Utilities are approaching a crossroads. With increasing energy efficiency and utilisation of distributed energy resources (DER) affecting their bottom lines, utilities must position themselves as innovators and generate new revenue streams to remain profitable in the 21st century. Smart cities represent a significant opportunity for utilities to exploit their skillsets and expand their footprint into additional markets.
Navigant Research has identified four key new business opportunities that provide a particularly good entry point for utilities in the smart cities market.
1. Distributed energy resources
One of the most obvious connections between city strategies and utility innovation is the push towards renewable energy. Cities are responsible for more than two-thirds of the world’s energy use and greenhouse gas emissions, and they have become increasingly aggressive in exerting pressure on utilities to shift from fossil fuels to renewable energy to help meet emissions targets. Cities are looking to install DER solutions in municipal buildings and are encouraging the adoption of residential and commercial clean energy solutions through programmes to support solar photovoltaics (PV), storage, combined heat and power systems, and other community energy schemes. Distributed renewables development and integration, distributed energy storage systems, and microgrids all offer the opportunity for utilities to make their energy services more efficient, resilient, cost-effective and sustainable. To date, utility efforts have been largely reactive, focused on issues caused by renewables intermittency, shifting loads, capacity constraints, and bidirectional power flows.
2. EV charging infrastructure
EV charging is one of the most important smart city business opportunities for utilities. By 2020, Navigant Research estimates that more than 4,000GWh of electricity will be consumed by plug-in EVs annually in the US alone. If utilities do not become the primary provider of EV supply equipment and services, they will be shut out of the most significant load growth factor within the next 10-20 years.
An increasing number of cities around the world will be introducing legislation to ban or fine the most polluting vehicles, and a growing number of countries have announced commitments to ban the sale of petrol and diesel cars, including China, the UK, France and India. With governments all over the world enacting legislation to push consumers towards cleaner vehicles via taxation policies and incentives, and with energy consumption set to continue declining due to energy efficiency and DER, the EV charging market is a must-win for utilities.
Utilities can use their expertise as energy providers and managers to help develop and operate the EV charging infrastructure needed for the global transition to EVs. European utilities and energy companies have already been particularly active in the industry, making notable acquisitions to bolster their EV charging market position. For example, Engie acquired EVBox in 2017 – a Netherlands-based company with more than 40,000 charging stations in service. In addition to Engie, several European utilities are becoming significant players in the EV charging market, including Enel X (the new business arm of Enel), EDF (through its Sodetrel division), and Eon (through its 77 per cent stake in Innogy).
3. Smart street lighting
Smart street lighting offers a bridge between energy-related services and a range of other smart city capabilities. It utilises traditional utility capabilities as providers of lighting services, so fits well with those street light assets – and there is a strong business case.
A number of utilities are recognising the potential of this market and have deployed innovative commercial projects. For example, Dutch utility Alliander partnered with Signify and Cisco on an innovative smart street lighting project in Amsterdam. Adaptive lighting, security cameras, and a public wi-fi network are some of the applications being tested. Enel X also offers European cities advanced smart lighting solutions – the utility has installed more than 1.8 million LED lamps in Italy. In the UK, SSE Enterprise Contracting maintains more than one million street lights and helps local authorities utilise smart LED technology for street light dimming, fault reporting and energy savings. The company also helps cities integrate smart city applications such as air quality reporting and traffic management with its lighting solution.
4. Smart buildings
The drive to increase building energy efficiency in cities gives utilities the chance to offer additional services for energy optimisation, energy retrofits, combined heating, cooling and power, and advanced energy management services to both public sector and commercial building owners. Collaboration between city departments and local energy utilities to improve energy efficiency also enables retrofit programmes to be targeted at the most appropriate residents, businesses and communities. Duke Energy, for example, worked with other stakeholders in the Envision Charlotte programmes to reduce energy consumption in 61 of Charlotte, North Carolina’s commercial buildings by 19 per cent, in the process saving $26 million in energy costs and 51,700 tonnes in CO2 emissions.
Market barriers remain
While utility interest and involvement in smart city deployments is increasing – particularly in North America and Europe – several key barriers to greater market participation remain. These barriers include regulatory challenges, utility business culture and organisational structure, technical and operational challenges, and the lack of a business case for some smart city applications. The configuration of these challenges is unique to each utility given its history, location, culture and current asset base, but there are many lessons to learn from the early leaders who are already establishing their footprint in the smart cities market.
Ryan Citron is a senior research analyst with Navigant Research