A new breed of power consumers
The utility industry is getting to a point where consumers can, and will, demand equal footing with their energy suppliers
Michael Valocchi, Business Times 24 Apr 08;
HISTORICALLY, the relationship between utilities and consumers has been rather lopsided - utilities had the power, both literally and figuratively. But the confluence of climate change concerns, rising energy costs and technology advances leading to greater consumer involvement is now radically redefining that relationship.
IBM's recent surveys of 1,900 energy consumers and nearly 100 industry executives across the globe reveal major changes underway: a more heterogeneous consumer base, evolving industry models, and a stark departure from a decades-old value chain. We believe companies need to prepare now for a participatory network that enables customers to choose from a wide variety of suppliers, actively manage their consumption and even sell back surplus power they generate.
In land-scarce Singapore, where homes for many are in the form of high-rise flats and apartments, the lack of individual roofs and surface areas to capture solar energy may pose a problem to generate power to sell back to the power company.
Clearly, this is not a feat that individual residents will be able pull off alone, but one which an overall green building programme can. As the trend towards distributed renewable generation continues, residents of these high-rise dwellings will need to work with the building management or owners to install solar panels as part of a building-wide initiative.
As the trend grows, buildings with these capabilities will have competitive advantages over other buildings and hence gain popularity.
In most other nations, as long as the energy flowed when and where required, residential and small commercial customers were satisfied with leaving all the decisions about their energy supply to their trusted providers, even if they were unhappy with the bill. But times have changed. Growing reliability concerns, fear for the environment's future, and ever higher energy bills have some consumers wanting to manage more of their energy supply decisions themselves. If utilities and regulators allow them to be more active participants, these customers are willing to shoulder more responsibility.
Given this shift in consumer attitudes and the rapid advancement of new technologies, what will the industry look like in 5-10 years? How quickly will utilities and regulators respond to these emerging consumer needs? And how much control do consumers really want?
To help answer these questions, we surveyed 1,900 consumers from six countries - Australia, Germany, Japan, the Netherlands, the United Kingdom and the United States. In our 'consumer' group, we included residential households and small commercial customers, but excluded large commercial and industrial companies.
We also interviewed nearly 100 industry executives in Europe, North America and the Asia-Pacific region - one-third from large firms with revenues greater than US$5 billion and the remainder from smaller utilities.
Based on the insights from our consumer survey, interviews with utility executives and our own industry experience, we anticipate a steady progression towards a participatory network, a technology ecosystem comprising a wide variety of intelligent network-connected devices, distributed generation and consumer energy management tools.
Although the precise timeframe for reaching this end-state is unknown, our research suggests a few major milestones. Within five years, the percentage of the world's electric utilities that will be generating at least 10 per cent of their power from renewable sources will have doubled. In that same timeframe, we believe sufficient supplier choice will allow meaningful consumer switching to emerge in most major competitive markets. Also, based on both consumer and utility responses, we expect utility demand management initiatives to expand dramatically and electric power generation by consumers to make tremendous inroads within 10 years.
The IBM report demonstrates an industry that is fast approaching a tipping point, where increasing consumer involvement, climate change concerns and technology advances are converging to create a very different way for energy to be generated, distributed and managed. Each of these is fuelling the others, and the entire combination is catalytic.
When energy providers are not willing or able to satisfy their needs, consumers will have an increasingly viable alternative: the means to generate their own electricity. According to the IBM consumer survey, one half or more of the consumers were interested in self-generation if they could save 50 per cent on energy costs, have 100 per cent reliability at no additional cost, or sell power back to the utility.
Among the utility industry executives surveyed, more than half believe that the availability of new technologies could move a significant percentage of residential and small commercial customers to self-generation within the next decade. Utilities are making major investments and operational changes to respond to climate change concerns and policies, the report observes. According to the IBM Institute for Business Value/Economist Intelligence Unit 2007 Utility Industry Executive Survey, within five years, the percentage of the world's electric utilities that will be generating at least 10 per cent of their power from renewable sources will have doubled. The IBM consumer survey found that, outside of the United States, one out of every four survey respondents had computed the climate change impact of their energy usage.
Among those who currently do not have the option of choosing renewable power sources, more than 60 per cent expressed an interest in doing so.
IBM's paper contends that, from a technology perspective, smart meters, network automation and analytics, and distributed generation will drive the most industry change in the near term. Smart meters can provide motivated consumers with the actionable information they need to better manage consumption and energy costs. The movement towards an Intelligent Utility Network that leverages network automation and analytics in conjunction with smart meters provides further benefits to both utilities and consumers, including fewer outages, faster restoration of service and lower greenhouse gas emissions.
Leveraging the new technology ecosystem will help utilities harness innovation to meet key objectives in coming years, including:
Preparing for an environment in which customers are more active participants
Capitalising on new sources of real-time customer and operational information, and deciding which role(s) to play in the industry's evolving value chain
Better understanding and serving an increasingly heterogeneous customer base.
The utility industry is advancing towards a stage where consumers can, and increasingly will, demand equal footing with their providers. Those utilities that are fully prepared to share responsibility with their customers and help them meet their specific energy goals will have a significant competitive advantage. Based on our research and analysis of the utilities industry, we believe a full-fledged participatory network will ultimately emerge. Elements of such a network are already in place within several major markets. The question is not if a fully participatory environment will emerge, but when.
The writer is a partner, Global Industry Leader, Energy & Utilities, IBM Global Business Services
