Mutually Assured Construction: Supplier and Consumer Energy Management
- April 6, 2017
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Innovation has always been a driver for all sorts of industries to compete and subsequently nudge all the major players toward improvement and growth. Utility companies have long been the exception to that rule – until now.
The demand from consumers for energy management tools and demand response technologies is growing stronger, and utility companies are running out of reasons not to accommodate such a widespread consumer demand. The reasons are numerous, and each reason is valid – utilities see energy management as a way to reduce the load on an already-overstrained infrastructure, while consumers may want to reduce their energy spend, score some easy CSR PR points, or simply do their part for the planet. No matter the reason, those in the utility industry know that the march toward the digitization of energy is irresistible – the question is how best to handle it.
The Internet of Energy as a Uniting Force
Extreme connectivity in the Internet of Energy is driving both sides of the energy market – supply and demand – to change the way they think about business as usual. What started as relatively narrow independent ventures on each side of the marketplace is now meeting in the middle to transform the energy industry as a whole.
At the root of this change is a data collecting dragnet, powered by smart sensor technology, that looks to analyze, inform upon and refine processes as they run. As customers began to use EMS technologies to gain insight into their energy use, it opened the floodgates of possibility. The incredible opportunities exposed through energy monitoring extended way beyond cutting spend and exposed consumes to a whole other world of operational insight. For energy providers, this was about being able to better predict and accommodate demand while also exposing underperforming infrastructural components.
This new world of energy management is not just about one device tapping responsively into the energy grid – it’s about creating constant feedback between millions of devices and the grid – i.e. extreme connectivity. This in turn allows suppliers and consumers to respond to energy demand in real time, increasing and decreasing generation, rates, and usage as needed instead of wastefully running at high capacity at all times.
With a strained traditional energy distribution network and energy use expected to increase by 56% through 2040, producers will need to find ways to smarter, more efficient, and better coordinated when it comes to energy just to keep their doors open. At the same time, there’ll be no going back. Tapping into these enhanced energy capabilities will only feed the consumer-side appetite for smarter, more dynamic energy management – even after the initial supply-side impetus of a strained grid passes. Energy consumers will continue to demand more benefits, more tools and more insight, and will go where they can to get them.
As a result, many utility companies face the following dilemma: how can they meet consumer demand while accommodating their own short-term limitations without undermining their long-term business interests? The answer is for utility providers to become the supplier from which customers buy less raw energy but more energy related products and services.
Better Together: Joining Forces for Success
While it may seem counterintuitive, fusing supplier and consumer energy management needs creates a stronger, more successful and mutually-beneficial energy ecosystem.
Take, for example, United Kingdom-based Centrica plc. As users grew more reliant on management tools and capabilities as basic components of their energy needs, they began to wonder why they couldn’t source all their essential energy needs from the same provider. Instead of relating to operational energy reduction technologies as a threat, Centrica saw them as a crucial opportunity for horizontal integration as the company moved towards building out a more comprehensive energy service portfolio. This, they reasoned, would allow them to gain market share and avoid an encounter with their infrastructural breaking point in the short-term, while positioning themselves to thrive under disruptive market conditions in the long-term.
To wit, Centrica sought out a partnership with energy management solution provider, Panoramic Power through their subsidiary Direct Energy. The partnership was such a rousing success that Centrica, acquired Panoramic Power outright.
Centrica’s acquisition of Panoramic Power represents just one example the emerging standard for energy providers; a standard where more and more energy products and services – across a wide range of lifecycle and operational applications – come from the same source. No longer is the utility just an energy provider that turns on the lights and passively collects checks, incentivized to sell as much energy at as high a price as possible. No, thanks to renewables and distributed energy resources, that model is already headed the way of the dinosaurs.
Centrica’s business model, where they actively encourage customers to use less of their product, demonstrates how utilities can work to sell less at a lower cost per kWh while still bolstering their business as a whole. If consumers are going to seek out EMS providers anyway, it’s smart to begin offering EMS tools as part of the utility offering. Plus, by diversifying the offerings of the traditionally one-trick pony that is utilities, the perceived hit is negligible compared to what it would have been if they only sold energy.
The notion of a company defined by its supply of a core commodity trying to decrease demand for that commodity may sound ridiculous at first, but the truth is that the conventional energy industry is under siege and the economic principles that have historically governed it will not be effective going forward.
Don’t believe me? Look to Germany. Last year, German energy producers famously credited commercial customers for consumption of excess wind and solar electricity that they couldn’t store – effectively paying people to take their product. It might not fit tidily into a worldview shaped by the forces of traditional supply and demand, but more and more future-facing energy providers are encouraging the customer to pay less money for energy.
Consumer appetite for demand response technologies has pushed utilities into a transformative new direction, where the entire product/service industry responds bilaterally to the needs of the market. Indeed, in many ways the supply side of the market is beginning to subsume the perspective of market demand – and by extension, demand-side interests. For Centrica, offering an EMS means that they can actively encourage customers to use less energy while still setting the stage for the firm’s growth. In Germany, the “win” for the consumer came at no cost to the producer, as excess energy would have gone to waste if not distributed; at the same time, these German energy producers are laying the foundations for an energy infrastructure that can be scaled without limit, keeping them in the green (pun intended) now and into the future.
The world of energy is changing at a remarkable pace. Today, we are witnessing the blurring of the lines between supply and demand in a holistic energy ecosystem. This is the same type of market shift that will be required across industries to kick the circular economy into gear. Each innovation brings new market disruptions, but also opportunities for those companies capable of a fluid approach and adaptive disposition. The key is to see and relate to the market as a whole. Increasingly, examples of companies or countries embracing an “integrated energy market” will seem like the rule, rather than its exception. Mark my words, the pillars of traditional energy supply and demand are crumbling. Trying to reinforce those structures before they fall is a fool’s errand. The best way forward is a new way forward; a way in which supply and demand join forces and work together for everyone’s benefit.