It’s an interconnected world

We are moving from the connected customer to the interconnected customer, and this new paradigm will disrupt the traditional energy and utilities company model, says Duncan Barnes.

The utilities sector mega-trends of decentralisation, digitisation and decarbonisation are empowering customers to take control of both their energy supply and usage. At the same time, these forces are opening up new opportunities for energy providers to move from supplying power to managing customers’ homes. Energy companies therefore need to decide soon where and how they are going to play.

Although 52 per cent of consumers own some form of connected device, most of these are used for entertainment, according to 2016’s Switch On to the Connected Home report by Deloitte. Only a small proportion, 2-3 per cent, use devices that could transform their lives, such as connected thermostats or security.  

Why is this the case?

Cost is certainly a factor, but customers have also yet to see the real benefits that not only a connected, but an interconnected, home can bring. In a connected home customers can control thermostats or lights remotely. However, in an interconnected home insight from multiple devices can automatically help reduce energy costs.

Such concepts as the connected home compel traditional energy companies to redefine their roles or be left behind. In many ways, it could be the chance to build relationships with consumers that extend beyond that of a traditional commodity-provider.

The most obvious opportunities arise in providing technology in the connected home. This could mean selling, installing and supporting smart energy-related devices – technologies that could be collectively called customer management.

Longer-term opportunities arise in home service management, helping customers maximise the potential of connected devices. This could include providing software and apps that help integrate the fragmented connected home ecosystem. Or combining information from connected devices and smart meters to reduce usage and automate key parts of customers’ lives.

Given the political and regulatory pressure on energy companies to make switching energy supplier easier, providing goods and services can help keep the brand in the customer’s home.

“It is crucial to think through the customer journey first, rather than develop a product and try to create a market for it.”

Advances in micro-generation and storage, however, can transform the future relationship between the customer and energy company.

The falling price of domestic solar panels is good news, but they are still costly. This is compounded by the fact that the energy they generate during the day is sold to the grid at a low price, while homeowners have to buy electricity back at peak prices in the mornings and evenings.

Improvements in battery storage have the potential to change that. The latest batteries can store energy generated during the day for household use at peak times. This could lead to household savings and offer the potential to be off-grid.

However, when installed batteries and solar panels still cost in excess of £7,000, consumers need proof that their investment is worthwhile. On a system level, with more intermittent renewable energy fed into the grid, balancing the supply and demand second-by-second is becoming more challenging. This brings the need for a quicker response to more unpredictable and frequent deviations from target system frequency.

Batteries can provide such response, but they must be above 1MW in size. And here is where energy companies can make a real difference. They can aggregate networks of batteries in people’s homes and, using their experience in trading, act as a broker on the homeowner’s behalf by selling excess electricity to the grid, thus providing the business case for investment. This service can be most comprehensively described as distributed energy management.

Furthermore, the expected growth in the number of electric vehicles will not only bring further implications to the grid and distributed networks but also require utilities to define their roles in this market.

Regardless of how utilities are planning to diversify their future offerings, they need to have the right capabilities in place to be able to deliver.

With new products being launched frequently in the connected home space, some technologies appear to be developed before there is a clear market for them. It is therefore crucial to think through the customer journey first, rather than develop a product and try to create a market for it.

As the amount of data generated through connected devices grows, latest data analytics methods can help get the most out of it. While data and insight collected in the home are helpful in letting customers control their homes remotely, cognitive computing capabilities can help the connected home to make better decisions and act on them automatically.

Selling and buying energy across a wide network of micro-generator sites is also a complex process that needs the right security arrangements. Replacing current central functions to collect payments, a blockchain-enabled micro-grid of generators could trade with each other more efficiently and securely in the future. Energy companies could help build that network and provide technical support.

With the pace of change growing exponentially, energy companies have limited time to decide how they are going to forge new relationships with their customers in an increasingly crowded market.