Can Energy-as-a-Service save Power Utilities from a Death Spiral?

Technology

Energy utilities must find a new business model to attract and retain an increasingly involved energy consumer. Utilities have valuable data resources which enable them to develop a central role as a Platformed Utility within an energy ecosystem. Integrated data from all parts of their energy ecosystem can be used to develop a rich picture of their customers. Utilities are then able to offer tailored, Energy-as-a-Service products that will attract new and existing customers.

To anyone involved in the energy utility sector the ‘Utility Death Spiral’ is an uncomfortable phrase. It conjures up the inevitable decline of once great enterprises.

The ‘death spiral’ process is this: consumers aiming to keep their energy bills down and wanting to lessen their impact on the environment, begin to opt out of utility provided energy and generate their own. Utilities are forced to raise their prices for their remaining customers to cover the costs of maintaining infrastructure. This in turn leads to yet more consumers and organizations opting out of the grid, eventually leading to the collapse of utilities.

No wonder utility leaders are concerned. In a 2018 survey of US energy utility leaders, 71% thought the ‘death spiral’ was a real and potential outcome if no action is taken.

But is this death spiral inevitable? What action can be taken by utilities to not only avoid this painful and protracted death, but to change course to a positive future?

A New Type of Energy Consumer

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A new generation of energy consumers has arrived. A generation who want to be more engaged in their energy choices. They are tech savvy and concerned about the environment. These consumers join the energy-bill paying world at a time when technology consumerization has hit the energy industry. Attitudes and the availability of technology create a perfect storm for the rise of the prosumer. These prosumers are producing energy for themselves, usually through roof-top photovoltaic (PV) systems.

Prosumers are currently a small proportion of all households. As this group works its way up through the population and with growing concerns around energy prices and climate change, their numbers are predicted to increase. A recent study forecasts that by 2050, ‘energy citizens’ in Europe could produce twice as much power as nuclear power stations produce now.

Improvements in energy storage are set to boost the sale of domestic photovoltaic panels still further. In Germany, half of all roof-top solar units are now sold with battery storage.

The Industrial ‘Prosumer’

It’s not only domestic users who are looking for alternative suppliers for their energy. Industrial users and institutions such as universities are defecting from the grid and either generating their own power or seeking out third-party energy producers.

In Germany, ABB recently announced its first energy self-sufficient factory run on solar PV and Lego reached its goal of being 100% run on renewables three years ahead of schedule.

The current impact of prosumer on utilities varies around the world, largely depending on local legislation. In some areas, such as Germany, consumer adoption of rooftop PVs have affected wholesale energy prices and have had a knock-on effect on energy companies. However, in the US the impact is likely to be less due to cheaper energy costs. A recent Utility Dive survey found that only 10% of utilities reported an overall declining load. Much of this was due to defecting industrial customers.

Will Utilities be Saved by Increased Electricity demand?

When the term ‘Utility Death Spiral’ was first coined, electricity demand had remained at a steady consumption level for several years. However, in 2018, global electricity demand increased by 4%. Current predictions suggest that even greater increases in demand are to come. The increased demand is predicted to come from:

  • Increase uptake of EVS
    Electric and hybrid vehicles are expected to make up 30% of global vehicle sales by 2025, with electric vehicles predicted to take 50% of market share in China.
  • Increased switching to electricity for heating and cooling of buildings
    The use of electricity for heating for heating is expected to grow 20% in the industry sector and 11% in buildings through 2023.
  • Increasing energy demands from Technology
    A study from the UK’s Lancaster University suggests that continuing rises in online and mobile video streaming will make energy demands soar. Data centers around the world are expected to consume 20% of the world’s energy by 2025.

These figures are predictions and there is considerable debate around the extent of any increases in energy demand. Even in the event of large increases, not all the demand would necessarily be supplied by the incumbent utilities. The market share of the six largest and most established energy utilities in the UK fell to record lows in 2018 as customers switched to new market entrants. To ensure that they benefit from this increase in electrification, utilities must be part of the switch towards renewables and become increasingly customer focused.

Where there is now so much choice for consumers, energy utilities must ensure they are providing the services that customers want.

Building a New Model for Utilities: The Utility as Lifestyle Provider

“By 2020, 50% of competitive-market energy providers will drive their revenues by transforming into ‘convenient lifestyle’ providers.” IDC FutureScape

Changing consumer attitudes and a rapidly transforming energy industry suggests that it cannot be business as usual for energy utilities. Utilities must reinvent themselves to succeed in a sector going through rapid transformation. The utility of the future must do the heavy lifting for its customers. The utility of the future must be a Lifestyle Provider.

The future energy consumer may not necessarily be producing their own energy, but they are likely to be a more actively involved participant in their energy consumption. Their motivations may vary from environmental concerns to reducing their energy bills through to those who just want to make their lives as easy as possible.

The future utility must understand and meet the needs of all customers whatever their motivations and whatever the extent of their engagement in the energy market. Energy utilities must offer services tailored to the lifestyles of their customers.

Utilities are only able to do this by really understanding their customers. The only way it can do this is through data. Consumers are increasingly expecting hyper-personalisation, or 'The Market of One.' This is will become possible as more devices become connected and the data they produce analyzed with the help of artificial intelligence. Utility data is a valuable resource. Utilities already have access to considerable amounts of energy data. This puts them in an ideal position to become a central hub of information about energy consumers and to become platformed utilities.

The Platformed Utility: The Route to Energy-as-a-Service

To offer customers both the personalization they want and the easy access to services that they expect, the platformed utility can be the one-stop-shop of the energy sector.

The platformed utility will integrate Smart Meters and EV charging stations, DERs and microgrids. It enables customers to monitor their electricity consumption on apps or sell their home-produced energy back to the grid.

Need 100KM of EV charging? Your utility platform can provide this. Want all your energy to be provided by renewables? Your utility platform can source this for you. Perhaps you’re an industrial customer who finds the taxi-meter style of traditional billing no longer works for you. How about a flat monthly fee in return for energy efficiency upgrades and reliability?

The key to producing innovative services, tailored to the varying and personalized needs of consumers will be integrating data from smart meters and digital technologies and gaining insights through data analytics. This can only be successful where Platformed Utilities build collaborative ecosystems by integrating data flows from third parties and even competitors. The platformed utility will become a rich information resource at the center of the energy ecosystem. This data will be a catalyst for innovative and customer-focused services.

We now have a competitive energy environment. Customers have a range of choices open to them which includes leaving legacy utilities and generating their own energy. While increased energy demand may mitigate some of the effects of prosumers leaving the grid, utility companies must take a more positive approach to safeguarding their future success. They must look at consumers as new partners in their energy ecosystem. Utilities must make the most of the data they have at their fingertips and design innovative services which attract and retain customers.

Greenbird offers out-of-the-box system integration for utilities. We are a true DevOps company, delivering unique time-to-market and reliability. We were named a Gartner ‘Cool Vendor’ in 2018 because of our domain specific and flexible integration capabilities, crucial for creating easy-to-consume integrated solutions. Utilihive empowers utilities to manage their data flow faster and smoother than traditional system integration models while accelerating the journey towards the energy revolution. To learn how you can unleash the value of data while removing silos click here and request your copy of the Utilihive executive brief.