(Published in Business Mirror under the Mirror Image column, Sept 17, 2008)
Historically, the relationship between utilities and consumers has been rather lopsided—utilities had the power, both literally and figuratively. But the confluence of climate- change concerns, rising energy costs and technology advances leading to greater consumer involvement is now radically redefining that relationship.
IBM’s recent surveys of 1,900 energy consumers and nearly 100 industry executives across the globe reveal major changes under way—a more heterogeneous consumer base, evolving industry models and a stark departure from a decades-old value chain. We believe companies need to prepare now for a participatory network that enables customers to choose from a wide variety of suppliers, actively manage their consumption and even sell back surplus power they generate.
In decades past, as long as the energy flowed when and where required, residential and small commercial customers were satisfied, leaving all the decisions about their energy supply to their trusted providers, even if they were unhappy with the bill.
But times have changed. Growing reliability concerns, fear for the environment’s future and ever higher energy bills are making some consumers want to manage more of their energy-supply decisions themselves. If utilities and regulators allow them to be more active participants, these customers are willing to shoulder more responsibility.
Given this shift in consumer attitudes and the rapid advancement of new technologies, what will the industry look like in five to 10 years? How quickly will utilities and regulators respond to these emerging consumer needs? And how much control do consumers really want?
To help answer these questions, we surveyed 1,900 consumers in six countries—Australia, Germany, Japan, the Netherlands, the United Kingdom and the United States. In our “consumer” group, we included residential households and small commercial customers, but excluded large commercial and industrial companies. We also interviewed nearly 100 industry executives in Europe, North America and the Asia-Pacific region—one-third from large firms with revenues greater than $5 billion, and the remainder from smaller utilities.
Based on the insights from our consumer survey, interviews with utility executives and our own industry experience, we anticipate a steady progression toward a participatory network—a technology ecosystem comprising a wide variety of intelligent network-connected devices, distributed generation- and consumer-energy management tools. Although the precise time frame for reaching this end state is unknown, our research suggests a few major milestones. Within five years, the percentage of the world’s electric utilities that will be generating at least 10 percent of their power from renewable sources will have doubled. In that same time frame, we believe sufficient supplier choice will allow meaningful consumer switching to emerge in most major competitive markets. Also, based on both consumer and utility responses, we expect utility-demand management initiatives to expand dramatically and electric power generation by consumers to make tremendous inroads within 10 years.
The IBM report demonstrates an industry that is fast approaching a tipping point, where increasing consumer involvement, climate-change concerns and technology advances are converging to create a very different way for energy to be generated, distributed and managed. Each of these is fueling the others, and the entire combination is catalytic.
Consumer involvement
When energy providers are not willing or able to satisfy their needs, consumers will have an increasingly viable alternative—the means to generate their own electricity. According to the IBM consumer survey, one-half or more of the consumers were interested in self-generation if they could save 50 percent on energy costs, have 100-percent reliability at no additional cost or sell power back to the utility. Among the utility- industry executives surveyed, more than half believe that the availability of new technologies could move a significant percentage of residential and small commercial customers to self-generation within the next decade.
Climate-change concerns
Utilities are making major investments and operational changes to respond to climate-change concerns and policies, the report observes. According to the IBM Institute for Business Value/Economist Intelligence Unit 2007 Utility Industry Executive Survey, within five years, the percentage of the world’s electric utilities that will be generating at least 10 percent of their power from renewable sources will have doubled. The IBM consumer survey found that, outside of the United States, one out of every four survey respondents had computed the climate-change impact of their energy usage. Among those who currently do not have the option of choosing renewable power sources, more than 60 percent expressed an interest in doing so.
Technologies driving industry change
IBM’s paper contends that, from a technology perspective, smart meters, network automation and analytics and distributed generation will drive the most industry change in the near term. Smart meters can provide motivated consumers with the actionable information they need to better manage consumption and energy costs. The movement toward an intelligent utility network that leverages network automation and analytics in conjunction with smart meters provides further benefits to both utilities and consumers, including fewer outages, faster restoration of service and lower greenhouse gas emissions.
Prepare for a participatory network
Leveraging the new technology ecosystem will help utilities harness innovation to meet key objectives in coming years, including:
-- Preparing for an environment in which customers are more active participants;
-- Capitalizing on new sources of real-time customer and operational information, and deciding which role(s) to play in the industry’s evolving value chain; and
-- Better understanding and serving an increasingly heterogeneous customer base.
The utility industry is advancing toward a stage where consumers can, and increasingly will, demand equal footing with their providers. Those utilities that are fully prepared to share responsibility with their customers and help them meet their specific energy goals will have a significant competitive advantage. Based on our research and analysis, we believe a full-fledged participatory network will ultimately emerge. Elements of such a network are already in place within several major markets. The question is not if a fully participatory environment will emerge, but when.
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“Mirror Image” is a rotating column featuring writers from the DLSU Professional Schools Inc.
Reynaldo C. Lugtu Jr. teaches management and marketing courses in the MBA Program of De La Salle Professional Schools. He is country manager, Utilities and Communications Sector of IBM Philippines. He may be e-mailed at rlugtu2002@yahoo.com, or visit his blog at http://rlugtu.blogspot.com.
