“Google, Apple and others are watching our sleeping industry and thinking there are great opportunities here,” Johan Ander, Head of Development, Smart Home Solutions at Finnish power group Fortum, said at an industry event earlier this month.
Ander was referencing home energy management services (HEMS) and the utility sector’s slowness to develop these as a new revenue stream.
“In the western world, utilities are selling their commodity - energy - to almost everyone but we haven’t really worked out how to sell more to our customers. It’s time to take a step forward and handle competition from the likes of Google and Nest.”
Ander says that digitisation has provided utilities with this opportunity. “ICT has allowed us to start seeing the customer and with that comes the opportunity for new value creation through services such as HEMS. The question is - how can we create value from services and how can we sell these to other utilities?”
Smart home research project
To explore the revenue potential of HEMS, Fortum is participating in Stockholm Royal Seaport, a pilot project with Ericsson, ABB, Electrolux and Ellevio supported by the Swedish Energy Agency.
One objective of the Smart Energy City research project in a new district of Stockholm is to develop and study how HEMS can be used to change the behaviour of energy consumers to enable energy efficiency and load shifting.
Commenting on Fortum’s motivations to participate in the pilot, Ander says: “We see a situation where the profit margins are down and we also see that the customer expectations are growing. And not just in the utility industry; it’s happening all over.
“The expectation on us as an energy supplier is higher than ever so we need to handle that and that also means higher costs.
Ander also references the driver of market disruption to explore new Internet of Things-based revenue streams. “When consumers install their own solar cells, they can actually produce a better product than we can and you don’t see that in any other industry.”
HEMS and the customer
The Smart Energy City project involves 154 families living in smart homes, and this is providing other key learnings for Fortum - how to be more customer facing.
“The utility sector is one of the last dinosaurs when it comes to looking at the customer,” says Ander. “It was not many years ago that we still viewed the customer as a delivery point but with the introduction of smart meters that is changing.
“As a utility, we think there is an opportunity with HEMS and we are a good player to come into the home with new technology.”
Architecting for HEMS success
Ericsson, a key partner in the Stockholm Royal Seaport project, has conducted research that supports the potential of energy retailers drawing value from HEMS.
Marcus Tornqvist, Head of Energy and Utilities, Northern Europe and Central Asia at Ericsson, reports that a global survey revealed a 47% interest among respondents in connected smart home services, particularly in remotely controlled functions and security and safety.
However, there are barriers to services. Törnqvist says energy retailers in the Nordics are deriving less than 1% of revenue from home energy management services.
One restriction is HEMS are typically proprietary siloed solutions for a single retailer or ESCO and are usually sold to build loyalty rather than revenue from the service itself, he explains
As a consequence, the consumer feels locked in and frustrated at a lack of interoperability with other brands.
From an energy retailer perspective, a single proprietary HEMS is most likely cheaper than building a big platform. But when you build a second silo, Törnqvist says, it has the same cost and you do not get the synergies between delivering new services.
“Product offerings may become expensive resulting in low propagation,” he says.
The alternative is an open, integrated horizontal platform to enable scale and competitive pricing. Such cost synergies enable more services at less cost contributing to a much propagation of these services.
Ericsson advises energy retailers to also assess the competition and either work with ESCOs to deliver connected home services - from entertainment to security - or begin to act like an ESCO themselves.
Ander agrees that although Fortum’s initial aim is to provide consumers with a new energy experience when they moving into a new apartment in the Stockholm Royal Seaport development, “we also see a future where we could provide security services and health management.”
HEMS and utility opportunities
Johan Anders and Marcus Törnqvist will explain more about their involvement in the Stockholm Royal Seaport project in an upcoming Engerati webinar. Register now to learn about business models to manage HEMS services as well as recommendations for removing blockages to customer adoption.