well-known. Indeed, we understand very little about the brain overall, but the extent to which light affects the brain has until recently been largely unstudied. The emergence of LED lighting has enabled scientists to design experiments to ascertain what links exist between light and behavior. LEDs have immense controllability; they can be turned on and off rapidly (even faster than the human eye can perceive) and their color and brightness can be easily tuned. As scientific studies establish the myriad connection between light and behavior, lighting is expected to become an increasingly important part of business strategy, and not just the purview of a facilities manager.

Do You Want Fries With That?

A recent study published in the Journal of Marketing Research quantified the impact that lighting in restaurants has on what and how people eat. The researchers found that brightly lit rooms prompted diners to be more alert, increasing the likelihood of ordering healthy foods by 16%-24% over orders in dimly lit rooms. The study attributed the difference to alertness through comparison of results to follow-up studies that increased diners’ alertness through the use of a caffeine placebo or by prompting diners to be alert.

The human responses to lighting are not limited to inside buildings, either. The American Medical Association issued guidelines for communities to select LED lighting options to minimize potential harmful effects. LEDs emit more blue light than conventional lighting. Though the blue light appears white to the naked eye, it can worsen nighttime glare and decrease visual acuity. Additionally, blue-rich light adversely suppresses melatonin and can potentially lead to reduced sleep times, dissatisfaction with sleep quality, excessive sleepiness, impaired daytime functioning, and obesity. The effects are not limited to humans—outdoor LED lighting can disorient some bird, insect, turtle, and fish species.

The Future Is Bright

Lighting is ubiquitous in the built environment, and as such, the potential to modify human behavior is immense. In the future LED utopia, it will be easier to wake up in the morning, eat healthily, be more productive at work, and be a better person. Beyond personal implications, lighting presents opportunities to businesses as well. Whether it is attracting top talent or increasing sales, many of the challenges businesses face may be addressed by lighting. As we better understand the impact of light on behavior, savvy businesses will be able to translate this effect into better performance.


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