Renewables, smart homes, AI and IoT will have a massive impact on how energy and utility companies address the market in 2018, says Colin Beaney, Global Industry Director for Energy & Utilities at IFS.
Renewables heat up – global capacity will double over the next 10 years
Every year we see a virtuous circle speeding up around renewables, and 2018 will be no exception. The more renewables are taken up, the smarter and more scalable the technology becomes, with lower construction, operating and maintenance costs. Crucially, the cheaper the energy produced becomes, too.
In 2009, it cost just under $300 to generate 1 MW of electricity using solar panels. In 2016, the cost was down to $100. All around the world, renewables companies are now able to offer cheaper energy alternatives. In September 2016 in Nevada, state energy provider NV Energy lost almost 6 percent of its customer base overnight as 15 of the top casinos and hotels in Las Vegas switched over to smaller renewable energy providers. Why? “The sharp decline in the cost of renewable energy” and “being able to control what your supply looks like,” said MGM Resorts, one of the main companies moving account.
BMI’s 2017 Global Renewables Outlook predicts the capacity of renewables will double between 2016 and 2026. A 2017 Financial Times report, "The Big Green Bang: how renewable energy became unstoppable," shows that renewables capacity globally rose by 9 percent in 2016, a 400 percent increase from 2000. Solar power increased by 30 percent worldwide in 2016 and, for the second year in a row, renewable energy made up more than half the world’s new power generation capacity.
So how will this impact energy providers? Most important will be the new opportunities to adapt your business model, agree new joint ventures or create new charging models—all these will be essential. Take energy provider Octopus, which delivers renewable pay-as-you-go energy through its easy-to-use online portal to customers in the UK and France. Octopus is now the UK’s largest investor in solar farms, but focuses heavily on customer service, flexible payment models and transparent billing as key customer benefits—as well as renewable energy.
With smart homes, consumers will call the shots
Amazon Alexa, Google Home, the Sony LF-S50G, and the Harman Kardon Allur. What has this new generation of smart home assistants got to do with Energy & Utilities? Potentially, a lot. According to analysts like RBC’s Mark Mahaney, Alexa could earn $10 billion for Amazon by 2020. In addition, MarketsandMarkets predicts that the smart home market will be worth $138 billion by 2023.
Smart meters constitute a big part of this, enabling customers to check and calculate their real-time energy consumption levels in the home to take appropriate steps to cut down energy costs. Thus, smart meters are expected to hold a major share of the smart home market by 2023.
With one single solution for switching between devices in the home, consuming and storing energy, and controlling its costs, consumers will have an increasingly powerful role. Following this, they will be in a position to drive even more flexible service and billing systems.
One example of companies leveraging this demand for increased flexibility is HomeServe, a one-stop digital service company providing emergency and energy services to the home. Through its monthly digital subscription model, the company supplies services to over 7.8 million homes in the UK and over 3 million homes in the US—including energy services, boilers and meters through third-party suppliers. HomeServe itself owns no energy assets, but with its strong customer service and simple payment models generating powerful loyalty and revenue, service providers like HomeServe could soon become energy providers as customer-centric energy provision booms.
The success of agile, customer-centric firms like HomeServe and Octopus is a wake-up call for energy providers. Customers increasingly hold the balance of power in a digital market. For Energy & Utilities companies, it is a reminder of how new vital, flexible, and agile billing and service, as well as operations, can pose either a competitive advantage or a threat—depending on how you are addressing the market.
The industry gets smarter as AI and IoT move ahead
As consumer demand dictates energy supply and billing, IoT, machine learning and AI capabilities will add another dimension to this—not just in the field at the edge of operations, but at the heart of products and homes, too.
Gartner predicts that “by 2022, more than 80 percent of enterprise IoT projects will have an AI component, up from less than 10 percent today.” But what would a machine-to-machine, cloud-based energy system, discretely sited in consumers’ homes, look like?
In 2016 in Hawaii, Microsoft collaborated on a renewable energy initiative using 499 IoT-connected home water heaters called Grid-Interactive Electric Thermal Storage (GETS), all IoT-enabled and connected to Microsoft Azure Cloud, to create an autonomous discrete energy grid that stores overspill energy for future use. The machines monitor energy consumption and performance and store hot water when there is a lot of renewable solar and wind energy. Each heater can store 50 – 120 gallons of piping hot water. Combined, the water heaters can hold 15 to 25 kilowatt-hours energy.
Hawaii spends about $6 billion every year importing oil, so being able to store excess renewably generated energy could have a major impact. The model could also help Hawaii reach its goal of having its state utilities generate 100 percent of its electricity from renewable resources by 2045. But one of the most impressive aspects of the Hawaii story is its precision business case. For an island with a lot of renewable wind and solar energy, storage was a key priority and would deliver obvious customer benefits.
For energy providers, 2018 will be about finding the sweet spot, connecting consumers’ demands for increased flexibility and cost control to new services and charging models based on renewable energy sources and emerging technologies. Those who succeed with this will be the real winners.