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Will Smart Homes Usher in Electricity Branding and Open Utility Networks?

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In the past two years, Apple, Amazon, Google, and Samsung have all introduced smart home technologies that let consumers manage and control their energy use and cost. These technologies do not offer branded electricity, like a “Nature’s Blend” of 35% solar, 35% wind, and 30% hydropower, but tech companies have started the first step, connecting electricity markets to home devices. With blockchain and peer-to-peer networks, power branding is coming. Such an outcome will force utilities to make a strategic choice of whether to become open, digital networks or lose enterprise value to disruptive technologies.

[Views are my own]

“Millennials and Their iPhones are Killing Your Old Power Company”

Kelly Gilbolm in a Bloomberg news article coined that heading. I just recently witnessed the truth in this statement.

My stepson, Ethan Merrill, a student at Worcester Polytech Institute (“WPI”), has been rewiring our Maine house with increasing technical surprises. It started with the Nest thermostat in each heating zone and the Nest iPhone app, then came the Lutron light switches and the Lutron iPhone app, then the Amazon Echo was added which connects to the other devices through the Amazon Smart Home Skill API.

Now the heating and lights are controlled either remotely through our iPhones or via voice command such as “Alexa, turn the kitchen lights to 50% brightness." Recently, the cable TV service was disconnected, and our home streams Roku and Apple TV for home entertainment. The result: an older Maine home is now “smart” enough to use energy more efficiently and to deliver movies and TV when wanted.

Tech Companies are Racing to Create Smart Homes with Energy Management Services

GoogleAppleAmazon, and Samsung are rushing to bring voice controlled and smartphone devices into the home with artificial intelligence (AI) to predictively optimize lightingheating & cooling, and power outlets based on consumers’ lifestyle.

According to the New York Times, Amazon “has identified music, communications and controlling smart home appliances as the most popular uses of Alexa (emphasis added).” And, Alexa is quickly being adopted by homeowners. “Although Amazon has not released specific sales figures for Alexa devices, [David Limp, Amazon’s senior vice president of devices and services] said tens of millions had been sold."

Smart home devices will increasingly become more convenient by adding functions and features. The initial reason to buy one of these gadgets might be for its music, news, shopping, and entertainment features, but, once it has been purchased, then the energy management features are just another powerful app.

Utility rebates can also accelerate homeowners purchase of energy management functions. For example, in Utilities Subsidize Google and Amazon to Enter the HomeBloomberg estimates that "over 23 million U.S. customers live in a territory where their utility offers a smart thermostat incentive" and that sales in 2021 will reach 13.5 million units.

New Devices Are Connecting Home Appliances to Power Prices and Utility Rates

Using appliances and lighting more efficiently is a good first step for homeowners to control electricity costs. The next step is to connect the smart devices to electricity market prices and only use the major appliances, like the clothes washer and dryer, when power prices are lowest. Nest refers to this feature as avoiding the electricity rush hour. Two solutions to prevent this rush hour are:

  • GoGriddy: Texas residents can get intelligent pricing services with the Gogriddy smartphone app. Using this app, Texans view and pay for real-time power prices in the wholesale market, without any mark-ups or adders. It is like buying corn at the Chicago Board of Trade cash market price -- something consumers are unable to do. The app, however, connects to the equivalent wholesale electricity market and forecasts power market prices later in the day – giving consumers to option to run their major appliances when power prices are the cheapest.
  • Nest Thermostat E. In selected utilities, consumers can receive a rebate for purchasing a Nest thermostat that connects to the utility’s seasonal or time-of-use rates. The Nest Thermostat learns each consumer’s schedule and compares it to utility rates – pre-cooling the house, for instance, to reduce air conditioning costs when energy prices are higher. With their smartphone app, consumers view their energy history and learn how to adjust the thermostat’s programming to achieve more savings without sacrificing comfort.

Source: Nest

The Smart Home Gateway to Branded Clean Electricity

There is a business opportunity for technology companies to empower customers to buy the energy sources they want in their power.

I recently sent an email to my municipal electric utility asking if I could purchase electricity from renewable energy sources. I received a polite return email from the utility’s Customer Service Manager that said, “No”. The utility problem is that it is locked into long-term take-or-pay contracts that were executed before renewable energy became readily available. According to the email I received:

When electric utility deregulation occurred in the 1990's, municipal light plants (MLPs) were exempted. This meant that, while investor-owned utilities (IOUs) had to sell off their ownership of generation, MLPs did not. Municipal Light and Power maintains ownership of multiple resources that have long-term contracts. These long-term, take-or-pay contracts make it difficult for rapid portfolio changes, such as the inclusion of renewable energy. 

But, as a consumer, I am used to going to the store and buying the brand that best meets my needs at a price I want to pay. Even fruit is branded. I can buy ten types of apples, all with little branding stickers, but I cannot buy the type of electricity I want.

