It’s an apocalyptic sentiment, and one that is shared by many in the energy sector – and across sectors – as a gradual realisation dawns of the true power that comes with access to, and control of, data. Even among proponents of the rollout, it is a challenge that is largely being greeted with excitement and trepidation in equal measure.
So, what is this vision of the world after the smart meter rollout that is causing such a fuss?
The crux of the matter is what the rollout will do to the traditional utility business model, which is based on the simple premise of delivering, power, heat and water to points of use and, in the case of water, getting it back again.
In a new world rich with data about the ways in which these resources are used, speculation is growing over the potential to move towards service-based business propositions, which place less emphasis on the delivery of utilities, and more emphasis on the lifestyle, social ecosystem or industrial processes they enable.
Such a step change could have big implications for utilities, moving them up into a new value bracket and enhancing their ability to compete on more than price and customer service.
Imagine, for instance, a world in which energy companies have the ability to execute domestic tasks for their customers, or offer packages of energy dependent on the appliances in the home. Tariffs might be offered to suit different lifestyles or user values, with utilities able to engage with customers based on insights provided by the regular capture of accurate usage data. Energy suppliers – or service providers – will be able to offer time-based, family friendly or green tariffs and incentives. Third party collaborations could provide complementary services or perks.
It is an altogether more dynamic scenario than today’s model in which customers pay for a product they often do not value much and which they believe – however mistakenly – is delivered by profiteering corporates.
The shake-up smart meters will precipitate is not just looming for energy suppliers. Colin Henry, business development manager for Siemens’ Smart Grids division, sees a new strata of network management emerging on the far side of smart meter deployment, particularly in urban environments.
“I can foresee an increasing number of independent networks with private operators as communities, and especially cities, seek to deliver local low-carbon energy plans,” he says. “A few years ago, I think the networks were almost in denial about this and, when it was considered, there was a feeling that an increase in IDNOs would erode their role.
“Today, there is an acceptance that an increase in independent networks is supported by Decc and is going to happen. The question that remains is what the relationship between the regulated DNOs and the new private entrants will be. The opportunity perhaps lies in developing a range of balancing services.”
The advent of smart metering could act as a trigger for these kinds of business model transformations. The government has set a target for the roll out of 53 million gas and electricity smart meters in domestic properties by 2020, at a cost of £11 billion.
These meters are designed to be the primary hub for energy management in the home, with the specifications mandating a user interfaces on the meter itself and also for “consumer access devices” linked to the home area network to be able to access meter information.
Consumers will have the option to choose monthly, daily or half-hourly meter readings, carried out automatically and remotely by suppliers via the Data Communications Company, or DCC which has been licensed to manage the UK’s smart data infrastructure.
The smart meter alone will not deliver the complete business model transformation. This will require better connectivity between the regulated smart meter system and the wider world of connected technology (see figure 1, p12) and achieving this connectivity will require the understanding and co-operation of consumers. However, the exploded visibility that the national smart meter rollout will bring, over a few short years, is undoubtedly an important stepping stone towards a redefinition of energy suppliers.
That said, it will take more than simply the installation of millions of smart meters to enable the business models described to emerge – or even for less exotic service elements to appear such as the ability to make comparisons between the energy consumption of one home with a similar home in the same area.
The challenge of engaging consumers with the potential benefits of smart metering and gaining their trust to the extent that they give permission for their data to be used for energy management schemes should not be underestimated. Furthermore, assuming engagement and trust can be gained, utilities face further challenges in constructing new service architectures and business processes in a highly regulated landscape.
Then, there is the relentless march of competition and technology to contend with, both of which could sideline the smart meter as the primary tool for energy management in the home, according to experts.
Neil Pennington, director of smart innovation at RWE Npower, says: “Energy has a lot of incumbent issues to deal with before it can really take advantage of a lot of these trends and ideas. Look at the reports on customer trust that put utilities at the bottom of the league table – then look at rising paranoia about privacy and think about the challenge of getting people to opt-in to half-hourly smart meter readings.”
If utilities work hard to rebuild trust and partner strategically with firms in other sectors whom customers are already more open with, then this problem can be overcome, says Pennington, and he is excited about the prospect of customer-centric “ecosystem” realignment across sectors.
But then there’s regulation to contend with. “There are a lot of barriers in regulation and market structure, which work against traditional business models being able to exploit all that modern technology has to offer,” confirms Pennington.
It is not much consolation, but Pennington observes that this is not only a problem in the UK. He recently took part in a three-day thinktank for the US renewables supply chain, which concluded that their regulators were also “not responding fast enough to changes in consumer demand”.
That said, Pennington believes change is both inevitable and imminent. “Innovators will not wait to see the system centrally designed,” he says. “They will do things – I don’t know what – to accelerate change because they will be able to demonstrate the benefit to the consumer.”
