Many discussions about Smart Grid solutions focus on disruptive technologies without examining the underlying implications to business models and processes.  This is akin to buying an expensive, high-performance car and then pushing it down the street.  When results don’t measure up to expectations, the technology is inevitably blamed, heads roll, and new consultants are brought in.  When we were the new consultants, the highest priority task was usually a careful review of processes asking a few questions such as, “why do you do this?”  Once we had reviewed and revised processes, along with identifying skills and training gaps to assist employers in reskilling workers, the expensive technology investments did deliver the desired results in productivity improvements, reduced costs, and increased employee and customer satisfaction.

Smart Grid technologies enable changes in the electricity supply chain that will be disruptive to existing business and regulatory models.  Decreasing prices for new solar technologies and new financing options make distributed generation of electricity more likely on a greater scale in many regions of the country.   In California, 61 school districts are receiving American Recovery and Reinvestment Act (ARRA) tax credits to offset the costs of solar panel installations and build energy-efficient classrooms.   The state schools superintendent also announced an initiative that focuses on planning, procurement, and operational processes.  Called the Schools of the Future team, it includes representatives from education, state, labor, and business to identify and remove regulatory barriers, find potential funding sources, and build best practices about smart energy management in schools.  This is a great example of disruptive thinking to accompany disruptive technology.  One financing innovation I’d like to see is creation of public/private partnerships that let California polluters offset carbon emissions with investments in these school deployments of solar and building energy efficiency technologies. 

We should consider this decade the Great Electricity Restructuring.  Regardless of where you see yourself in the electricity supply chain it’s an opportune time to ask if there’s a better way to make electricity, transmit it, or use it.  For utilities, there are growing numbers of Smart Grid technologies that improve the safety, reliability, and delivery of electricity.  For consumers, the mainstreaming of home energy management solutions and energy efficiency solutions offer many new options for intelligent consumption of electricity, as well as residential generation opportunities.  Regardless of where in the supply chain that disruptive technology is introduced, it would be a mistake to presume that organizational behaviors (processes) or home operations shouldn’t have some paradigm shifts.  The Schools of the Future team offers us a teachable moment about the application of disruptive thinking with disruptive technology. 

There were two common messages within these conferences:

1.  People are emotional about their car purchases and about how they invest their money. 
2. A lack of experience holds back full embrace of new technologies and can build a FUD (fear, uncertainty, and doubt) factor.  The lack of consumer experience with EVs is holding back rapid consumer adoption.   The lack of venture capitalists’ (VCs) experience with some technology sectors may be doing the same in investment decisions.

An EV buyer has to install charging equipment at home and learn the location of charging stations – something that internal combustion engine owners don’t worry about (although at one time, gas stations were not commonplace either).  An EV buyer has to learn a different maintenance schedule and pattern, and be comfortable with the safety record of EV batteries and future resale value of their used EV.  In contrast, a VC being asked to commit millions of dollars has to consider the projected future value of a new company that may have a disruptive technology.  The VC has to weigh the pros and cons of that technology, the alternatives to it, the market space, and whether or not the company’s management team has the right skill set to build and execute a winning strategy. 

The Emobility conference discussed consumer attitudes towards EVs.  One recent study revealed that 66% of respondents support investment by utilities in EV charging infrastructure, and 52% want utilities to take leadership in a consumer shift to EVs.  That’s good news for electric utilities – consumers look to them to reduce that FUD factor.  However, they may have their hands full.  At the VC Summit, Tim Draper, of Draper Fisher Jurvetson, said that good investing opportunities lie within monopoly industries because they get “sloppy”.  Utilities are monopolies in most of the USA, and there’s certainly a significant amount of disruptive Smart Grid technology swirling in that sector.  Will existing utilities execute Smart Grid strategies effectively and efficiently?  New Smart Grid technologies can put distributed generation in the hands of new electricity producers; new energy service providers may disrupt the utility/ratepayer relationships; and new entrants might deliver energy provisioning and management services – including services for EVs – that could dramatically alter the composition of the electricity market and introduce competition in unexpected places. 

