The RAI conference Centre in Amsterdam hosted the European Utility Week from 3-5 November 2014. Visitors had access to the large exhibition hall with about 230 stands from diverse companies related to the energy sector. Their business ranges from generation, transmission, distribution, storage, metering, smart controls, billing, customer management, hardware manufacturers for all these processes, and the respective software suppliers. From giants like Siemens, Toshiba, IBM and Oracle to small entrants and manufacturers of specific devices, all aspects related to energy seemed to be represented. The exhibition floor had 5 theatres where companies and researchers presented case studies.
For a considerable extra (raising registrations to over £1k) participants could also attend the conference area, with discussions and workshops in strategic topics like the grid & renewables integration, smart metering, smart homes & user engagement, smart water & gas metering, energy storage, and ICT & data management.
Disclaimer: this article contains personal impressions and opinions. Credit is given when appropriate, but since I was taking notes of the presentations as they were being delivered, I may have missed some details. Nevertheless, I tried to stay on that fine line between giving enough credit and not misquoting someone.
After attending the whole 3 days of the event and participating in many showcases and strategic sessions as possible, the general impression is that the big energy suppliers understand that they are in a delicate situation. Some presenters used stronger descriptions such as “a race to the bottom”, that “if they don’t change they will soon be extinct” or that the whole Utility Week was “a self-help group for the energy suppliers”. Someone asked: “should we sell or assets and go work with something else?”
The threat seems to come from every direction, resulting in a shrinking market. Some of the challenges include:
- Slowing demand growth – energy efficiency
- Competition – Distribution of supply in a multi-source market
- Heat from heat – instead of fuel, using air, ground or sun to heat water and spaces
- Private Combined Heat and Power (CHP)
- Wind parks
- Other renewables
- Deregulated market
- Low rating in trust
- New entrants such as Nest
There is the need for a fundamental change in business models. A quick show of hands at the end of the opening keynote demonstrated that participants understand the sector needs to face a disruptive revolution (about 80% of the audience) instead of simply evolution (20%). Some players are embracing change, if not through their main business it’s via the creation of a new entity, as a start-up, or via acquisitions.
Matthew Taylor, RSA chief executive, started his presentation pointing that the energy sector is the most important single sector of the economy in the world. He focused his presentation into creativity, as every citizen should be able to live creatively, and be the author of their own life.
Creativity is needed in the sector, to fundamentally change these business models. However, the procedure should be carried not top-down, but in conjunction with communities and individuals in a public conversation in order to reconcile sustainability with profitability, to operate in the public benefit. The utilities have the power to lead a public debate, and it should be done with transparency, so people can trust it. Everybody has the power to create, as he explains on this YouTube video and people should be given the opportunity to turn their ideas into mission.
Ian Marchant, former CEO of Scottish and Southern Energy, delivered his talk on the challenges customers and companies face in the UK. Firstly, the tariff, which is the same for every customer, every time of day and every time of the year, even if there’s a factor of 5 or 6 in costs for producing energy in different times. Another problem is billing based on simple averages and estimates, and no breakdown per time or appliances. He used the metaphor of a shopping basket: If supermarkets used the same billing system, customers would not see price tags on shelves or food, receiving only one bill at the end of the month saying “groceries”.
He also mentioned how utilities still live in an off-line world of paper, call centres and manual thermostats. Citizens and consumers demand change, and one of the changes we are seeing is the democratization of energy. Energy is becoming distributed, flowing in multiple directions. People want to have the control back, changing from consumers to prosumers. The energy industry is a central part of society but must be more open and accessible to our customers’ needs. They will join the process of disruption fuelled by the digital age, with or without traditional utilities.
He finished his talk with some recommendations, for example form partnership with people that are not in the same field. Start collaborations, promote cultural change to challenge the situation and promote the disruption. It is necessary to get out there and connect with business, but not with the usual suspects.
The opening keynote finished with a question: “What do you think is the biggest change is going to affect the energy sector in the next 10 years?” Responses involved:
- Total control of energy use via smart technology
- Empowerment of the customer
Back in February 2014 it seemed Google executives were insane to pay $3.2 billion to purchase Nest Labs, a maker of thermostats and smoke detectors. The role of Nest in this changing market only became clear to me during the Utility Week, when the founder of the company delivered one of the keynotes, additional talks were delivered by other staff members and Google had a large stand in the main floor area.
Tony Fadell, founder of Nest, has often to defend his data protection and privacy: “The data is not shared, there are different computers for Google and for Nest. We are not going to receive ADs of appliances”.
