Market perspectives on the energy management ecosystem
by Tom Kerber, Director, Home Systems and Energy, Parks Associates
Tom Kerber, Director, Research, Home Controls & Energy, Parks Associates
By 2015, smart meters will be installed in nearly 50 percent of U.S. homes; however, fewer than 5 percent of those homes will have a meter with the HAN (home area network) capabilities enabled. Therefore, most home control systems with energy management capabilities are not tied to the meter.
The HAN is evolving from a single, closed solution to systems that include products from multiple networks. IP and industry standards will play a key role in eliminating complex translations between networks and allowing gateways to transition to non-application specific devices. This space is opening to a variety of players. There are several verticals that view home control and energy management as an opportunity to expand their value proposition and revenue. Therefore, understanding the perspective of each player is critical to developing a competitive strategy.
Utilities are putting customers front and center in decision making. They are making investments to understand consumers, educate them on energy topics, and engage them using advanced marketing techniques, specifically by segmenting customers and delivering targeted messaging with language that is most persuasive to each segment.
Utilities report the most effective mediums to engage consumers are mailers, TV and social media. With integrated messaging, the consumer chooses how to engage. Some utilities are considering unique ways to engage consumers; for example, incentives such as free movie tickets to get people out of the house before a DR (demand response) event. Similarly, some utilities are using "gamification" by encouraging consumers to compete with each other, challenging them to beat a previous score, or comparing their performance with others.
Utilities are entering a period of rapid change. The introduction of standards like SEP 2.0, OpenADR, ESPI, and OpenADE (Green Button) will allow utilities to transition away from lab and field testing to third-party testing and verification, creating a market for new energy products. Device manufacturers will integrate energy management capabilities into a whole host of powered devices. Utilities, who have struggled to grow consumer engagement in energy management, will have numerous vendor allies who will expand the value proposition of their product by including energy management capabilities.
Deployments of smart appliances and home monitoring and control systems by OEMs and broadband and security service providers create an opportunity for utilities. Many utilities see the meter as their line of demarcation. They do not want to "own" or support products inside the home. Many view partnerships with home control and energy management system providers as a great fit.
Retail energy marketers use value-added services to improve customer service and generate incremental revenue. Unencumbered by regulatory requirements, retail energy providers have turned their call centers into profit centers, offering value-added services for consumers who are moving. These offerings include helping connect energy, broadband, television, and phone services, as well as other moving-related services.
This type of service -- assisting consumers during a move -- is a valuable offering that connects with consumers at the time when they are most likely assessing and reconsidering their current services. Parks Associates' has consistently found moving to be a major catalyst for service adjustments, such as cord shaving or cord cutting. Most recently, Value of Video: Shifting Consumer Dollars found one-half of U.S. broadband households intending to "cut-the-cord" also anticipate moving. This moment creates opportunities for partnership and bundling strategies. All service providers have a vested interest in targeting subscribers at this moment of service vulnerability, so tying energy-related services together with multiscreen and online video capabilities in moving-related promotional activities would be a good strategy to increase penetration.
In Texas, most energy retailers take advantage of the Smart Meter Texas portal that enables retail energy providers to provide full-featured website and smartphone/tablet applications that provide consumers with historical demand, notification of unusually high load, budgeting tools, and alerts.
Standards will lead to broadened consumer choice and expanded markets for energy products. When a group of common standards are implemented across multiple utilities, vendors can make products with standard interfaces, speeding time to market and enabling rapid innovation. Standard interfaces also allow the market to drive deployment rather than the utility.
Vendors need to know how they are going to receive pricing and DR signals, whether through the smart meter or the Internet. Different utilities have different approaches. OEMs need to provide a customer an appliance that will connect to their current utility and, should they move, connect to the new utility in the same way. Lack of standards is a significant barrier to broad deployment.
Vendors such as ecobee have thermostats with Wi-Fi and ZigBee technology and are at comparable pricing to traditional thermostats. Traditionally, thermostat manufacturers have developed separate products for the utility and HVAC channel. The transition to a single product group for both channels is underway. Thermostats installed by HVAC dealers will no longer need to be replaced with those that communicate with the utility. Standard interfaces will allow the HVAC dealers, who sell 70% of all thermostats, to sell and install products that communicate with utilities.
Vendors agreed that the industry needs to increase awareness of available solutions among consumers and articulate clearly the value propositions for these solutions. The members of the industry agree that all efforts to increase awareness will benefit all parties and that messaging must be improved and increased.
Broadband and Service Providers
The value proposition for home monitoring and control systems lacks clarity. There are hundreds of use cases that simplify tasks and improve the lifestyle of system owners, but the messaging is complex. As a result, consumers are slow to understand the benefits and have many questions. Therefore, success has come from channels with direct consumer contact.
- Ingersoll Rand reported that they are having the most success in sales of the Nexia product from their HVAC channel, where the dealer can sit down directly with the customer, explain the system capabilities, and answer any questions.
- ADT reported similar success with its dealers, reporting that over 25 percent of new customers are choosing ADT Pulse.
- Verizon reported that over 80% of their sales come through their call center, where consumers have a chance to learn and ask questions.
At the end of February, Asoka and Swisscom announced the introduction of their product that bundles IPTV and energy management. Broadband service provider Verizon and security service provider ADT include energy management capabilities in their systems but market them as secondary features without defined energy-saving targets. The key to drive consumer adoption is twofold: improving lifestyles while reducing energy costs.
Comcast announced a partnership with EcoFactor, which will provide their customers with an automated HVAC control system that saves the average household over 15 percent on the cost of heating and cooling the home. In addition, it provides homeowners with a report card on building, equipment, and operational performance, giving them a tool to make further improvements and additional savings.
The DR market is undergoing dramatic changes. Service providers are interested in helping their customers take advantage of cost savings, incentive payments, and rebates associated with DR functionality. But the differences among the over 3,000 U.S. electric utilities make participation in DR overly complex. A system that creates a common market for DR, abstracts the myriad of programs at the utility and ISO levels and creates a uniform interface for vendors that is necessary to advance participation.
The phrase "Internet of things," used prominently in conjunction with the concept of the connected home and lifestyle, represents the idea that all devices will eventually be connected to the Internet. Each hardware object in the real world will have an accompanying virtual object in the cloud, which represents the current state of the end device and retains its operational history. With this setup, a user can operate the device in the home remotely through an interface like a smartphone or tablet computer that connects through the virtual object.
Within five years, hundreds of products will be connected to the cloud. Big box retailers are working to position themselves, not only as the place where people will come to look for Internet-connected products but where people can come to learn about these new products.
Consumers may need as many as five trips to a retailer to educate themselves on the benefits, evaluate options, and make a decision to purchase home controls or energy management products. Sales people need to be trained on the details of the products and be prepared to walk customers through the products, plus have the patience to guide customers through multiple shopping/information-gathering sessions before they finally buy.
The market is ripe for success for new entrants and incumbents. Adding value through connectivity and new services is critical to success in this emerging market.
About the Author
Tom Kerber has worked in the utilities industry, the consumer goods industry and for Motorola in the telecom industry. He holds an MS in Software Engineering from the University of Texas and a BS in Systems Engineering from the Unites States Naval Academy. His roles in product strategy for a home controls company as well as experience in the utilities industry and the telecom space provide him with very strong qualifications to serve our energy and home controls clients' needs.