The California Public Utilities Commission released a draft document on energy efficiency (EE) titled California’s Existing Buildings Energy Efficiency Action Plan on March 10. The document is a “10 year roadmap to activate market forces and transform California’s existing residential, commercial, and public building stock into high performing and energy efficient buildings.” As previously noted here and here, what the 8th largest economy in the world does in its ambitious plans to improve building energy efficiency will have impacts far beyond its borders. This new document identifies policy directions that will have profound economic and environmental implications in California and beyond its borders.
According to the Department of Energy, buildings take 73% of the electricity consumption in the USA. Residential and commercial buildings that are retrofitted to consume less electricity and natural gas put more money into consumer pockets and improve the bottom lines for businesses. Those reductions become widely-distributed and persistent savings.
There are employment benefits as well. Approximately 61% of all construction projects are retrofit projects, and require onsite labor to complete them. That means local economies benefit from increased employment in skilled blue collar trades. But many EE retrofits also include high tech solutions that make buildings smart – sensors, wireless communications, and analytics software, with concomitant increases in sales and growth in the companies that provide these solutions.
The CPUC roadmap outlines five goals that include objectives, strategies, and partnering arrangements within each goal. A striking common characteristic is the transparency that the five goals strive to create about energy and water efficiency through the collection and management of data. Starting with benchmarking and disclosing building performance, which sets an invaluable data foundation, the other goals methodically leverage this performance data to provide new perspectives for decision-making. Increased access to and understanding of building performance data can lead to more informed actions regarding investments. This transparency also serves to promote awareness of the value of EE programs to all stakeholders, but perhaps most especially to utility customers, who may not be well-acquainted with the overall benefits of programs funded through their electricity rates.
Another positive aspect of this document is its broach approach to EE in buildings. Single family, multifamily, small to large commercial buildings and public buildings are identified and addressed. While there are common objectives of reducing energy and water use for all these buildings, the technologies, market structures, and financial approaches are uniquely different. There’s an urgent need for innovations in how EE programs for multifamily and many commercial buildings are financed that overcome split incentive challenges. While green leases and other similar measures help tackle these problems, much more “friction-less” processes and financial benefits to those investing the upfront capital for upgrades will be necessary to accelerate increased EE in the California building stock.
Encouraging the transparency of building data with regards to energy efficiency has another benefit. The barriers to technology innovations in materials sciences will be reduced because innovators and their funders will increasingly see that there are addressable markets for their solutions. But in the short run, the policy and capital innovations based on this roadmap for energy efficiency may for once leapfrog technology innovations.
What does energy efficiency mean to you? Does it mean replacing old light bulbs with energy-stingy LEDs? Is it a remodeling project that installs double or triple pane windows? Does it include upgrading appliances like air conditioners and refrigerators to take advantage of Energy Star ratings and utility rebate programs? It means all of those things, and in states like California that employ aggressive energy efficiency (EE) policies and standards from widget to building envelope, it’s been a successful strategy to reduce per capita energy consumption.
Earlier this year the governor of California announced an energy policy, although he didn’t call it that at the time. One of the goals is to double EE savings in existing buildings by 2030. To get there, breakthrough innovations in EE policies, technologies, and financing are required. In other words, its time upgrade from EE 1.0 to EE 2.0, with a very heavy emphasis on building retrofits.
The Next Generation of Energy Efficiency Project at Stanford University aims to define EE 2.0. Led by Dian Grueneich, former Commissioner of the California Public Utilities Commission and now a Senior Research Scholar at the Precourt Energy Efficiency Center and the Hoover Institution, the project will create a series of whitepapers to help mobilize actions that deliver Governor Brown’s “doubled down” objective.
The first White Paper, to be issued this spring, will discuss some of the steps Ms. Grueneich has identified to define an EE 2.0 framework:
- Articulate EE’s new role in terms of its increased value to economic, energy, and environmental security
- Structure transparency and build awareness through annual performance reporting on EE gains
- Revise state agency roles and processes to streamline policy and projects support
- Align EE regulatory rules and policies with state climate goals
- Improve customer-funded programs
- Investigate the state’s development and enforcement of codes and standards that can accelerate EE goals
- Identify and support innovations in technologies, policies, and financial products that contribute to EE savings
Technology innovations are abundant to retrofit existing buildings to higher EE savings. Much of that technology is relatively low tech too. Insulation and double pane windows aren’t rocket science. Of course, there’s exciting work in labs that will improve building envelope materials in the form of new paints as well as “smart” windows.
