The energy industry is being turned on its head by the transformative power of disruptive technologies such as smart grid, renewable energy choices for power supply, and the analytics tools that shift power from traditional energy suppliers to customers.
We are moving from the stealth phase of this disruptive technology cycle as customers become more aware of their potential use disruptive technologies to address their business ‘pain points’ in our uncertain and volatile economy. We crave certainty, we want choices, and we all need to save money! The seductive power of pull technologies is giving customers more control over their business operations and their lifestyles. As awareness of pull technologies grows the pace of change in the energy industry is likely to increase.
Customers Take Control
California is the first state to require that utilities disgorge smart meter data to customers and the third party vendors they choose for products and services. That is expected to accelerate the pace at which customers are offered solutions that put that data to work to save money and improve their energy performance.
The energy industry was built around “push” technology strategies. Thomas Edison’s light bulb led to the development of power generators and energy delivery systems to push electricity into the homes and businesses of consumers glad to pay for the privilege. There were not a lot of choices—you either wanted the lights on or not. There was no competition, you paid the electric company that could deliver the light and power you craved or you bought candles.
Disruptive “pull” technologies are pushing the energy industry to change. Fast forward a hundred years and we still want the lights to be on—but we want more choice, competition and options that give customers benefits from new energy technology development. Today the power to transform the “push” strategies of the past one hundred years into “pull” strategies of choice is leveraging that technology to unlock benefits by shifting power from the producers of energy to consumers.
Silver Spring Networks, the maker of smart metering solutions, commissioned a study of 1,000 smart meter customers to assess what customers wanted from smart meters. More than half the customers surveyed said they wanted to save money. Eight percent wanted to be greener, even if it costs more. But when the answers were added up the common factor in all the customer wants was their desire for more control over energy use and energy options. That natural desire for savings, options and control is the seductive power of pull. Giving customers more control over energy use and options requires that others give up control, and that has been the sticking point in all the debate.
Vested interests ‘cling’ to the push status quo. While environmental advocates want customers to make greener choices for energy their strategy has been to push renewable portfolio standards that mandate green energy by forcing utilities to buy it even at above market prices. While utilities say they want customers to be engaged in their use of energy, their actions push customers away by the complexity of energy efficiency and demand response programs, the conflicting tariff and rate designs that charge more per unit of energy when consumption increases, undone by average cost ratemaking and “budget” billing plans. Genuine competition in the wholesale energy markets has been pushed aside by government policies that undermine integrated resource planning goals of ‘least cost, best fit’ energy portfolio balance for utilities as states push procurement rules that mandate what technologies can be bought, in what amounts, in what time frames often at above market prices thus completely hijacking the IRP.
The relentless forces of change from disruptive technology are pulling customers out of status quo offering choice, options and the power over energy use and options. Over the past few months, a group of energy industry players, state utility regulators and environmental groups have been meeting to search for areas of agreement across the issues they debate. While their work is a long way from a consensus on what to do they are defining what to work on next. The Critical Consumer Issues Forum (CCIF) recently issued a report which summarized their progress. It is a quick read of mostly bullet points to prioritize the issues for further discussion.
It is a good start, but time isn’t their ally.Technology is changing faster than these politicians, industry executives and advocates can draft the fine print of their settlement agreements. They are losing control to customers. What do I mean?
The customer benefits of Smart Grid are being unlocked by “pull technologies.” While the utility industry obsesses over installation of smart meters, most have ignored or failed at customer education and engagement. Why? Because utilities still see customers as load to be served (“push”) rather than customers to be attracted, retained and satisfied by new products and better services.
The business need to control costs enables technology vendors to offer customers choices and options. This transition from push to pull is starting with commercial and industrial customer classes, but customer aggregation policies, third party vendor access to smart meter data, and better control technologies and equipment on the customer side of the meter are quickly going to level the playing field. Action on the customer side of the meter is growing fast.
