By Jon Arnold, Microsoft
Imagine it’s 2020. The nation’s energy grid is smarter, alternative assets are commonplace and more consumers charge their electric cars at night. The power and utilities industry easily manages each while keeping the lights on. How do we do it? How did we get here?
As power and utility companies prepare for this realistic 2020 scenario, they face three major energy industry disruptions: growing demand, zero-carbon energy sources and conservation.
Although the rate of electricity demand growth has slowed progressively since 1950, the U.S. Energy Information Administration projects demand to increase 26 percent, and private-sector sources project a 45 percent demand increase from 2007 to 2030. In combination with other market conditions, this increase is expected to stress the current energy industry infrastructure.
The intersection of three factors–growing demand, intermittent zero-carbon energy sources increasing to 20 percent of the generation portfolio and the potential for millions of plug-in hybrid and electric vehicles charging every night–creates a new energy environment and challenge for utilities. To operate successfully, utilities need demand elasticity to influence demand in a dynamic manner. Demand elasticity will be critical to successful energy conservation and to ensure reliability to keep the lights on.
Microsoft expects the utility distribution system will transform from a passive energy conduit to one that is dynamic and can support millions of dynamic, zero-carbon energy sources as a part of the smart energy ecosystem. But how does consumer home energy management fit into this scenario?
Technology-enabled Conservation Incentives
The easiest, most cost-effective, scalable energy source comes from conservation. Studies show that consumers want active roles in their energy management. They are more environmentally aware and want to save money and conserve. As U.S. state and federal regulatory trends move toward conservation as an additional motivator for consumers and businesses, power companies must respond and accelerate the path toward energy conservation. Leading the trend, or at least joining in by encouraging customers to conserve, can help power companies meet regulatory requirements, manage demand and improve customer service and their reputations.
Although interest is growing, smart meters touch at most about 8 percent of the U.S. population. To impact demand, we must start where the demand is: residential consumption.
Power companies have low- or no-cost options to incent consumers to conserve. Some offer programs such as cash rebates on eligible, grid-connected, small wind and fuel cell renewable energy electric-generating systems that the California Energy Commission offers. Austin Energy in Texas, for example, has a rebate program for solar photovoltaic installation. Others offer cash rebates when consumers install certain large, energy-efficient appliances.
For the first time, the smart energy ecosystem directly reaches consumers in homes as software and smart energy device design becomes more sophisticated and Internet access and wireless technology has reached mainstream use. Manufacturers have created hard-ware gadgets that consumers can connect to their electric meters. These devices encourage conservation by measuring and reporting how much power consumers use in their homes.
Information technology companies have developed online tools such as Microsoft Hohm that consumers can use independently or via their utilities for no charge. Hohm is an online application that uses advanced analytics to provide consumers personalized energy- and money-saving recommendations from removing air leaks to insulating attics better. It also brings people together to conserve energy and allows them to become more active participants in the smart energy ecosystem by connecting to others in virtual communities. These new tools put energy management into consumers’ hands. Consumers will get the most value and the best user experience with automatic access to granular energy consumption data directly from devices such as personal computers, cell phones and in-home displays, said Brent Pearson, Landis+Gyr vice president of corporate development.
“As advanced meter infrastructure deployments progress around the globe, integrating meter data into these tools and devices will allow utilities to look at trends that will help them make faster, more informed demand-management decisions and enable consumers to manage energy better,” Pearson said.
People commonly use broadband communications, smart phones and personal computers in their homes and small businesses. They also look for technology that enhances their lives. About 70 percent of U.S. households have programmable thermostats, and 70 percent of those have never been programmed. This opens the door for new, consumer-friendly, connected thermostats and interactive displays that serve as home information centers. Soon consumers will be able to control these thermostats from their personal computers or cell phones, which will make them easier to use.
Modern technology capabilities enable smart tools such as these to connect more effectively and to be used in mass. Some of today’s online options take advantage of cloud computing resources to maintain privacy, wireless technology to connect devices and broadband to create mass availability. Today’s technology capabilities also enable a more secure environment with a privacy and security-enhanced foundation that can be used to store and transfer information. Hohm and other similar home energy management applications will enable connection into home area networks. The end result allows consumers to contribute their conservation efforts to utilities’ demand management.
Benefits of Conservation Outweigh Drawbacks
A few drawbacks to consumer conservation exist that some utilities will consider. Many U.S. utilities still use a consumption-based revenue model. Until utilities are rewarded for conservation, what’s the motivation? Ideally, utilities will educate consumers who want to save energy and money. At the same time, utilities will recover costs–not only for lost sales resulting from conservation–but also unrealized investment opportunities from not having to build new power plants.
Utility commissions across the United States and world recognize energy efficiency efforts and are pressuring utilities to offer conservation programs. Many utilities in the United States and around the world do. Energy efficiency is included in some home audits, but a time- and labor-intensive program such as this does not scale, which makes technology-based home energy management tools more appealing. By providing consumers the tools to conserve and control energy usage, utilities can offer time-based pricing that can increase the impact of scalable, demand—side management and zero-carbon sources.
Consumers are more involved than ever before. Customers expect utilities to provide more comprehensive information regarding energy consumption, but they don’t want to pay for it. Nearly half of U.S. consumers desire more information about energy consumption, and 42 percent are very interested in comparing energy consumption, according to a May 2009 Gartner study, “Utility Consumer Survey: Energy Efficiency, Do They Care and Why?”
In addition, “55 percent of U.S. consumers don’t know or are not sure of energy efficiency programs offered by their utility,” the study states.
Gartner asked survey participants directly, “If your utility company offered an energy efficiency program, would you participate?” Consumers by a four-to-one ratio expressed interest in the United States and U.K.
Gartner also asked for the most important reason they would participate in an energy conserv-ation program. Cost reduction was the main motive in both markets.
Dick Kelly, Xcel Energy chairman, president and CEO, understands that his customers want the company to be a responsible energy provider.
“We constantly seek new ways to improve our environmental performance and help customers use energy more wisely,” Kelly said. “By offering the use of Microsoft Hohm, we can provide our customers vital information that helps them manage their energy use. When using energy more efficiently, customers can help us benefit the environment.”
If utilities give consumers options and information upon which they can act, then they will. Consumers can use today’s technology to contribute to peak reduction and conservation. These technologies fulfill consumers’ behavioral or structural objectives whether they want to go green, lower their bills or make elective changes to conserve even more. They also help utilities meet regulatory requirements, demonstrate environmental responsibility and connect with customers. Educating consumers to be more energy-efficient is good for consumers, the environment and utilities.
Jon Arnold establishes and drives industry strategy as managing director of Microsoft’s worldwide power and utilities team. He brings more than 27 years of business and technology knowhow and 16-plus years in the utilities space.