The following is a contributed article by Michael Mernick, Senior Vice President of market development at ICF.
The energy sector is in an unprecedented state of flux. Numerous industry trends have placed energy efficiency (EE) at a pivotal crossroads. To remain a central link in the system, it’s critical that utilities think about EE programs differently and modernize the experience to succeed in the new, customer-centric environment.
Among the fundamental changes impacting the landscape:
There is an immediate need to create more value out of programs due to a regulatory and business mandate for utilities to do more with less.
Utilities must be prepared for the new, future business model as self-generation methods — from battery storage to electric vehicles — are eliminating a complete dependency on utilities.
The relationship between customers and utilities has fundamentally shifted, driven by consumerization and technology advances.
Together, these overarching shifts culminate in a myriad of challenges facing utilities today. Fortunately, there are solutions for deriving greater value from EE programs and allowing industry stakeholders to better understand the full impact they can deliver in driving the industry forward.
Lessons learned from early EE programs
Paving a sustainable path to the future requires understanding and building on the achievements of our past. It’s clear that early EE programs laid an important foundation for where the industry is today. By fostering the accessibility of efficient technologies — while driving energy reductions — the first class of programs encouraged consumer adoption of energy alternatives while demonstrating significant value in terms of regulatory compliance, cost and lost-margin recovery, and shareholder incentives.
For instance, EPA’s ENERGY STAR program and DOE’s Better Buildings initiative helped raise consumer awareness about the many benefits of EE. These programs also quickly brought alignment from energy product manufacturers and retailers on the significant benefits these public/private partnerships could bring from a sales and revenue perspective.
Electric and gas utilities throughout North America also played an outsized role in paving the way, and paying the way for successful business and economic growth. Specifically, utilities have helped to bring down the cost of energy efficient products and services for consumers and businesses through the rebates and incentives provided through highly regulated demand-side management programs.
As a result of their investment and commitment to EE over the years, utilities have established a two-way communication flow with their customers that has enabled customers to save both money and energy. But today’s energy providers are facing the challenge of turning yesterday’s progress into tomorrow’s success. This undertaking will require that utilities understand where, and how, they can create more value, as well as ways they can connect EE to future business models — all while maintaining relevance to digital-age customers in an on-demand world.
Understanding how to create more value
Utilities in states like California and New York have been mandated by regulators to help businesses save on energy costs. Under a host of regulatory and business pressures, all utilities must take a hard look at current EE programs and determine how they can take immediate action to derive more value from programs with fewer resources.
The first step toward accomplishing that is by utilizing technology and software. Business intelligence tools can easily analyze data and help utilities better understand how their company operates and how their customers behave. Ultimately, these learnings will drive the implementation of future solutions. For the core EE programs that utilities are running today, investment in data is no longer a ‘nice-to-have’ — it is necessary to understand how to maximize value.
DTE Energy has proven that the proliferation of customer and grid data yields important insight into what customers need, and how those needs align with grid needs — to everyone’s benefit. By leveraging data that it collects from its distributed energy resource management system (DERMS), the Detroit-based utility can see the real-time activity of EE technology and devices throughout its network, right down to those in the home. The collected data can inform methods to lower costs for DTE customers.
Connecting EE to future business models
Utility planning is no longer the predictable exercise it once was. As the grid becomes more integrated and decentralized, grid planning and modernization are ripe with uncertainty and risk. Changing market dynamics are making load management and revenue planning more challenging for utilities.
Specifically, it can be difficult for utilities to know where and how to build new assets, when to incorporate electrification or distributed energy resources into their plans, and the role their EE programs must play going forward. The need to unite EE with emerging areas of opportunity is critical in getting the most out of the utility’s investment in their demand-side management (DSM) programs.
With more utilities moving behind the meter, DSM and customer programs must evolve. Many utilities struggle to know how to accomplish this, and to understand how those changes impact operations and overall grid strategy. The key is to build a bridge that connects EE to adjacent, new areas of opportunity, including storage, electric vehicles (and broader electrification efforts), and smart home technology.
For example, Arizona Public Service launched an innovative pilot to integrate smart thermostats, water heaters and behind-the-meter storage to increase load during midday peaks. Meanwhile, states like Oklahoma, Michigan and Massachusetts are updating their integrated resource plans to account for customer-sided assets and EE as a generation resource.
Maintaining relevance to the customer
With the energy industry in such a state of transition, there is a growing need for utilities to prepare customer-centric business models for both the near and long-term future. Today’s customers expect personalized choice and control when it comes to both how they manage their energy usage and how they engage with their utility.
We worked with PG&E to design and implement the utility’s Home Energy Optimization pilot that delivers on these new expectations by providing a full suite of customer-controlled smart home technology. Other programs are exploring a Bring Your Own Device approach, giving customers the freedom to choose the smart devices they engage with.
Given the incredible power of consumerization, becoming and staying relevant to customers is more important than ever for utilities. EE programs, for their part, will continue to provide utilities with the best platform for building customer engagement. Further, there is a wide-open opportunity to focus more on EE initiatives that provide explicit benefits to the utility customer as a way to access and enable future new revenue streams that the utility might want to pursue.
The bottom line: utility business models are evolving — and wise utilities will leverage their prior investment in EE to further strengthen their business planning and help drive a stronger relationship with their customer. Many foundational EE programs have allowed utilities to build trust with their customers, which they can now leverage as their newer business models take shape and move out into the market.
Ultimately, the future of the industry demands that utilities deliver customer centric programs that meet regulatory mandates and cost recovery incentives. This future will be powered by new technology, a commitment to responsibly distributing existing energy resources and a universal focus on customer success.