The pre-eminent challenges to creating the Next Generation of EE are in policy (including agency governance) and finance. Compare an EE investment in insulation upgrades to an investment in solar panels. Both have upfront acquisition costs with a promise of energy bill reductions enjoyed in the future. Homeowners have a range of options that include use of PACE programs to finance solar investments or partnering with firms that handle the upfront acquisition and installation costs and share in the production and tax benefits. Insulation upgrades lack the same diversity of financial programs and partnership options. As Ms. Grueneich described at a recent session, “in energy efficiency thousands of different decisions made every day by individuals, organizations, and governments. We have to use our policies and the private market to set up similar models to solar that make efficiency easy and attractive, for both consumers and providers alike.”
Ms. Grueneich noted that EE 1.0 consists of “mostly single ‘widgets’ and low uptake by consumers and businesses.“ But there’s pent-up demand and new technologies that EE 1.0 doesn’t address. How many more decisions about energy efficiency could be made if only policies and financial instruments better supported them? The Next Generation of Energy Efficiency Project just may provide that answer.
New terms and jargon sometimes appear over time. “Sustainable” is one example. From a shorthand description of smart, long term practices applied to fisheries and agriculture to thoughtful consumption embedded into modern society, it has achieved jargon status.
The term, and its conceptual basis is now migrating into electronic component power technologies and designs. Self-sustainable operation means that whatever the device or function, it is self-powered, and that has extraordinary possibilities for the Smart Grid and M2M sectors. Just a few short years ago, embedded sensing and communications functions in devices created insurmountable engineering challenges in terms of how to power those devices. No matter how cleverly chip manufacturers reduce energy consumption – there’s still a requirement for some energy. That energy source was either a wired connection to the grid, or batteries. There have been advances in battery technologies at both the micro scale to utility scale, but without an ability to recharge batteries, there is a lifecycle limitation that culminates in battery or device replacement. That limitation in turn impacts the potential of innovative M2M applications in Smart Grid, Smart Infrastructure, and verticals like health.
There’s new research underway that can unlock the potentials for the Smart Grid and M2M sectors. It builds on energy harvesting research, but has the objective of completely eliminating the need for a wired power delivery or battery replacements in devices. The best phrase to describe this growing field of research is energy self-sufficiency. Energy self-sufficiency will be a term used with increasing frequency in the Smart Grid and M2M sectors.
There are a number of promising sources of energy that can be used to deliver energy self-sufficiency such as solar, piezoelectric (kinetic forms like vibration), and thermal energy. There are pros and cons to each of them, and they are already deployed in chipsets – sometimes in combination for power provisioning. But electromagnetic waves can be harvested too – a concept first proposed by Nikola Tesla and Heinrich Hertz over a century ago.
There’s no shortage of ambient wireless or radio frequency (RF) activity around those of us living in developed economies. In fact, we’re practically marinating in electromagnetic waves. Interesting energy self-sufficiency research includes both near-field and far-field applications that harvest TV, cellular, and Wi-Fi signals. Other research continues to build knowledge on optimal operation modes for power-up, sleep, and active states of energy self-sufficient devices.
These technologies may not add up to powering devices like smart phones completely without grid connection, but they may extend the time between needed connections to grids. But more importantly for the Smart Grid and M2M sectors, these technologies may power sensor platforms in a broad range of applications and increase the energy harvesting potential of solar panels that can also perform as hybrid RF harvesters. It’s an intriguing expansion of the green revolution in electronics.
For utilities, this can have significant impacts on projections for future grid-delivered power and in opportunities to apply more “standalone” sensing and control mechanisms into operations. That second impact also translates into new possibilities for Smart Infrastructure applications – particularly where water grids are concerned. Without a doubt, energy self-sufficiency in sensing and communications devices should have communications service providers and M2M application providers cheering as conventional technology constraints decrease and their market opportunities grow.
