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Innovation and Disruption Ripple Through Retail Energy Markets

Businesses and consumers are harnessing emerging technologies to transform a retail energy model that has not changed in a century.

Retail energy is moving from its centralized model of dependent, captive customers to one where individuals and businesses both produce and manage their own energy consumption. This new customer segment—commonly called the prosumer—will initiate a level of collaboration that the sector has not experienced in a century.

Ravi Parakkat

Senior Client Partner

Retail energy customers become prosumers when they generate their own power through resources, such as solar panels that can also be used to charge their electric vehicles. Prosumers have the opportunity to sell their excess power back to the grid.

As more households, institutions and businesses embrace renewable energy, they have the opportunity to become both the buyer and seller in a highly collaborative power supply system.

A customer-centric energy ecosystem is emerging

Consumers are beginning to embrace an emerging portfolio of renewable, AI-enabled energy resources. As a result, the world’s power grids are becoming more diverse and intelligent.

In the U.S. for example, a smart grid initiative funded by the Department of Energy has committed $4.5 billion in new infrastructure, including a large allocation for smart meter deployment.

The trend is rapidly going global. Earlier this year, the African Network of Excellence in Electricity (funded by the African Development Bank and the Agence Française pour le Dévelopement) met to refine its various smart grid initiatives, informed by presentations and lessons learned from Egypt, Algeria, Côte d’Ivoire, South Africa and Zambia. Customer awareness of smart grid technology is also expanding in Europe. Nearly all Italian consumers have smart meters and the European Union is promoting the installation of intelligent metering systems in 80 percent of European households by 2020.

Smart grids manage a variety of energy sources including smart meters, smart appliances, renewable energy resources and energy efficient resources.

Source: The Edinburgh Reporter

Emerging consumer technologies are giving rise to the producing consumer, or prosumer.

Source: Gridpoint

The emerging smart grid is more than just a new energy generation and transmission infrastructure. Rather, it represents a developing ecosystem of prosumers, legacy utility firms, emerging retail energy providers, ISOs, regulators and federal, state and local level government executives, all collaborating to run a more reliable energy network. 

AI and smart machines will play a leading role in energy transformation 

Today, consumer service is largely limited to billing and outage management. That is changing dramatically as startups recognize the prosumer relationship.

One emerging vendor, Powerley, provides a virtual coach that integrates weather patterns into the prosumer’s energy management system, suggesting opportunities to “weatherize” one’s home. The app also researches the consumer’s best option for saving money through heating and cooling system upgrades. Powerley is just one emerging vendor that offers AI-powered home energy management systems that talk to smart meters (via wireless). Such solutions also use visualization tools to help consumers and prosumers alike take immediate actions to improve appliance-level operation. These solutions are also easy to install once the retail energy provider connects its app to a specific meter. 

AI and smart machines also enable innovations, such as the connected home. Alphabet’s Nest division, for example, offers AI-enabled tools to regulate a home’s temperature through the real-time behavioral analysis of its residents to optimize energy consumption and reduce greenhouse gas emissions. Building Robotics (recently acquired by Siemens Building Technologies) offers a similar service for office buildings.

Other vendors, such as SCI Energy and Building IQ, offer apps and analytics for building managers. Legacy energy management providers, such as Honeywell, Johnson Controls and United Technologies, are also venturing into solutions that give building managers opportunities to manage their retail energy consumption.  

Solar panel

Washing machine

Energy monitoring app

AI will derive valuable insights from consumption data

AI and smart machines are also key to deriving insights from millions of smart sensors that continuously collect and analyze data. Advancements in relevant technologies are helping retail energy operators make more informed decisions for optimizing energy allocation. Advances in deep learning algorithms, where machines find patterns in large data sets, are also transforming the ways we manage the supply and demand of energy.

Google, for example, uses smart machines to reduce total power consumption at its data center, saving the firm millions of dollars. Google’s story is paving the way to a new future where large enterprises will use specialized microgrids to manage local energy consumption. Local providers will also use advances in battery technologies to help sustain power during outages. Even small data centers are saving tens of thousands of dollars with AI-enabled load-balancing tools that optimize server workloads and AI-enabled monitoring solutions that improve server, disk and network performance.

A new energy landscape is creating a level of customer interaction that the industry has not experienced in a century.

AI and smart machines will help balance supply and demand

Increased use of renewable resources comes with its own challenges. For example, changes in sunlight and wind intensity can be unpredictable even with the best weather forecasting techniques. 

