Over the last five years, demand-side offerings have seen significant growth and technological advancement. Critical to this advancement is the industry’s commitment to advanced metering infrastructure (AMI) and the smart grid. AMI and smart grid have the potential to facilitate efficient pricing, better information and visibility into consumers’ consumption patterns, and opportunities for improved energy efficiency and cost savings.
Customer attitudes and regulatory policy also have shifted toward supporting a national response to climate change. The result is a focus on energy efficiency, reducing customer energy consumption and reducing carbon production. Achieving reduced end-use consumption will require innovation and new products and services.
Experience with customer expectations regarding energy and utility customer service suggests that what began as separate energy efficiency (EE), demand response (DR) and distributed energy (DE) program offerings are now poised for integration. These integrated demand offerings (IDO) will need to be personalized, robust, easy and valuable. IDOs open new opportunities for service providers, will stimulate the development of new products and services, and will enhance the customer experience with one-stop products.
The increased consumer interest in energy and demand management, coupled with a more favorable business environment as a result of policy changes and higher energy prices, has encouraged a number of non-traditional providers to enter the market. Google, Microsoft and GE already have entered the market with new products; Verizon and AT&T are piloting services; such big box stores as Best Buy and Home Depot are evaluating their options; partnerships are forming among such companies as FP&L, GE and Silver Spring Networks. These non-traditional entrants are changing the game with respect to EE, DR and DE, and might alter the utility-customer relationship.
The results of a recent survey provide interesting insights into the desired characteristics of an IDO, market trends, delivery approaches, energy savings opportunity and the drivers for participating in an IDO (see sidebar “About the IDO Survey”).
The IDO was defined as providing a combination of EE, DR and DE options that best meet the customers’ needs and improve the customer experience. These options include: technologies that provide both EE and DR results, such as smart thermostats; specific technologies, such as photovoltaics, that can be integrated with other technologies, such as battery storage; innovative pricing approaches and products (e.g., critical peak pricing, time-of-use pricing, and real-time pricing) combined with customer information and technologies; home displays and other channels for the presentation of usage, price and performance data to customers; and control and communications technologies that enable optimized performance of other technologies.
These IDO options could be offered á la carte—from a portfolio allowing customer selection—as a fixed package of solutions, or through a community offering and local energy solution.
The characteristics of an IDO are important to its success. To assess the preferable characteristics of an IDO, respondents were asked to rank items on a list of characteristics developed from discussions with the industry (see Figure 1). “Ease of use” was ranked the most important characteristic by more than 50 percent of the respondents. This was followed by the immediate benefits customers receive from the IDO product or offering. It’s noteworthy that respondents ranked “technical support,” along with “experience of friends with provider,” and “reduction in carbon” at the bottom of the list. The low ranking of these characteristics shows the emphasis on personal impacts and pocket-book issues, which are critical to future IDO designs.
The poll results support the idea of one-stop shopping, and industry interviews indicate customers want user-friendly and rules-based solutions—that is, products and services that they can set and forget. The desire for immediate benefits reflects both the need for quick feedback (to see the results of their actions to confirm that changes are occurring), as well as the economic environment at the time of the poll.
The industry interviews highlighted that integrating EE, DR and DE will bring changes to the energy market. These changes are enabled by new technologies and will be driven by the increasing cost of energy and changing customer expectations that’s transforming energy and demand management into a viable business. The entrance of non-traditional providers such as Google, GE, Microsoft and Telcos into the energy management market is a sign that already the transformation might have started.
Results from industry interviews indicate this transformation will be an evolution. Industry executives expect the market to evolve from today’s end-use focus toward a community focus (see Figure 2). As the market evolves, it will be necessary to integrate the offerings to provide premise and community-based services that are personalized. Personalized services will require providers to understand a multitude of energy issues related to a premise or community and provide an integrated solution that meets those needs. This will require flexibility in program design and regulation. While today’s end-use solutions achieve scale through standard offerings, achieving scale with personalized offerings will be a challenge.
IDOs can be delivered in a variety of ways: utility programs, competitive retailer offerings, contractors and government agencies. These delivery options become particularly important as such companies as Google and Microsoft enter the market, and as the customer experience, government policies and incentives play an increasing role in the customer’s decision to participate. The IDO survey asked respondents to rank seven delivery choices (see Figure 3). Respondents expressed a preference for delivery by energy service companies (ESCO) and other specialized service providers and utilities, followed by competitive retailers and public-private and not-for-profit agencies. ESCOs and specialized services and utilities were the most preferred probably because of customers’ experiences and greater familiarity with such providers.