Imagining Branded Electricity and “Having it My Way”

I am a crunchy granola (no added sugar, only real ingredients) kind of guy. What if I wanted “Nature’s Blend” of electricity (35% Solar PV, 35% wind, and 30% hydropower) or “SunKissed” power (60% solar PV, 30% battery, and 10% wind), or any other version that a marketer could envision?

I imagine a future where I order these electricity brands from Amazon Prime, for instance, with my Echo by asking, “Alexa buy Sunkissed power this summer and Nature’s Blend from October to April.” In this example, the utility is acting like FedEx or UPS to deliver my product. Why not?

Branding made possible with Blockchain and Peer-to-Peer Networks

Technically, branded power is feasible with Blockchain ledger accounting. Each kWh – whether from a solar PV array, wind farm, or hydro plant – could be logged and tracked to verify my branded blend of renewable energy. The Energy Web Foundation is working to make this technology more widespread. The Rocky Mountain Institute and Grid Singularity lead the effort with ten large energy corporations funding the effort, including Centrica, Sempra, TEPCO, and Statoil.

Recently, a new start-up company, Drift, won the CNBC Disrupter 50 award, for a new peer-to-peer block chain-enabled service. These technologies connect individual solar and wind energy sellers directly to individual consumers. The CNBC article announcing the award was ominous If power start-up Drift can make it in New York, it may be lights out for traditional utilities.

According to Fortune magazine, Drift "is a glimpse of what that future could look like. Launched recently in New York, it links up independent upstate power producers with residents in New York City and aims to cut out the flabby center of the supply chain, including unnecessary middlemen and outdated software. Using machine learning, high-frequency trading, and a blockchain digital ledger for handling power trades, it claims to cut costs to the consumer by 10%-20%. And that’s just the beginning. As its supply network grows, it believes it can continue slashing prices."

Drift's bill also provides ingredient labels, letting customers know the amount of clean energy they purchased.

Source: Greentech Media

With blockchain and peer-to-peer networks, one could imagine the Apple store providing a confirmation on my smartphone of my Nature’s Blend power, along with the average monthly price.

Connecting the purchased electricity information with the smart home device can allow for a snappy set of charts showing my cost savings from Nature's Blend power compared to the utility's basic service rate. Additionally, my home energy manager could show the cost savings from efficient home energy use and the operation of appliances during hours when power prices are the lowest. The tech firms could separately brand this integrated suite of home energy management services.

Is Amazon Prime Electricity Next?

Could Amazon, Apple, or Google sell me branded, clean electricity? Why not? The companies are already among the largest buyers of renewable energy. For example, according to Bloomberg, "Amazon has bought more than 1.22 gigawatts of [electricity] to date from U.S. clean-energy projects, second only to Google's Inc. 1.85 gigawatts." According to the Office of Energy Efficiency & Renewable Energy, 1 gigawatt of power can charge 12,500 Nissan Leafs.

Source: Bloomberg

If My Utility Won’t Allow Me to Buy Renewable Energy? Is it time to Call Tesla?

My utility believes that I am a captive rate-payer without choices. Maybe not. I have been thinking about a new house, one that is powered by solar PV energy with batteries that also charges an electric vehicle. The Tesla solar roof with Powerwall batteries looks attractive and enables me to lower my carbon footprint, an important personal goal.

Source: Tesla (Slate style solar roof)

I expect the solar plus battery option will look increasingly cost attractive, as to be built by Tesla and Chinese companies to power the growing electric vehicle market. According to Bloomberg Businessweek articleThe Electric Car Revolution Is Accelerating, "Electric cars will outsell fossil-fuel powered vehicles within two decades as battery prices plunge..."

A Strategic Decision for Utilities: Adapt to Technology Disruption or Die

“The conventional utility model is dying. If you do not adapt now, it’s hard to see how you’re going to survive.” CEO of Innogy SE, Peter Terium, as quoted by Bloomberg.

Utilities have seen their strategic choice coming. Consultants have been writing papers and holding seminars on the topic. A common theme is increasing decentralization, decarbonization, and digitization (see MIT News: "3 Questions: The Future of the Electric Utility").

Europe was first. Bloomberg's article notes that two European utilities, RWE and EON, each split into two companies. The network platform part of the companies has gained more shareholder value. For instance, according to Bloomberg, the technology-focused Innogy network platform is worth $21.6 billion, double the generation-focused RWE. Even more striking, Bloomberg notes that EON SE is worth triple the generation-focused unit.

Going Beyond Simple Automation to an Open, Safe, Digital Network Platform

Utilities have been plodding for more than a decade to install Advanced Meter Infrastructure (AMI) -- providing a two-way communication between the utility and the home. But often the installations have focused on utility cost reduction of meter reading, not on advanced customer services.