Historically, the relationship between utilities and consumers has been rather lopsided—utilities had the power, both literally and figuratively. But the confluence of climate- change concerns, rising energy costs and technology advances leading to greater consumer involvement is now radically redefining that relationship.
IBM’s recent surveys of 1,900 energy consumers and nearly 100 industry executives across the globe reveal major changes under way—a more heterogeneous consumer base, evolving industry models and a stark departure from a decades-old value chain. We believe companies need to prepare now for a participatory network that enables customers to choose from a wide variety of suppliers, actively manage their consumption and even sell back surplus power they generate.
In decades past, as long as the energy flowed when and where required, residential and small commercial customers were satisfied, leaving all the decisions about their energy supply to their trusted providers, even if they were unhappy with the bill.
But times have changed. Growing reliability concerns, fear for the environment’s future and ever higher energy bills are making some consumers want to manage more of their energy-supply decisions themselves. If utilities and regulators allow them to be more active participants, these customers are willing to shoulder more responsibility.
Given this shift in consumer attitudes and the rapid advancement of new technologies, what will the industry look like in five to 10 years? How quickly will utilities and regulators respond to these emerging consumer needs? And how much control do consumers really want?
To help answer these questions, we surveyed 1,900 consumers in six countries—Australia, Germany, Japan, the Netherlands, the United Kingdom and the United States. In our “consumer” group, we included residential households and small commercial customers, but excluded large commercial and industrial companies. We also interviewed nearly 100 industry executives in Europe, North America and the Asia-Pacific region—one-third from large firms with revenues greater than $5 billion, and the remainder from smaller utilities.
Based on the insights from our consumer survey, interviews with utility executives and our own industry experience, we anticipate a steady progression toward a participatory network—a technology ecosystem comprising a wide variety of intelligent network-connected devices, distributed generation- and consumer-energy management tools. Although the precise time frame for reaching this end state is unknown, our research suggests a few major milestones. Within five years, the percentage of the world’s electric utilities that will be generating at least 10 percent of their power from renewable sources will have doubled. In that same time frame, we believe sufficient supplier choice will allow meaningful consumer switching to emerge in most major competitive markets. Also, based on both consumer and utility responses, we expect utility-demand management initiatives to expand dramatically and electric power generation by consumers to make tremendous inroads within 10 years.
The IBM report demonstrates an industry that is fast approaching a tipping point, where increasing consumer involvement, climate-change concerns and technology advances are converging to create a very different way for energy to be generated, distributed and managed. Each of these is fueling the others, and the entire combination is catalytic.
Consumer involvement
When energy providers are not willing or able to satisfy their needs, consumers will have an increasingly viable alternative—the means to generate their own electricity. According to the IBM consumer survey, one-half or more of the consumers were interested in self-generation if they could save 50 percent on energy costs, have 100-percent reliability at no additional cost or sell power back to the utility. Among the utility- industry executives surveyed, more than half believe that the availability of new technologies could move a significant percentage of residential and small commercial customers to self-generation within the next decade.
Climate-change concerns
Utilities are making major investments and operational changes to respond to climate-change concerns and policies, the report observes. According to the IBM Institute for Business Value/Economist Intelligence Unit 2007 Utility Industry Executive Survey, within five years, the percentage of the world’s electric utilities that will be generating at least 10 percent of their power from renewable sources will have doubled. The IBM consumer survey found that, outside of the United States, one out of every four survey respondents had computed the climate-change impact of their energy usage. Among those who currently do not have the option of choosing renewable power sources, more than 60 percent expressed an interest in doing so.
Technologies driving industry change
IBM’s paper contends that, from a technology perspective, smart meters, network automation and analytics and distributed generation will drive the most industry change in the near term. Smart meters can provide motivated consumers with the actionable information they need to better manage consumption and energy costs. The movement toward an intelligent utility network that leverages network automation and analytics in conjunction with smart meters provides further benefits to both utilities and consumers, including fewer outages, faster restoration of service and lower greenhouse gas emissions.
Prepare for a participatory network
Leveraging the new technology ecosystem will help utilities harness innovation to meet key objectives in coming years, including:
-- Preparing for an environment in which customers are more active participants;
-- Capitalizing on new sources of real-time customer and operational information, and deciding which role(s) to play in the industry’s evolving value chain; and
-- Better understanding and serving an increasingly heterogeneous customer base.
The utility industry is advancing toward a stage where consumers can, and increasingly will, demand equal footing with their providers. Those utilities that are fully prepared to share responsibility with their customers and help them meet their specific energy goals will have a significant competitive advantage. Based on our research and analysis, we believe a full-fledged participatory network will ultimately emerge. Elements of such a network are already in place within several major markets. The question is not if a fully participatory environment will emerge, but when.
****
“Mirror Image” is a rotating column featuring writers from the DLSU Professional Schools Inc.
Reynaldo C. Lugtu Jr. teaches management and marketing courses in the MBA Program of De La Salle Professional Schools. He is country manager, Utilities and Communications Sector of IBM Philippines. He may be e-mailed at rlugtu2002@yahoo.com, or visit his blog at http://rlugtu.blogspot.com.
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