Smart machines will help retail energy providers minimize uneven flows of energy from natural sources due to variable sunlight and wind intensity. When renewables operate above their thresholds due to increases in sunny days or wind strength, utilities will use AI to reduce production from fossil fuels (curbing greenhouse gas emissions).

During times when the demand for power drops, AI will help operators optimize energy usage from all sources (relying on fossil fuels only when necessary). Overall, AI will help producers manage supply and demand, optimize the use of renewable sources and decrease the use of energy from fossil fuels.

Without emerging technologies, this future would not be feasible, underscoring a chief benefit of digital business transformation: the ability to do things that—prior to the connected economy—were not possible.

For example, a function in Google’s Android analyzes its owner’s app behavior to extend battery life and to assure power is available for the apps used most. Apps that are rarely used, which would previously consume power by running in the background, are shut down. Multiply this single consumer scenario by millions of users, and the impact on energy conservation is significant.

AI represents an all-purpose, essential technology for competing in a connected economy.

The energy sector lags in AI adoption

According to a survey from MIT’s Sloan School of Management, the energy sector is not adopting AI as aggressively as other sectors, such as banking and investment services. Lagging adoption points to an energy business that has been shielded by a conservative regulatory framework (contributing to a culture that favors traditional IT delivery methods, tools and techniques). Such cultural friction comes between traditional IT practices and the intended business outcomes executives seek from a connected economy.

Other surveys are consistent with MIT. In a survey of CIOs, energy executives say cultural attitudes contribute the most inertia to the organization’s retail business. And, migrating from a waterfall-based cost center to an agile, adaptive business is, at its roots, a cultural migration as the organization reimagines legacy processes that have been firmly in place for decades. It takes a lot of time, training and effort for people to adopt new ways of relating to and managing customers. The recognition and effort required to lead cultural change doesn’t just require buy-in at all levels in the organization, it demands strong leadership from the top. 

Expectations for AI adoption across industries: Impact on offerings

Conclusion

Energy provision will change more over the next decade than it has in the previous century

As consumers install solar energy (and sell their excess power generation back to utilities) they become active in managing and optimizing their own energy consumption. All of these trends are leading to the emergence of the prosumer, a new type of customer that both produces and consumes energy. This trend is shaping customer engagement as one of the leading priority investments in retail energy. Emerging players, Amigo Power and Beyond Power, have invested heavily in customer-focused capabilities, given that good customer experiences are critical to their business models. Traditional utility firms must make similar investments to close their customer experience performance gaps. 

At the heart of this transformation is the unprecedented generation of data

New information, digitally visible for the first time in history, is stimulating an explosion of use cases that are creating exponential value for all organizations in both private and public sectors. As the energy sector transforms, consumers will be better equipped to optimize their own consumption and costs through easy access to information. The birth of a smart energy grid will also help retail energy providers improve security, manage peak loads, integrate renewable energy resources and reduce operational costs. The transformed energy provider will also be more predictive, prescriptive and automated as it harnesses data from a connected economy.

Moving forward

Improve customer-centricity by monetizing a core asset

Retail business executives are putting more priority on initiatives that improve their customer focus. BU leaders can support these initiatives by monetizing customer analytics data. By using the consumption data of customers to provide insight and advice into how they can save money and practice more environmentally sound behavior, retail energy providers encourage loyalty while giving their communications people ammunition to position the firm as a responsible corporate citizen.

Accelerate adoption of emerging technologies

Today’s technology innovation does not mean traditional retail energy producers should blindly adopt new tools and techniques. Technology adoption requires a strategic approach; hence, business leaders in all retail energy providers should identify the types of business problems to which emerging technology solutions can be effectively applied. Pilots and proofs-of-concepts should be actively pursued to manage the risk that comes with new technologies. Leaders at all levels of the retail energy sector need to give their teams permission to fail (but recover quickly) as they recognize and acknowledge the experimental culture of transforming the business.

Pursue a more balanced approach to investment management

Retail energy generally lags behind other sections in their investments in emerging technologies (with the exception of the Internet of Things). This means energy retailers risk an unbalanced investment approach to digital technologies. Energy executives can scale business transformation by tackling a traditional culture based on infrastructure reliability and regulation. By letting their teams experiment, fail and learn fast, business leaders reward the exploratory and innovative attributes of a digital business.