The centralised utility supply model is increasingly being disrupted by new technologies that are becoming cheaper, more effective and, therefore, more prevalent. The growth of distributed generation, batteries, electric vehicles and smart heating and lighting is also forcing utilities to take on non-traditional, and often highly entrepreneurial, competitors.
Recognising this shift in the market, PwC undertook research to better understand the practical reality of smart energy technology for business consumers – and what suppliers need to do if they are to capitalise on market opportunities in this evolving market. Building on an earlier study into the connected home, we surveyed more than 500 businesses across the industrial, commercial, public sector, institutional and SME segments. We explored the appetite for a range of smart energy technologies: energy consumption monitoring, smart heating and lighting, EV charging and distributed energy including battery storage, backup generation and on-site renewables.
Some of our key findings relate to the drivers for investment. The desire to reduce energy costs has had the most impact among existing users of smart energy technology, but cutting carbon emissions and improving the accuracy of bills were also high on their agendas. Those looking to adopt this technology over the next five years have a more balanced range of drivers: reducing costs remains the principal driver, but reliability of supply and improving the customer/employee experience are more important.
A significant finding from the survey is that nearly a fifth of industrials intend to significantly reduce their dependence on the grid over the next five years. This will present a challenge for network planners and operators, and could lead to higher bills for those that remain on the grid. The precise impact is difficult to gauge. However, more clarity should emerge as Ofgem and the Department of Business, Energy and Industrial Strategy (BEIS) complete their review on the enablers and implications of the shift to a smart, more flexible energy system. As well as the review, BEIS secretary Greg Clark announced – on 21 April – £1 billion of investment in “cutting-edge” technologies through the department’s new Industrial Strategy Challenge Fund. Clean and flexible energy will be one of the first three areas to receive investment.
The opportunity that smart energy technology represents is significant – about a third of industrials and over a fifth of commercial organisations plan to spend more than £1 million in this area over the next five years.
Industrials are the leading adopters of smart energy technology: 40 per cent already have three or more technologies installed, the most popular being smart lighting, energy-consumption monitoring and backup generation. It now appears they see battery storage as a technology for future investment.
A quarter of commercials are existing heavy users with three or more technologies installed, with a further 43 per cent expecting to become heavy users over the next five years. For this group, the most popular investments are on-site renewables, energy-consumption monitoring and smart heating. Proving the adage that size matters, responses from public sector and institutions (broadly, government, healthcare and third sector institutions) varied. A quarter of local authorities – and institutions with more than 250 employees – plan to spend more than £1 million on smart energy technology over the next five years. In contrast, only six per cent of institutions with fewer than 250 employees plan to spend more than £1 million.
Where customers were less convinced about their future uptake, costs were of prime concern, with lack of confidence in the speed at which returns will materialise a close second. For SMEs in particular, demonstrating the benefits is key – 33 per cent say it is just not a priority and investment will only be unlocked by linking the benefits of smart energy technology to their business objectives. This may explain why SMEs indicated the lowest and slowest take-up. If they do expect to invest, the most likely areas are in smart heating, smart lighting and energy-consumption monitoring, but spending on any one technology is not expected to exceed £100,000.
Although the extent of the impacts varies by customer group, concerns about cost, returns and benefits will continue to influence the level and pace of smart energy adoption in UK businesses until they are addressed. In particular, the need to understand benefits indicates increased market awareness is necessary to support growth.
When it comes to installing the technology, energy suppliers have the trust of customers – albeit with engineering firms, technology firms and network companies nipping at their heels. Winning the smart energy race will come down to developing the right capabilities to navigate challenges and capture opportunities.
Even though smart energy is already having an impact on market players and their revenue streams across the value chain, there has been little co-ordinated policy effort so far. However, the recent Ofgem/BEIS call for evidence represents a welcome first step towards providing clarity, and will inform future government planning.
It’s clear that if utilities are to safeguard their position they will need to continue to adapt their offers, capabilities and marketing to meet the increasing B2B market demand for technology-based energy services.