Residential Customers: A Critical Segment for Utility Survival Plans
- March 25, 2014
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Residential electricity consumers are a large but underserved group that could significantly impact the success and directions for the utilities of the future. They represent the biggest number of meters in the USA. According to the latest data from the Department of Energy’s Energy Information Administration (EIA) 2012 report, there were 126,832,343 residential customers in the USA, 17,729,029 commercial customers, and 732,385 industrial customers in 2012. However the revenue numbers from another EIA report reveal that commercial and industrial (C&I) customers outspend residential customers. There are multiple reasons that range from the different space needs and uses to the significant tariff or rate distinctions between these three segments.
And that’s why historically, utilities and energy service companies focused more attention on the C&I sector for consumer engagement in energy efficiency and demand response programs. It’s a classic business to business (B2B) versus business to consumer (B2C) rationale. There are fewer customers to market to, and there’s more bang for the buck, so to speak, in reaping rewards from outreach to them. Businesses pay attention to operating costs like total energy consumption. Electricity cost projections influence business decisions about site locations and prioritize investment decisions that could reduce energy consumption. Data centers are good examples of specific types of businesses that base location decisions on electricity rates as well as weather. A building in a hot environment will need more air conditioning, hence more electricity to keep equipment at optimal operating temperatures.
Residential electricity consumers represent an underserved market for energy efficiency and demand response programs and products. They are also an underserved market for distributed generation (solar PV and/or storage), and home energy management systems (HEMS). We have more dumb homes than smart ones, and we have more unengaged consumers than engaged consumers. There’s an absence of proven business models to enable Smart Home applications – particularly when it comes to something as complex as electricity consumption. Is this a vacuum that electric utilities could fill? Yes, if they learn to see the residential customer segment as more than consumers. This is a survival strategy for utilities confronting a range of new competitors who threaten to intermediate the utility to consumer relationships.
However, it’s been difficult to quantify the value of residential consumer relationships, beyond the traditional utility bill. What utilities must do is develop awareness and hard knowledge about lifetime consumer value. This is more than simple consumption. Residential consumers can be prosumers and deliver kilowatts in the form of distributed energy resources – think solar panels or vehicle to grid (V2G) solutions. Residential consumers can also deliver negawatts or reductions in consumption in the form of demand response program participation. These are virtual assets that have meaningful value to utilities – in avoided costs of new generation or improving reliability metrics.
Utilities that can successfully transition their business models, customer orientations, and regulatory paradigms into relationships with residential consumers that build lifetime consumer value will be survivors. It won’t be easy, but there are opportunities for utilities to succeed. Some of the best opportunities may come in the form of small to large companies that partner with traditional electric utilities to offer programs and products –a B2B2C business model.
These partnering models offer possibilities for utilities to successfully fend off consumer intermediation threats from new competitors for smart home and energy management services like AT&T and Comcast by leveraging the nimbleness of their smaller partners. Coupled with realistic assessments of lifetime consumer value, utilities can create strong bonds with residential consumers and mutually evolve shared and private infrastructure (grids and homes) into Smart Grids and Smart Homes.
Photo Credit: Residential Utility Customers/shutterstock