Now, utility regulators are actively asking questions about grid modernization. Again, the utility focus is internal network modernization, not necessarily re-imagining the utility network platform that is focused on customers and maximizing the customer value of the network.

Utilities should look at other industries that were disrupted by technology – air travel, car travel, shopping, room rentals, car rentals – to see that the winners radically adopted information technologies (IT).

Major first steps toward digitizing utility networks include:

  1. NYPA and GENew York Power Authority (NYPA) and GE Partner to Create the World’s First Digital Utility from BusinessWire. According to the joint press release, "NYPA intends to work with GE to explore the digitalization of every aspect of its operations, from its 16 generating facilities and 1,400 miles of electricity transmission network, to the more than 1,000 public buildings it monitors throughout the state. NYPA’s goal is to use digital solutions to optimize its entire electricity value network, from generation to consumption, for reliability, affordability, and the lowest possible carbon footprint."
  2. Exelon and GEExelon Chooses GE Predix to Accelerate Digital Transformation as reported by Exelon, s Fortune 100 electric utility company. According to Exelon, "Exelon will deploy GE’s full suite of Predix software applications across its entire generation fleet, which delivers 32,700 megawatts of nuclear, wind, solar, hydroelectric and natural gas power to increase performance and reliability." In addition, the GE "partnership is part of Exelon’s strategy to identify and test innovative technologies to solve complex energy challenges."
  3. Apple and GEApple, GE release app-making tools for internet, from Reuters. According to the news announcement, industrial processes, such as electric wind generating plants, that use GE's Predix software platform can be accessed on worker's iPads and iPhones for more efficient control and maintenance.

But, the Digital Transformation Must Focus on the Network Platform's Business Model

The electric distribution system is an undervalued network platform. Network platforms gain high value by becoming the best location for as many sellers and buyers to meet. Think Nasdaq or the Apple iPhone App store. A cyber-secure and application interface (API) invites users to the network. Currently, interconnecting to utilities is a multi-month and expensive process for sellers. Discouraging connections is not a good strategy to grow a network business. 

In a Harvard Business Review articleThree Elements of a Successful Platform Strategy, the authors state “By building a digital platform, other businesses can easily connect their business with yours, build products and services on top of it, and co-create value. This ability to “plug-and-play” is a defining characteristic of Platform Thinking.” The three elements of a successful strategy outlined in the article are:

  1. “Connection: how easily others can plug into the platform to share and transact
  2. “Gravity: how well the platform attracts participants, both and consumers
  3. “Flow: how well the platform fosters the exchange and co-creation of value”

The choice for utilities is clear. Either provide an open platform over the electric distribution network to foster innovative services and connections – creating value for customers and service providers – or see those customers walk away and tech service providers develop competing solutions. 

Technological progress is not going away. More importantly, tech companies are gobbling up more of each customer’s home budget and looking for growth opportunities. First came bookselling, then selling every product that could be in a catalog, now selling whole foods, and prescription medications are rumored next. Will clean energy come soon? The time to digitize the utility network for customer benefits may be running out. 

 

Jim Walker's picture

Thank Jim for the Post!

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Discussions

Bob Meinetz's picture
Bob Meinetz on Oct 27, 2019 3:11 pm GMT

"I am a crunchy granola (no added sugar, only real ingredients) kind of guy. What if I wanted “Nature’s Blend” of electricity (35% Solar PV, 35% wind, and 30% hydropower) or “SunKissed” power (60% solar PV, 30% battery, and 10% wind), or any other version that a marketer could envision?"

Jim, you do realize that with any electricity plan offering "35% solar PV, 35% wind, and 30% hydropower," if the wind stopped blowing at night you would lose all power, don't you? That no grid can possibly meet demand reliably at 30% power? That batteries are not a power source but a storage mechanism - that energy must come from somewhere else to charge the batteries first?

You do realize Apple/Amazon/BigTomorrow has no control over your power supply and never will, that without them erecting their own power poles and wires to your residence, you're stuck with a utility monopoly for your power electricity?

Tech progress is not going away, it's just not as profitable as making up imaginary products then convincing customers to fork over real money for them.

Matt Chester's picture
Matt Chester on Oct 28, 2019 1:59 pm GMT

The initial reason to buy one of these gadgets might be for its music, news, shopping, and entertainment features, but, once it has been purchased, then the energy management features are just another powerful app.

Agreed 100%, Jim. Most people don't think too much about the energy management potential of these devices, especially when they're connected in a really useful and seamless smart home as opposed to separate and individual smart devices, but comfort, convenience, and the 'cool' factor are the reasons people are buying them. That then gives utilities a window to start engaging in unique efficiency or load management programs that can benefit the customer. It's also why some utilities and ESCOs are taking to providing rebates for these products or even some for free. 

What do you think is the most useful way a utility can start to engage those customers who are, unlike your home, nervous and unwilling to adapt the smart products on their own? Do they need to start touting the energy savings potential more?

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