There’s been a significant amount of hype about the Smart Grid’s four Vs of data – volume, velocity, variety, and veracity. But there’s a missing element to these discussions, and that’s the fifth V – the value of data. In the Age of the Prosumer, the value of data has profound implications for the utility sector in general, and to defining consumer and prosumer value in particular. To excel in this new world of real and digital energy service choices, utilities will have to develop prosumer-centric operations and manage the data that is most valuable to them and their consumers and prosumers.
That’s not an easy task. Utilities are challenged to manage terabytes and petabytes of data with processes, tools, skillsets, and metrics designed for megabytes of data. As more devices become smart – capable of sensing and communicating status and accepting commands – the challenges to maintaining productive and cost effective operations will grow. Utilities can’t afford to engage in traditional siloed methods of learning – they will have to look to other sectors for knowledge, best practices, and tools.
As noted previously, other business sectors have knowledge that can be leveraged to good effect by utilities to avoid reinventing wheels of discovery and education. Some sectors are adept at tailoring promotions for both brick and mortar and online purchases (aka omni-channel strategies), to push discounts, loyalty program awards, and purchase suggestions. Their data expertise and best practice experiences can help utilities develop B2B2X marketing programs and definitions of consumer and prosumer value. The telecom sector has extensive expertise in segmentation and churn analytics. This sector also has standardized processes to ensure interoperable transactions with partners – knowledge that could be particularly useful to utilities to support the successful development and management of seamless digital energy services targeted to consumers and prosumers.
The good news is that there’s an entity called the TM Forum that collects and manages this repository of knowledge, and it is available to utilities as part of their Smart Energy program. TM Forum provides a neutral, open, and structured forum for collaboration between service providers and their vendors. Their goals are to reduce costs and risks, ease system and process integrations, and improve business and information agility. Members utilize consensus-built tools, metrics, and best practices to accelerate their initiatives in network operations modeling, customer experience management (CEM), and data architecture strategies.
For example, a tool called the Business Process Framework is a proven blueprint for enabling successful business transformations – something that can be extremely helpful for utilities as they revamp and restructure their operations to accommodate all the new data generated by Smart Grid solutions. What’s more, TM Forum supports projects called Catalysts to explore how their tools can be applied to different business sectors and their unique challenges.
There’s an ongoing Smart Energy Catalyst that has already demonstrated large-scale integration points and digital handshakes necessary to connect utility grid and back-office operations and concomitant applications to support digital energy services for consumers. Participants in this low-risk proof of concept project include utilities (BC Hydro, Hydro-Quebec, and Salzburg AG) and solution providers (Esri, Infonova, and BaseN, among others).
Learning by doing in the collaborative environment enabled by a Smart Energy Catalyst is a great first step for utilities to build expertise in data that supports strategic objectives. Getting the 5Vs of data right will be critical success factors for utilities to build prosumer-centric operations and properly define prosumer value.
Disclaimer: TM Forum is an SGL Partners client.
The Age of the Prosumer presents challenges for utilities accustomed to thinking of their customers in terms of kilowatthours consumed. The Smart Grid is responsible for these challenges, borne out of technology, policy, and capital innovations. These innovations are triggering many disruptions to the utility business model, and will eventually transform the historic dependency of electricity consumers on utilities into new prosumer relationships of interdependency.
Interdependency is the key distinction between a consumer and a prosumer and will be a significant factor in developing formulas to assess the total value of these relationships to utilities. A consumer is dependent on the utility and generates revenues. A prosumer has different value for utilities through an interdependent relationship in which the utility may rely on commitments to reduce electricity use (negawatt production) or supply electricity to the grid (kilowatt production) at specified times. At other times, the prosumer may be reliant on the utility to supply kilowatts.
The calculations of prosumer value are explicitly impacted by regulatory policy. Consider two different state regulatory commission decisions in 2014. In March the Minnesota Public Utility Commission approved a process to create the first “value of solar” tariff. This tariff includes non-traditional calculations such as the offset costs of other forms of electric generation and environmental considerations. In late December the Arizona Commerce Commission allowed two regulated utilities, Arizona Public Service and Tucson Electric Power, to offer programs that essentially let them seek authorized use of customer rooftops to deploy rooftop solar generation assets.
