With any change there is opportunity and in the utilities sector, the introduction of smart meters in autumn 2015 in the UK stands out as one of the most far-reaching changes in recent times. For energy suppliers – large and small, there will be opportunities and challenges resulting from smart meters being available – from the immediate challenge of delivering the rollout programs to developing new tariffs, more accurate settlement processes, demand-side management and smarter homes.
Underpinning the creation of new products and services is the communications infrastructure that underpins smart meters and smart grids. The availability of high-resolution, timely data about customers’ energy usage will (with the right treatment of customers data in line with privacy and data protection rules) give suppliers the opportunity to realise new revenue streams and better protect themselves from current and new competitors.
However, smart metering alone won’t lead to increased revenue for suppliers. On the contrary, in areas where in-home displays (IHDs) will be common, the expectation is that advanced metering reduce domestic energy consumption and hence, revenue. To fully realise new revenue opportunities suppliers will need to look beyond consumption and consider what new products and service diversification smart metering they can offer customers.
An engagement touch point with every customer
Access to customer data will be essential for new smart-enabled services, and customers will need to opt into sharing their meter-reading data with suppliers or third parties for marketing uses. Consumer engagement will be highly important and getting hold of customer data is so vital suppliers may want to consider offering customers incentives to encourage them to share their data such as introducing a loyalty scheme or giving a small discount or charitable donation in exchange.
Smarter marketing, retention
As customers opt into sharing their data and gain improved visibility of usage patterns, suppliers will be able to accurately segment their customer database, enabling more targeted marketing. They will then be able to offer their customers’ tariffs that will save them money based on their consumption patterns which could increase loyalty and retention. A similar strategy is favoured by service providers in the UK’s highly competitive mobile phone market and serves to protect revenue from competitors while assuring new customers they always will be on the best tariff for their usage.
Customer opt-in is also the key to the provision of ‘smart home’ services. Advanced meters are a direct line into homes. We are some way from realising a fully integrated and automated smart home for the mass market yet opportunities exist for suppliers that can combine home monitoring with home control. British Gas paints a compelling picture of a ‘home of the future’ where metering, demand management and remote control has been fully integrated to provide remote control of heating, appliances, home security and electric vehicle charging.
By developing a model of typical consumption in a home, suppliers also will be able to identify anomalies in energy consumption and use this to offer alert services, for example: is an appliance regularly using more energy, suggesting an imminent breakdown or has a vulnerable person not turned on the heating on a cold day?
Linking advanced metering with demand management will support the introduction of new and innovative charging models. For example, suppliers could offer new lifestyle energy pricing wherein a customer could say, “Maintain my home at 17 degrees C in the evenings.” The supplier then would manage heating within the home to achieve the target temperature and bill the customer accordingly.
There are, however, policy issues that could restrict the use of advanced metering infrastructure to provide value-added services. Despite provisions for third-party access to the infrastructure, there is a risk that regulators in the UK at least, will not look favourably upon moves by suppliers to provide extra services to consumers across what is a monopoly-owned infrastructure. Despite the challenges in the UK market, vertically integrated suppliers in the U.S. and elsewhere are experiencing some success in using smart grid infrastructure to deliver value-added services such as home security or telemedicine.
Smart metering data also could enable changes that will make the settlement process more accurate, giving suppliers more of an incentive to encourage off-peak energy use by customers.
In the UK, settlement is based on half-hourly time units and actual meter readings might be taken only monthly or quarterly. Settlement calculations, therefore, are based upon profile classes, which represent average customers and allocate monthly consumption against half-hourly time slots in a standard profile.
If a supplier’s customers begin to move demand away from peak periods, for example, through time-of-use tariffs, the supplier will not fully realise the benefits of that behaviour change because customers are being settled according to the standardised profile classes. As more granular metering data becomes available, the settlement process could reduce or eliminate the need for profile classes and accurately reflect customers’ actual usage. Thus, suppliers that can discourage the use of peak-price energy likely would pay less for their energy on the wholesale market and would be able to pass on savings to customers.
Threats to supplier revenue
If suppliers fail to capitalise on the data from advanced metering, the risk is that other more agile competitors will use that data to take customers and revenue from them. Competition is not limited to other suppliers; switching services and demand-side management providers will use detailed metering data to improve their offerings and could insert themselves between suppliers and end customers.
With ready access to metering data, switching providers and energy managers will find it easier to move their customers to alternative tariffs, and any move to streamline the switching process—because advanced meters improve data quality—would only strengthen switching providers’ offers.
Further, as demand-side management becomes more common, aggregators could take supplier-provided granular metering data to better balance demand against wholesale purchasing, allowing them to offer customers new and cheaper tariffs than alternative suppliers.
The technologies for remotely managing and monitoring energy use and appliances in homes have been available for many years, but with advanced metering, the critical difference is scale. The mass rollout of smart meters will give suppliers access to usage data in millions of homes and businesses.
Data within homes will be available on a smart metering home-area network and available to devices and services provided by third parties such as their tablets and smart phones. The prospect of linking accurate metering data within and outside homes to new services and load management offers some of the most exciting opportunities in this space.
Smart grid and advanced metering-enabled services represent a huge opportunity for suppliers, and they need to be ready to capitalise on the new streams of data and access to customer homes or risk losing out on new revenue opportunities.
John Peters is the managing director of Engage Consulting. He has over 30 years’ experience in the energy industry and an in-depth knowledge and understanding of regulatory structures, commercial frameworks, government policy and global smart developments. Peters was a significant contributor in setting up and operating the UK’s metering, settlements and trading arrangements.