Partnering for the people: how to achieve success in a smart-enabled world

Utilities need to build close alliances with nimble high-tech companies if they are to survive in a modern smart world of digitally enabled customers, says Simon Daniel.

Utilities have to get smarter. They have to get smarter about the way they buy and sell power, because they cannot rely on a simple, centralised model with the costs of matching supply and demand largely shared across the industry. They have to get smarter in their customer relationships. Not only because the old model of selling by volume started to fall apart more than a decade ago, when UK domestic energy demand started falling and new suppliers started to enter the market, but also because it is customers who will largely supply the flexibility that will enable utilities to compete in future.

Demand-side response will allow utilities to be flexible market participants, shifting their demand out of peak, reacting to changing conditions, and offering grid services. It will allow utilities to offer new products and services to customers, with shared payback for reducing demand and reacting to grid conditions.

This is not an optional extra for utilities. It is a key requirement in the smart grid, to manage utilities’ own costs and to offer new products.

The utility environment is evolving and companies have to be progressive, high-tech and able to react fast to make the change. That is a big ask for utilities, whose skills and culture traditionally lie in consistency and constancy, providing relatively simple products to the mass market. That is why utilities have been partnering with nimble high-tech start-ups. The new critical technologies are different from the old ones – they offer a platform to manage demand.

Where utilities and new technology companies intersect is in aggregating response from customers and harnessing mass-market energy technologies like rooftop PV or storage. One single in-home PV array combined with a battery offers flexibility for one user. But a fleet of domestic batteries, in concert with solar, offers major benefits for the whole system.

Those benefits might include managing the effects of solar self-consumption on the network, storing excess local generation, reducing curtailment costs, shifting energy supply or demand into or out of the evening peak, or maintaining frequency.

This is the potential role of demand-side management and storage. But for it to fill that role utilities need fresh ideas and new technologies, because it is hard to incentivise the right behaviour in customers.

Take demand response. Some customers are willing and able to react to price signals and move demand from peak times. In the past it was assumed that flexibility might be supplied by appliances like washing machines used overnight, but in fact such household appliances, for washing, refrigeration and cooking, use far less energy than they used to. On the other hand, consumers now have more devices. Their lighting, audio visual, electronics and communication needs have grown, and using or charging these devices now makes up a growing proportion of peak energy use. Experience shows that is a load where behaviour does not change in response to price signals. Technology has to step in. To make demand response predictable and replicable the best gains arise where no behaviour change or interaction is required.

That is clear already. But alongside changes in the energy system, utilities are also facing an era of unprecedented change in customer behaviour. In 2000 there were no smartphones, no Internet of Things and no 3D printing. Who knows how customers will be using energy by 2030? The experience of broadband and domestic entertainment hubs has shown how quickly new customer options can be rolled out once consumers see that they will benefit from the technology.

At the moment, it seems that smart storage is the technology that will allow utilities to manage the smart grid and satisfy their customers. Electrical domestic storage therefore has a unique growth role in Europe. Smart storage systems manage the battery charge and discharge to avoid peak times and help delay grid reinforcement. It can do that over the long term, because while customer behaviour may change, the battery behaviour does not.

Collaborations are already showing that the potential benefits of aggregation can be realised. Moixa joined with British Gas, SSE PD, Oxford Council, Oxford Brookes, BioRegional and ReEnergise to demonstrate the benefits of distributed storage in a community. It installed 90 smart battery systems across social and private housing in the Rose Hill area of Oxford. The project offered users special tariffs that helped reduce peak load by 65 per cent and increase self-consumption of PV.

We cannot predict which consumer options will take off. That means utilities need new technologies and must be able to react fast, testing and trialling new responses to customer pull.

The interesting characteristic of smart domestic storage and other options for aggregation is that they have the same installation process and growth profile as other consumer-led technologies such as set-top boxes or satellite dishes. Rather than the slow installation of copper in the ground, as has been the utility approach in the past, it is a “box” that can be rolled out fast to consumers. With no need for a licence or disruptive and slow engineering work, it offers consumer solutions to consumer-led changes.

Utilities are at the mercy of consumers in a way they have never been before, because there is more competition and because consumers want more services. Smart utilities will be partnering with progressive technology companies to meet that need.