These two decisions herald the first steps that utilities will make to develop definitions of prosumer value that are unique to their business environments. Where another business sector may be satisfied with analyses of demographic and behavioral data, utilities must include geographic data, weather data, and solar irradiance data correlated with grid operational attributes and performance data to build a value of solar tariff. Similar data can help create prosumer value assessments.
In the Arizona scenarios, data analysis of this type will help determine if a certain number of rooftops outfitted with solar along a distribution line can postpone an expensive grid upgrade. The owners of rooftops with excellent solar potential on congested lines will have very different prosumer values to a utility than owners of rooftops with similar solar potential that are connected to areas of the grid that are problem-free.
Prosumer value will be different for each utility. It is also dynamic, with variable rates of change for key factors in formulas. While an address is fixed on the grid, the occupants at that address change, and their load patterns change too. Rooftops and vegetation change. Grid assets have always changed over time, along with the loads on them. The challenge for utilities is that the numbers of assets and variables that impact grid operations will vastly increase. Simulation applications can assist in creating different scenarios that become the frameworks for consumer or prosumer valuations. Today utilities benefit from condition-based maintenance – a predictive analytics approach to asset performance. Similar methodologies can contribute to prosumer value definitions by modeling historical consumption trends and correlating that data with projections for production to create predictive reports about multiple asset generation capabilities.
The Age of the Prosumer has profound implications for utilities as they venture into defining and managing new interdependent relationships with dynamic prosumer valuations. Smart Grid technologies, particularly sensing, communications, and analytics will play critical roles in defining and managing prosumer values as well as the assets that create these new values.
Do you remember when caveat emptor (buyer beware) was the predominant business attitude about customers? Over time, we’ve witnessed the evolution to what has been declared the Age of the Customer*. Companies that do well in the Age of the Customer will have to excel in their abilities to exploit realtime data to enhance interactions and embrace a customer-centric approach that is integrated across all interaction channels.
While re-orienting mindsets and operations for customers is a smart move, it’s only the first step in an evolutionary process that is unique to utilities and culminates in a new conceptual framework. For utilities, this is the Age of the Prosumer.
The word customer doesn’t adequately describe the relationship that utilities will increasingly have with the humans and assets on the other side of an electric meter. Consumer is a better, more encompassing term. A residential or commercial customer has the direct bill-paying relationship with a utility, but multiple consumers, such as a family unit or multiple business tenants in an office building can be associated with that one customer. But the word consumer is also inadequate to describe the relationship with electric utilities.
Electricity consumers are transforming into prosumers capable of production as well as consumption. A prosumer can generate kilowatts in the form of rooftop solar or create negawatts in the form of participation in a demand response or EV smart charging program. That’s why for utilities, this is the Age of the Prosumer. It’s a uniquely disruptive conceptual framework that will have significant impacts to utility business models.
Why is it unique? It’s unique on several levels. First, it’s not the typical Smart Grid disruption caused by technology, policy, or capital innovation although these drivers will heavily influence the responses that utilities can develop to deal with a world of expanding availability of prosumer choices. Second, it’s a unique designation in industry sectors. No other business sector has the potential for bi-directionality of the transacted product or service. We don’t have similar bi-directional transactions of buying and selling clothes from and to Bloomingdales or remodeling supplies from and to Home Depot. Prosumers can do that with utilities. And that bi-directional transaction is very disruptive. It will require transformations of utility business processes, metrics, best practices, and resource skillsets.
Although utilities will have to adapt in the Age of the Prosumer, they don’t have to reinvent wheels. There’s certainly experience from other business sectors that can speed their successful evolutions. One area that is particularly relevant is consumer value. Consumer value is more than a formula. It’s a mindset that many businesses incorporate into their customer retention, acquisition, and value growth strategies. For example, the telecommunications sector invests considerable time and money to analyses of demographic and behavioral data to identify consumers with the highest real or projected value to them. That knowledge shapes their product and service development, influencer and partnership approaches, customer acquisition and customer retention strategies. The outcomes in increased revenue or customer satisfaction are carefully monitored and measured to ensure programs meet performance expectations.
Utilities need to take the lessons about how to assess consumer value and expand it into definitions of prosumer value that are leveraged in prosumer-centric operations. More on that in next week’s article.