Navigant Research Blog

DERMS Is the Word at DistribuTECH

— January 30, 2018

After attending DistribuTECH in years 2014 through 2016, I took 2017 off because it seemed like there was less emphasis on demand-side management (DSM) and behind-the-meter distributed energy resources (DER) like demand response, energy efficiency, and energy storage. The biggest standalone public companies in the space at the time, Opower and EnerNOC, had seriously pulled back or ended their presence at the show. Acquisitions added additional doubt of direction in the industry; in 2016, Opower was bought by Oracle—putting into question its future focus on the space—and in 2017, EnerNOC was acquired by Enel.

DSM and DER Back in Focus

With that backdrop, I did decide to make the return trip to San Antonio in 2018 to see if anything had changed. I can’t speak to whether last year’s conference was any kind of transition, but I was floored with the level of attention given to DSM and DER topics by both DistribuTECH stalwart companies and startups alike.

From the big boys, like GE, Siemens, and Schneider, a common theme emerged of connecting advanced distribution management systems with DER management systems (DERMS). I alluded to this trend in Navigant Research’s 2016 report, Demand Response Management Systems, and my experience at DistribuTECH solidified the notion. Those vendors had intricate displays showing how the systems integrate, but there is still little real-world experience with such cases. The Smart Electric Power Alliance (SEPA) held a concurrent session aimed at standardizing DERMS requirements and terminology since it means something different to every vendor and utility.

On the startup side, a plethora of newbies were hawking their technologies for energy efficiency, and in particular, customer engagement. The majority of these applications are based purely on software, analyzing meters and other forms of data, as opposed to any new hardware that the utility or its customers would need to install. Companies like Grid4C, Powerley, Mach Energy, and Bidgely—along with more-established players like Oracle, Itron, Landis+Gyr, Honeywell, Lockheed Martin, and AutoGrid—touted their algorithms, segmentation tools, and disaggregation capabilities designed to help utilities and end-use customers save energy, detect anomalies, and engage in more meaningful ways. The Smart Energy Consumer Collaborative held its annual Consumer Symposium onsite to highlight these technologies and strategies.

DistribuTECH or ConsumerTECH?

Of course, the majority of the show floor was dominated by the usual suspects with transmission and distribution equipment and operational systems, but I was more interested in what was bubbling up around the edges. If things keep progressing in these directions, the show might have to change its name to CustomerTECH!

 

Shell’s Acquisition of First Utility Augurs a New Wave of Competition

— January 16, 2018

At the start of 2018, a warning shot was fired across the utility industry’s bow: competition is showing no sign of abating. If anything, competition is actually heating up. The nature of utility industry competition has changed dramatically since the start of the decade.

If we rewind 5 years, utilities’ biggest competitors were other utilities. Telcos and high street retailers posed a moderate threat, as some showed an interest in the addition of energy supply to existing, mass-market services such as mobile and fixed-line communications, broadband, pay-TV, and financial services.

Telcos Contemplating Market Entry

Over the past decade, I have advised numerous telcos on opportunities in energy, some of which have moved into the space. Most of the market movement has taken place in collaboration with utilities, which essentially whitelabel energy supply. However, the impact of telcos on the energy industry (and vice versa) has been underwhelming. Why? Because there has never been an imperative for telcos to sell energy, or utilities to sell telco services. It’s a nice-to-have add-on that may help reduce customer churn, but little else.

EV Growth a Clear and Present Danger to Oil Majors

The present day competitive environment has shifted significantly. Utilities face new threats from new entrants with a significantly greater reason to enter the world of energy services. Nothing underlines the shift in competitive pressure more than Shell’s acquisition of the UK’s First Utility, the first major energy supply business to be acquired by an oil major.

This acquisition should come as no surprise to anyone monitoring the energy landscape. My last blog of 2017 called on utilities to improve their peripheral vision and monitor competitive threats. It seems that many oil majors have a more mature peripheral vision, and are already acting to mitigate future potential risks to their core business.

The shift to EVs causes significant concern for oil majors. By Navigant Research’s reckoning, plug-in EV sales in 2017 exceeded 1 million for the first time; the significant investments in recharging infrastructure and increasing concerns regarding the pollution of internal-combustion engines will only accelerate the shift to EVs. Any oil major extrapolating EV adoption to an extreme scenario of ubiquitous EVs will recognize the potential disaster for service station businesses.

Oil Majors’ Competitive Response Covers the Entire Value Chain

However, EVs present an opportunity to oil majors. Most oil majors have renewable energy subsidiaries, and EVs present a new customer segment; existing service stations are perfectly placed to convert to EV charging points and 30-minute recharge times are an additional opportunity to attract customers into a retail store. But EVs are just one part of a wider energy service ecosystem which oil majors are targeting. Shell’s recent investments and acquisitions include a sizeable portfolio of grid-scale renewables generation; Sense, a smart home technology vendor; EV recharging points in the UK; and an energy supply business with 850,000 customers.

Oil majors, if certain scenarios play out, could suffer significant loss of value in the energy transition. This has helped create significant momentum behind oil majors’ activity in downstream energy, eclipsing any efforts from telcos over the past decade.

Shell and most other oil majors recognize there is significant value up for grabs in downstream energy. Their challenge is how to pull together their different acquisitions into a service that offers significant differentiation from utility industry incumbents. The challenge for these incumbents is a credible competitive response: utilities in competitive markets must first recognize value-at-risk from non-traditional competition, then develop products and services for the 21st century consumer.