During his keynote he found amusing one of the questions was about the redecoration of houses. But he assured that if you strip the old thermostat off your wall you don’t need to repaint the whole wall. You can use a template behind Nest.
He started the company from the expertise with Apple and iPhone, in making mobile products to give more information to the user so they can make better decisions. Nest has the simple and elegant solutions we find on other Apple products, accommodating 12 sensors working in the same structure. It also provides a well-designed out-of-the-box experience, attractive interface that creates a call for action and makes it rewarding. But the real asset is in the cloud. Three teams of more than 300 employees comprising software programmers, hardware engineers and cloud engineers make sure that the data from your device, the weather and the supplier are combined to reduce bills and maintain the desired levels comfort. They made the thermostat learn by the occupant’s behaviour, letting technology be in control, in support to what the consumer want to do.
Regular smart meters were presented by several manufacturers to measure electricity, gas and water usage. But they don’t give people control, only produce data to the supplier. This data needs to be processed first, through algorithms to transform it into tangible information. It requires an advanced relationship between providers and consumers, which is not always the case.
Nest comes into this process empowering individuals and stealing the customer relationship from suppliers. It talks to the customer directly. It understands their behaviours, gives them control, and also, if needed, takes decisions on their behalf. The customer relationship is a high value asset, and since Nest is doing it accordingly, it threatens profit margins available for suppliers.
Nest has diverse sales schemes with utilities, working in different modalities according to the opportunities in each market. Sometimes customers don’t pay anything for the device, but the energy companies provide yearlong contracts, similarly to telecoms.
As soon as the energy provider is prepared to do different tariffs, Nest can be part of the process. It’s already possible to tweak the thermostat controls automatically according to the tariffs, via algorithms that follow the dynamic pricing. This data and control are fundamental for flexible demand, but Nest obviously won’t share it with the supplier, will sell it for a good price.
Discussions during subsequent sessions suggested an analogy with the telecom sector. Strategies used by phone companies could minimize the lack of trust suffered by the energy sector. Some examples show that they implement data analytics for warning customers about high bills, and it can reduce calls to call centre in 20%. Another comparison is related to the tolerance to disruption. Why security of supply seems as so paramount in the energy sector? In other sectors, people generally tolerate short term inconvenience.
Another analogy involves the information people are happy to have from their own consumption. Nest customers are concerned of how their data is being used, which is genuine. Suppliers are facing resistance to introduce the provision of a detailed account of energy usage, per time of the day or per appliance. Maybe because the smart meter rollout was introduced without much deliberation and debate. Single smart meters connected to the mains can read appliance signatures and, via algorithms and a few iterations, can identify every device installed in the home and their share on the energy bill. If well treated, this data can be made available back to the user in detail, and s/he can make informed decisions in order to save energy and money.
Credit card companies provide information about every purchase we make. They obviously know every shop we’ve been to, and we don’t seem to bother. Similarly, telecoms know every number we dialled, and every corner of the city we’ve been to. We demand that they detail every pence charged. Supermarkets know what you buy, in which frequency, and what you will need, even before you do, and we don’t protest.
A few stands in the exhibition area presented smart home technologies, such as the German RWE, partner of this project. Started in 2009, their focus on control, without the intention to take over user’s responsibility. The projections were to have 1 million smart home installations in German homes in 2020. However, the forecast seemed to be over optimistic, as installations are at the moment rather modest comparing to that figure. In the product life cycle, smart home technology still sits in that critical phase between launch and growth.
Smart home technologies are facing competition from 3 levels of solutions: the first level are the low cost, simpler, DIY products such as smart displays and socket monitors, which present limited functionality, poor usability and poor design. Intermediate systems can be multi-function technology such as RWE Smart Home or more open, integrated solutions like EnOcean, which uses standard ultra-low power wireless communication, congregating thousands of sensors and controls from different manufacturers. Finally, other competitors are the luxury home automation solutions, where all is possible.
I believe that the European Utility Week 2014 was extremely valuable for those who attended. Participants could showcase their products and services, get to know other businesses, technologies and systems available. And most importantly, they could discuss and work together towards solutions to the challenges the energy sector is facing. Especially the established players in the market could debate ways to survive in times of disruptive revolution.
There are also lessons to be taken for research projects such as Refit, and I got back to the office with a few topics to discuss with colleagues. These involve the implications for research in a variety of aspects, from funding to the research questions that will need to be answered in a scenario of domestic energy use facing substantial changes.