Recent drops in energy use and the rapid uptake of solar have led to growing concerns among energy utilities that customers will abandon the grid leading to a 'utility death spiral'. But smart utilities are increasingly viewing efficiency and solar as a business opportunity and a new cloud-based platform could offer them the tool to deliver retrofits at scale.
The existential threat: grid defection and the utility death spiral
Electricity utility businesses no longer have a captive market for their service. Solar PV already represents a cost-competitive alternative to grid power in many locations, particularly in areas with high network costs. The cost reductions in solar PV that have driven this shift are set to continue and there are growing signs of corresponding falls in battery storage costs, which will accelerate the competitive pressure on utility businesses.
This situation has led some industry commentators to suggest we are entering a 'utility death spiral'. That is, customers will increasingly abandon the grid in favour of a combination of energy efficiency, solar PV and battery storage. This will lead to rising electricity prices as utilities are forced to spread the fixed costs of electricity services across a diminishing customer base. This will only serve to accelerate the trend, as increased electricity prices provide further incentives to abandon the grid.
Although some wouldn't mind thumbing their nose at their local energy utility, mass grid defection would be bad for everyone. Electricity networks unlock a range of network synergies that improve the performance and reduce the cost of electricity services. This includes their ability to facilitate 'economies of scale', by enabling larger, more cost-effective electricity generation systems, and 'economies of scope', by buffering fluctuations in the electricity consumption and generation at specific locations across the grid.
The business opportunity: integrated utility services
Smart electricity utilities are increasingly looking to energy efficiency and solar PV as a growth opportunity rather than an existential threat.
The core of this new paradigm is the realisation that energy customers don't want electrons, they want hot showers and cold beer*. Energy utilities should therefore shift from selling energy (a commodity differentiated on price) toward selling a comprehensive energy service (differentiated on quality) by offering the best package of appliances, building improvements, and, if appropriate, on-site generation to meet their energy service needs.
Here's how it works:
- the utility (or a third party) contacts customers and provides an energy audit and retrofit assessment
- a personally tailored portfolio of energy saving measures is offered to the customer at no upfront cost
- product and service providers are sub-contracted to install building performance improvements, energy efficient appliances and solar PV at the property as a cost-effective bulk procurement
- the package of energy saving measures is then repaid using on-bill financing, with repayments offset by bill savings
Source: Rocky Mountain Institute
The end result is a win-win. Customers can install energy saving measures in their property at no upfront cost. And utilities grow and diversify their business while improving customer satisfaction.
The missing link: the Ecologic Utility platform
Ecologic Apps have developed a platform to help realise this new utility business model. Enabling features of the platform include:
- rapidly collecting energy audit data either on the web, over the phone or face-to-face using a mobile device and storing it in a central cloud-based database
- running a set of physics-based simulations of the energy consumption of the property subject to a range of building, appliance and behavioural scenarios
- identifying a portfolio of energy saving measures tailored to the unique conditions of a property
- generating accurate estimates of bill savings, to ensure loan repayments are offset by bill savings
- providing a web-based clearinghouse for dispatching, monitoring and evaluating product providers
Together these innovations enable energy audits and retrofits to be delivered at minimal cost and at scale.
For further information about the integrated utility service model see this research report prepared by the Rocky Mountain Institute.
* credit goes to Amory Lovins for this catch phrase