Todd Chaffee of Institutional Venture Partners identified three top investment areas for his company -communications and wireless technologies; enterprise IT solutions; and Internet and digital media.  These technology categories will be disruptive to the existing grid ecosystem.  These areas also reflect the comfort levels of a large number of VC firms in the USA – they know software and communications networks and the Internet. They don’t know as much about battery chemistry or materials science outside of microprocessors, but the successful IPO of A123 has gotten their attention.  Clean technologies will be a big investment area for VC firms, however most of them will be focused in their comfort zones.  Start-ups in different Smart Grid technologies outside of these areas that are seeking capital will have to work doubly hard to build VC knowledge and eliminate the emotional FUD factor.

HEMS solutions usually include some sort of In-Home Display (IHD) that communicates information that ranges from current electricity rates, home electricity consumption rates, and what I term “home operations metrics” like temperature and security status. These IHDs can be wall-mounted displays or standalone, battery-operated wireless displays, or even visual devices that simply glow a different color to indicate home consumption or real-time tariff rates.

In the current electrical grid, the utility’s relationship with a residential ratepayer ends at the meter, affixed to the outside of a home. Bills arrive after the fact – at a minimum a month after your electricity use. HEMS and IHDs completely disrupt this consumer engagement model, and offer the opportunity for utilities to extend their relationship inside the home with much richer content and real-time data. True, utilities have websites that consumers can visit, but this information is relatively static.

Smart Grid-enabled HEMS solutions can deliver information that residential users would find compelling – such as real-time billing information mentioned above, tailored suggestions about how to trim their electricity bills, offers for participation in demand response programs to reduce rates, and more. This information empowers consumers to make educated decisions in real-time about how to manage their electricity consumption. That’s the good news.

The bad news is that, operationally and culturally, utilities are not accustomed to selling to residential end users. They don’t inhabit a competitive world where they must fight for mindshare and market share. If you look at the take rate for utilities’ consumers to sign up for electronic billing as an indicator of their selling capabilities, it is abysmal. Only 17% of all residential utility customers have enrolled in electronic billing. In comparison, 40% of telecom customers have electronic billing. Clearly, there’s a problem in utility outreach and education to sell consumers on a program that has solid environmental and convenience benefits.

If utilities have low success rates in getting people to enroll in simple programs like electronic billing, then there are real challenges in communicating complex and layered messages about the benefits of HEMS solutions and associated IHDs. As I noted in last week’s blog about PG&E’s rollout of smart meters, residential end users will have the opportunity to have a very visible and very disruptive technology introduced in their homes. If it’s done well, not only do the utility rate payers benefit, but overall we all benefit from fast adoption of Smart Grid solutions. However, technology rollouts that result in confusion, opposition, and lawsuits have negative impacts on everyone.

Utilities are depending on HEMS solutions to enable widespread participation in demand response and energy reduction programs. The stakes couldn’t be higher to plan and conduct effective rollouts of these HEMS applications, starting with clear messaging about the benefits of HEMS solutions to average residential customers. Not every consumer embraces change – especially when we have all been conditioned to regard electricity as a cheap and plentiful commodity that doesn’t require much attention on our part. However, we can be educated to welcome changes such as smart meters and HEMS solutions, as some utilities have successfully demonstrated.
HEMS rollouts must clearly articulate the benefits to end users – what’s in it for them, what’s required of them, how to get more information, how to get support when things break, and examples of what the solution looks like and options for IHDs. A successful HEMS rollout requires a sophisticated sales and marketing strategy. Next week’s blog will explore some of the key tactics in a successful strategy.

Flat Panel TVs Get Energy Efficiency Standards in California
Break out the Champagne for the bold decision by the California Energy Commission (CEC) in approving new energy efficiency standards for TV sets sold in California!
Recent blogs (see archives: October 12th and 26th, November 2nd and 9th) covered the brouhaha that the CEA and some TV manufacturers created with the usual scare tactics about job loss, economic disaster to businesses, and all the other assorted ills that have been projected with every previous CEC energy efficiency standard. Fortunately, the CEC knows from actual experience that these standards improve economic conditions – for California consumers who will enjoy reduced operating costs (i.e. electricity bills). In energy efficiency matters, other states often adopt the CEC rules, so here’s hoping that this positive trend to reduce energy consumption continues across the nation.