Parks Points

The Impact of IoT on the Utility Business Model

by Tom Kerber | May. 4, 2017

Utilities have the opportunity to adjust their business models to align with the new world of IoT, the smart home, and distributed generation (DG). The impact of lower load growth on the utility business, the new opportunities in DG and battery storage, and how new partnerships and smart home services could reshape the traditional utility business model are all key issues for utilities to examine.

Distributed energy resources are forcing change in the utility industry. The levelized cost of solar is now less than other generation resources and solar prices continue downward. While utilities grapple with the short term challenges integrating distributed resources, long term, the impact on the utility business model is even more challenging.

Wayne Gretzky famously said, “I skate to where the puck is going to be, not where it has been.” Having a clear vision of where the puck is going is critical to establishing a vision of for any organization, and utilities are no exception. Grid Vision 2050 describes a future where generation and consumption are co-located. This is a clear vision of the future upon which business decisions must be made.

Utilities must align decision making to move closer to the vision of co-located generation and distribution. Investment in non-wire alternatives including EE, DR, and distributed generation at the grid edge is aligned with the vision. Investment in T&D is not aligned with the vision, and therefore, is moving in the wrong direction, and will hurt utility competitiveness.

The utility monopoly on power generation and distribution is slowly disintegrating as distributed generation takes hold. We see the results of competition and non-competitive investment decisions in recent legislation to save power plants. This is the tip of the iceberg. If utilities do not align their business to be competitive in the future, write offs and rescue efforts will accelerate.

The utility business model that rewards investment in T&D must be changed to reward investment at the grid edge. Continuing down the current path makes utilities less competitive.

The world is changing in many ways. The Internet of Things is transforming businesses and creating new opportunities. Just as connected products are expanding business models to include advertising, lead generation, product commissions, app sales, and transaction fees, utilities can also take advantage of the vast stores of data from smart meters to provide or enable value added services using meter data. If utilities have to invest in infrastructure to maintain grid reliability, they should be allowed to monetize that investment in order to be more competitive.

Today, utilities have not pursued alternative monetization approaches for value added services. Whether due to regulatory restrictions, choice of business model, or inability to execute, the utility industry has not capitalized on new approaches to monetization. Retail energy providers and non-regulated entities are offering a broad array of home services. These efforts include offerings such as energy audits, HVAC maintenance services, security and smart home services, and home warranties.

This story originally appeared on Utility Post.

Tom Kerber

Tom Kerber

Senior Director, IoT Strategy and Custom Research

Tom leads Parks Associates research in the areas of home controls, energy management, and home networks. Tom authors numerous reports on energy management and home controls covering the evolution of technology, partnership opportunities, and new business models. Tom’s work at Parks Associates includes managing consumer surveys that track trends and market opportunities and enable insightful evidence-based forecasting for energy, security, and home controls. Tom speaks frequently at key industry events, and his views are sought out by national press organizations and publications.

Tom has done extensive consulting with electric utilities operating in a variety of regulator structures and numerous firms within the smart home ecosystem. Recent utility engagements include defining the home area network roadmap for a California IOU, updating the consumer engagement strategy for a traditional vertically integrated IOU, providing consumer and industry analysis to refine EE and DR programs for an IOU in a restructured market, and providing insights on the evolution of the connected home for a large Midwest IOU. Tom has also led projects for many Fortune 500 companies, helping clients refine smart home strategies, develop scenarios of the future of the smart home market, enhance product roadmaps, and refine specific product features.

Prior to working at Parks Associates, Tom worked as director of engineering and director of product management in multiple industries. Tom began his career in the U.S. Navy nuclear power program on submarines. He holds a Bachelor of Science degree from the U.S. Naval Academy in systems engineering and a master's in software engineering from the University of Texas.

Industry Expertise: Residential Security, Smart Home Products and Services, Home Network Technology, Software Systems, Electric Utilities, AMI, Home Energy Management, Demand Response

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