The least preferred was a government agency. Government’s low ranking probably reflects concern about the technical nature of the services provided, privacy issues and efficiency.
For IDOs to be successful there must be increased savings in energy usage. A key issue is how much more an IDO can reduce energy consumption as compared to the individual programs offered today. Price elasticity also impacts the ability to reduce energy usage, so the online survey asked respondents two questions to determine the IDO impact with and without an alignment in pricing (see Figures 4 and 5). About 50 percent of the respondents felt an IDO under current pricing scenarios would bring savings between 5 and 15 percent. Probably this reflects the ability to tailor the IDO to meet a customer’s specific situation and the ability to leverage cross program benefits through integration more effectively then if the programs were offered separately. However, the poll respondents believed the amount of savings would increase dramatically when an IDO is aligned with peak pricing. Slightly more than 35 percent of the respondents said they expected a reduction of 15 percent or greater. Industry interviews confirmed this gap, with industry leaders indicating that to achieve the maximum results from an IDO it needs to be aligned with appropriate pricing options. They indicated that alignment also must occur between the technology offered and the pricing option to assure the technology can take advantage of the pricing structure—an alignment that isn’t occurring today. Instead, EE, DR and DE programs usually are designed and offered independent from pricing and tariff designs. Aligning pricing, offering and technology builds upon the ability to address specific customer needs, providing greater savings potential over standardized programs. Pricing coupled with alignment of the technology solution offered likely will benefit customers more.
Energy savings doesn’t exist without program participation. Achieving a high level of participation will be critical to achieving the energy savings the industry will need in the future. To assess how customers might respond to an IDO, poll respondents were asked to provide one word or phrase that describes an IDO, as a means of indicating the first impression a customer might have of IDOs. Some of the most frequently mentioned responses were: “comprehensive,” “convenient,” “cost savings,” “ease of access,” “ease of use” and “one-stop shopping.” All of these are positive impressions that would encourage customer participation. These responses are consistent with the findings of other customer research conducted by EcoAlign, a strategic marketing agency. (See, for example, the results of EcoPinion survey reports, available online at www.ecoalign.com.)
The survey also asked participants to define one or two words that were the drivers for creating an IDO. The most frequently cited driver was “energy cost.” This was followed by “carbon” or “climate change,” and “regulation” or “legislation.” This shows the importance of both noticeable cost savings and policy issues in moving IDOs forward, and aligning these with customer expectations.
Technology and AMI/smart grid were mentioned as enablers rather than drivers for an IDO. This view was supported by industry interviews. Industry experts felt that technological advances in demand management were being pulled by rapidly changing energy demand-management needs, rather than driving new solutions. Responses suggest technology eventually will catch up with the changing demands. This view might now be changing since Google, Microsoft and GE have entered the market and plan to offer significant new products and services. Their success or failure might indicate whether technology can become a driver of transformational change in energy and demand management, as it has in other industries.
Are IDOs the next generation of energy and demand-management products and services? Only time will tell. What seems certain is that energy prices continue rising and are likely to rise more in the future. The demand for energy is increasing, and in a carbon-constrained economy, low-cost, low-carbon energy resources aren’t readily available. Energy efficiency and demand response will play a significant role in meeting future energy needs. However, the easy, low-hanging EE and DR opportunities already have been harvested. New approaches, products and services will be required to meet the increasing need for resources.
IDOs potentially could become the next generation of energy and demand-management services. However, to be successful, IDOs will need to be personalized, robust, easy, and valuable. That is, they must have the following characteristics:
• Personalized to respond to the customer’s or community’s specific energy problem and needs, and flexible enough to respond to changes in the customer’s or community’s preferences over time;
• Robust to provide a total solution that results in the desired customer experience. This includes commodity, energy and non-energy services as well as channels of communication, access and pricing;
• Easy so it is simple for the customer to understand, enroll and use. Rule-based logic is needed to assist customers. Easy includes providing the customer with tools to assist in their energy decisions as well as a platform to view changes and results; and
• Valuable to customers in that it meets their needs, assists in managing their energy costs and provides an enhanced customer experience. Valuable to the utility in that it assists in reducing the cost to serve and in improving the efficiency of the system.
IDOs could be designed to include these characteristics, provide that new approach, and move demand management from an end-use to an individual and personalized response. IDOs could be the next generation of energy and demand management.