Today's electric-utility faces a wide range of challenges that weren’t present a decade or two ago. A number of factors, including the rising use of renewable energy, falling wholesale market prices, and the growth of distributed generation and energy efficiency are eroding traditional utility market shares and impacting profits.
The customer is changing
With the emergence of competitive retail electricity supply in European markets, customers are adopting a new, active role in managing their power supplies. Over 510 million customers in Europe reside in markets with liberalized supply and retail markets, nearly five times as many as in the United States. In 2011, around 6 percent of European households took advantage of this new freedom and switched over to different electricity suppliers.
As more businesses and homeowners install solar panels, wind turbines and other electricity and heat generating equipment to generate their own power, the utility finds itself in a highly precarious position: it can no longer rely solely on revenues from selling power. This is turning traditional business models upside down.
Utilities are beginning to realize that new business models must be developed in order to stay in the market and remain competitive.
Says RWE Chief Financial Officer Bernhard Guenther: “A significant part of our business model is now facing new challenges.”
Change equals opportunity
Utilities like E.ON, one of the UK’s leading energy suppliers, are viewing this transformation as an opportunity. The utility has partnered with GreenWave Reality, global innovator Home Energy Management, as part of its greater emphasis on distributed energy and smart energy solutions. GreenWave Reality develops custom-tailored solutions for home energy consumption, making home energy management and home automation its core business. E.ON will be using GreenWave hardware, software, and hosting cloud services.
E.ON selected GreenWave Reality’s Home2Cloud as its development platform after a two-year trial involving 75 households.
E.ON is not the only power company exploring the investment opportunities that exist in smart home technology.
General Electric is launching a family of ZigBee-enabled smart appliances, including electric water heaters, washing machines, dryers, microwaves, ovens and refrigerators. This technology could dramatically change consumption patterns and costs.
Even IT firms like Google, Microsoft and Apple are entering the market as it promises to deliver significant growth. Our recent article The Google Smart Home Play, discusses Google’s venture in to the electricity arena.
The adoption of advanced smart home technologies is escalating at a rapid rate. It is expected that by 2025, smart home features will be the standard in upscale dwellings. In Germany alone, the smart home market is expected to grow to EUR 19 billion by 2025 and utilities want a slice of the action but can they react nimbly enough to compete with fast moving consumer electronics players also eyeing this market.
Business objectives and benefits
The partnership between E.ON and GreenWave Reality promises to provide E.ON customers with increased comfort, security and energy efficiency. Through the smart home technology, customers can look forward to achieving measurable energy savings as well as an improved understanding of their energy consumption.
Says Urban Keussen, Senior Vice President for Technology and Innovation at E.ON, of the business move, “We’re always looking for innovative products and services that help our customers live better and more efficiently. Our partnership will GreenWave will support this effort.”
While the benefits for customers are clear, the smart home infrastructure will give E.ON a wide range of energy management applications, including solar, home automation, and connected lighting. The platform’s advanced energy management capabilities, which include fault recognition and self-healing, will help customers reduce their energy costs and save the utility a great deal of time and money as there will be no need for staff to be sent out to the field. This is especially helpful during super storms when it may be unsafe to send staff out to fix outages.
E.ON will be offering these smart home services in its regional markets across Europe.
Smart home technology will usher in disruptive change that will displace incumbents in favor of new players. It is therefore critical that power companies invest in this market in order to remain viable. Says Adrian Tuck, Vice Chairman ZigBee Alliance CEO Tendril, “We are about to go through a revolution in the energy space every bit as big as the telecoms revolution. Businesses that we may think are currently unassailable will go out of business if they don’t react wisely in the transition.”
Business as usual in the power sector is no longer a viable option. With declining profitability in their core business areas, the future of the electric power sector relies heavily on capturing the growing value associated with renewable and distributed energy generation and other emerging technologies, capitalizing on their current relationship with customers, and finding innovative ways to serve customer needs through new business models and services.