 

Look to Islands to Teach Us More about IoT

— January 16, 2018

Islands play an important role in the energy sector, and in other sectors. The Hawaiian Islands, for instance, have been a test bed for new technologies at scale, such as rooftop solar and energy storage systems, led by the Hawaiian Electric Company. The concept of islanding, where a distributed energy resource continues to provide power to a location that goes off the grid, has gained stature through the deployment of microgrids. And in the Internet of Things (IoT) realm, both Spain’s Balearic Islands and New Zealand have recently entered the picture as laboratories for IoT technologies.

Case Study: Balearic Islands

Officials in the Balearic Islands are promoting a system involving half a million sensors that will blanket the islands as part of a broad IoT project. The plans call for 50 IoT antennas that can support at least 50,000 sensors. The underlying network infrastructure is based on the emerging LoRa technology, a low power wireless standard for wide area networks that is well-suited for IoT applications.

Several applications for this IoT network are under discussion, from helping tourists identify uncrowded beaches to helping the elderly avoid getting lost. One of the pilot projects uses the network to monitor the availability of some 1,200 parking spaces in a lot at the Balearic Technology Innovation Park.

The Balearic experiment has attracted the attention of Google, which has supplied the local government with its own IoT platform. The online search giant has also brought in its partner Beeva, a Spanish consultancy, to help steer another pilot project that aims to optimize the use of boat moorings in the city of Pollença’s harbor.

Case Study: New Zealand

In New Zealand, similar efforts are underway in that island nation. Telecom carrier Spark is building its own LoRa IoT network, with plans to cover 70% of the population by the middle of 2018. Officials there envision the new network will support connectivity for traffic lights, waterways, and machinery. And they expect to provide such services at lower costs compared to existing infrastructure.

Will these new, island-tested IoT networks prove to be trend-setters? Perhaps. But there are competing IoT network technologies, of course—such as 5G, which has many people in the energy and automotive sectors excited about what it offers (see Navigant Research’s 5G and the Internet of Energy report for some details). No matter how these IoT networks turn out, it pays to keep an eye on the latest advances so one does not get stuck on a technology island.

 

Major Businesses, Beware Myopia

— December 21, 2017

Develop Peripheral Vision to Manage Industry Disruption

The past 50 years have witnessed the collapse of many corporate giants, often caused by the systemic myopia of business leaders. The likes of Blockbuster, Kodak, and Polaroid demonstrated a failure to recognize where the value lay in the digitization of their industries, for example. As we move into 2018, energy industry disruption is accelerating. Huge opportunities stem from increasing complexity and disruption, but the risks of utilities becoming the next Kodak are also increasing. To combat competitive threats, the industry must develop peripheral vision—the use of competitive early warning signals and scenario planning—to exploit opportunities and manage threats.

Identify and Monitor Early Warning Signals

A competitive early warning system delivers this peripheral vision. By maintaining a broad perspective, utility executives can focus on where changes are happening the fastest and identify where future value lies. However, it is imperative for executives to filter signals from noise and focus attention on the developments that have the highest potential to hurt a business in the coming decade. Scenario planning is a useful filtering tool: a signal such as the development of a new technology, product, or service is extrapolated into the future in several scenarios that gauge the likelihood of adoption and potential impact.

For example, there is a growing trend for residential customers in Europe to purchase solar PV bundled with storage. German battery vendor sonnen has developed a solar plus storage product—sonnenFlat—which requires customers to only pay a flat fee every month. As part of the deal, customers provide sonnen with access to their distributed energy resources (DER) to provide grid services. In return, sonnen guarantees customers free grid-sourced power when their DER is unavailable. sonnenFlat is a new, niche product. Nonetheless, utilities globally should be assessing the risk this poses, particularly when combined with community solar programs. A self-sufficient solar plus storage customer is lost to an incumbent supplier for 20 years.

Measure the Likely Impact on Business for Each Signal

No one can claim to know the future, but with careful planning, a company can prepare for the most likely scenarios. The potential scenarios for residential solar plus storage installations span from little or no growth through near ubiquity. The industry should be asking whether solar plus storage could kill the traditional grid supply model. Careful analysis of the market—for instance, using SWOT or PESTLE approaches—will help gauge the likelihood of different scenarios.

In many countries, the cost of financing solar plus storage is less than a household’s annual electricity bill; falling technology costs and rising power prices will make the solar plus storage option more compelling. While the economic argument is increasingly convincing, there are many reasons why adoption is relatively low, including apathy and ignorance.

Expect (and Plan for) the Unexpected

Customer preference is the biggest driver of solar plus storage, and therefore beyond the industry’s sphere of influence. There is little an incumbent energy provider can do to protect existing revenue from power supply by deterring customers from making solar plus storage investments. This strategy also fails to capture the value of solar plus storage. The industry should be planning strategies to respond to the growth of solar plus storage. These include the development of solar plus storage products, aggregation services, providing the infrastructure on which third parties can offer services, or partnering with or acquiring existing providers. It is possible to be as well-prepared as possible by recognizing the biggest threats and creating risk mitigation strategies in advance.

To mitigate risk, utilities must plan scenarios for a large number of signals in a well-defined early warning system.

 

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