The menu of choices and control options is expanding fast with value propositions pulling customers to get involved to save money, reduce their impact and gain more control:
- Demand Response (gain control over energy use and shift demand to save money)
- Constant Energy Management (optimize energy use and save money)
- Customer aggregation (creating customer buying and selling pools to scale savings)
- Combined heat and power (capture waste heat and reuse it to reduce energy demand)
- Net zero energy projects (maximize energy efficiency, control demand and produce the rest)
- Microgrids (miniature power grids integrating demand and supply choices plus control systems)
- Smart building designs (design energy efficiency into buildings to cut impact and operating cost)
Do you see the common denominator in all of these solutions? It is NOT utilities offering these choices. The third party vendors are offering these options by getting in between the utilities and customers to offer choice, savings and control. These vendors focus on options that “pull” customers to satisfy their business need by leveraging their disruptive technology and services to “push” the utility to adapt to meet that customer need thus shifting power in the transaction from the utility to the customer. By creating value for customers these choices attract investment from commercial and industrial customers eager to capitalize long term opportunities for cost reduction to gain competitive advantage.
The fatal flaws of “push” strategies today are fragmentation of energy markets, the inability to scale new clean energy economy products, the death of a thousand different rules and regulations are the remnants of “push” strategies in energy markets. These things are not stopping disruptive energy technology but they are denying utilities, regulators and politicians the benefits of smart grid, renewable energy and the clean energy economy they crave.
The seductive power of “pull” strategies especially in this weak and uncertain economic climate has enabled customers to take back control over their energy use and costs with the help of third party vendors.
A recent survey of energy experts by The Brattle Group says that energy efficiency can reduce electricity consumption by 5-15%, peak electricity demand by 7.5-15% and natural gas consumption by 5-10% by 2020 if it is more fully utilized. Brattle says the reductions are being driven by rising fuel and capital costs, improved appliance and building technology, and customer behavioral change.
Brattle is missing the point of “pull” technology impact on the power grids. That energy demand Brattle’s survey talks about is NOT going away—it is going off grid, it is being converted into other options, it is being shifted over time and place, and displacing the “push” of the traditional utility business selling commodity energy to end users. That demand is being transformed before our eyes by the seductive power of disruptive technology at work helping customers turn “push” into “pull”. It is a pull value proposition when the customer is in control and makes decisions about whether to produce in location A or B depending upon the calculus of which location maximizes energy savings, achieving the most sustainable production result, and optimizes production efficiency for the benefit of the company, its customers (through competitive prices) and shareholders.
The Benefits of Pull are a Phone Call Away. Decisions to take back control of energy use no longer require the customer to hire an army of employees and act like a utility. Third party vendors are assembling end-to-end solutions that include software, data and cloud-based services, equipment, communications and expertise to offer meter data management, energy optimization analysis, predictive analytics, pattern analysis and business process change recommendations using artificial intelligence and knowledge harvest algorithms to optimize energy use and cost savings, maximize the revenue potential from demand management, self produce energy from waste heat, reduce waste streams, emissions and costs all choreographed in a symphony of decisions, choices and options designed to do three simple things:
- save money
- give me control over my operations and my lifestyle
- enable flexible, adaptable operations to respond to uncertainty in our crazy world.
Signs of growth in pull technologies are a leading indicator that we are moving out of bust through recovery on our way to build-up in the next energy business cycle. Build up begins when customers realize that they must act to secure their competitive advantage for the next stage of the business cycle. Regulatory drivers can speed that transition as they are today because of the aggressive EPA war on fossil fuel emissions, but the uncertainty that causes also increases the seductive attraction of pull technologies to give customers more control and more options. That is where we are today.
There is one more thing. The fuel of choice for power generation is natural gas no matter who wins the 2012 election. The EPA may war against coal but it knows that every megawatt of coal fired generation forced prematurely into retirement is going to be replaced by natural gas load following generation to assure system reliability. Wind and solar can supplement that supply but they cannot displace it. Almost all the pull technologies benefit from natural gas because it is a flexible, reliable fuel and it sets the grid parity price to beat as the low cost option for power generation. By targeting flexibility, savings potential and control around a grid parity price customers have the maximum leverage in negotiating deals with renewable energy suppliers, CHP vendors and demand response customer aggregators to assemble and implement a distributed energy future that works for them.
The sum of all this pull technology evolution is quickening transition to a distributed energy future where customers have control and use it to secure their own energy needs, net meter and contribute to the grid, and control their own destiny thus escaping from the uncertainty of energy policies and politics that try to pick winners and losers rather than focus on low-cost and high-reliability and economic competitiveness.
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Gary L Hunt 
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