Both Siemens’ Henry and Npower’s Pennington expect new names to arrive in the energy landscape over the next few years – perhaps initially in the US, but then closer to home. It is a development that could pose a threat or an opportunity, depending on how nimble and clever utilities can be at positioning themselves with relevance to the customer.
Henry sees potential for brands with data aggregation and analysis capabilities (and customer trust) to be able to muscle in on the energy management value proposition. These players would be able to sell themselves as a providing a substitute service alongside their core product, and essentially bypassing the role of the smart meter in delivering value-add energy services.
“ will only transform the service element of the energy market if the regulator rules that the only way to manage domestic energy is via the smart meter,” he says.
This prospect means that collaborative partnerships must be sought out and struck soon. “Everybody’s trying to find the angle,” says Pennington. “It’s not just about having a customer relationship, but about how that customer views you and whether they will give you permission to bring them a new business model.” Partners from other sectors might be ideally placed to help utilities get that permission.
Where energy blazes a trail, others will follow
What about water?
As the energy sector attempts to grapple with all the extended operational, business model and economic implications of smart technologies, we ask players in the water sector if they believe they will face similar transformations.
“The adoption of smart water technology in the UK is in somewhat of a flux. There is no clear definition of what ‘smart’ actually is and how it can be applied to the way the water companies work. There have been some fantastic innovations where individual companies drivers have adopted a particular technology, however the financial return on investment is not always clear.”
Oliver Grievson, Anglian Water Services, Water Industry Process Automation & Control
“Smart water grids are not yet here but the potential is exciting. As with energy, it’s about seeing patterns in stressed or underperforming systems and being able to intervene swiftly. The key to being smart is to collect data and interrogate it to let you make good decisions. We need cheaper reliable sensors, smart meters and informed analysis in the water sector on order to reap benefits. We will detect patterns, and users will have choices to make, choices which, in time, will reduce leakage, manage pressure and even respond better to climate change. Now that is smart.”
Mike Woolgar, managing director environmental and water management, Atkins
“What seems to be interesting water companies is the potential of smart technologies – and new generation technologies – to help them take control of their energy needs. But another way in which smart technologies might allow water companies to play a new role is through micro-grids and community projects. Here, local projects may see the rise of multi-utility services connecting heatelectricity and water systems.”
Colin Henry, business development manager, Siemens Smart Grids division
The customer cornerstone
Will customers co-operate with the smart revolution?
Once smart meters are in place across the UK, their ability to transform the way energy is sold and consumed will hinge on what permissions consumers give for their data to be accessed.
This will be determined to a large extent on campaigns to educate people about the smart meter programme, as well as utilities regaining consumers’ trust. However, as Nicola Eaton Sawford pointed out in last week’s issue of this magazine, an education campaign has yet take shape and the issue of trust could be exacerbated by the rollout itself.
Furthermore, recent research by consultancy firm KPMG into attitudes toward the internet of things found that people need a lot of reassurance about the security of their data in an increasingly interconnected world.
The survey revealed that 70 per cent of consumers think it is “too easy for things to go wrong” as interconnected devices flood the marketplace. Sixty-two per cent feel there is insufficient concern about the way in which increasing connectivity will affect security and privacy.
More positively, KPMG found that smart meters were among the most welcome technologies. Forty-eight per cent of respondent thought they could save energy and money.]
Potential obstacles to the brave new smart world
Utilities may not be the ones to deliver the best customer experience
New entrants: in-home displays will not be the only way to access usage data. Tech-savvy firms with substitute services could steal a march on utilities by offering energy and data management services direct.
Unforeseen gaps in technical specifications: the technical specifications for smart meters are being iteratively updated to try and ensure they are future proof against rapidly evolving technologies. It is possible, however, that a new innovation post-rollout might render them obsolete before their return on investment period is complete.
Lack of customer trust: many of the biggest industry transformations considered possible as a consequence of smart metering rely on additional consumer permissions for data harvesting. With trust in utilities at an all-time low, the likelihood of gaining these permissions is compromised (see “The customer cornerstone”, above).
Multiple dwelling units: we live in a rapidly urbanising society, yet one of the smart meter programme’s major weaknesses is its limitation in multiple dwelling units, that is, blocks of flats. In a survey carried out by Utility Week and Ordnance Survey, just 20 per cent of responding energy suppliers said they had systems in place to deal with the difficulties posed by multiple occupancy dwelling.
Inability to change: for large institutions, change is almost always difficult to manage – particularly change at pace. Seizing the initiative to reorient utilities’ business will require nimble processes and rapid time to market for new offerings.
Regulation: utilities are overseen by a regulator that has been widely criticised as outdated and slow to respond to changes in technology.