Rearranging Utility-driven Demand Side
Management (DSM) to respond market
conditions: a Finnish case study
The role of large incumbent energy utilities
in promoting energy saving
Apajalahti, E-L., Lovio, R. & Houtbeckers, E.
Aalto University School of Economics
Organization and Management
Corporate Environmental and Social Responsibility Research
“Why
would Energy Companies want
us to save energy, the very product
that it gets profit from?“
Source: NCRC –survey 2009
Why energy efficiency?
• Improving energy and electricity end-use efficiency 40-63% of the
solution (IEA WEO 2008).
63 %
40 – 50 %
• Transition to renewable energy sources is a long process
• Energy efficiency improvements may be faster and more costeffective.
Eeva-Lotta Apajalahti 10.6.2011
3
Policy obligations on energy utilities
• EU Directive (2006/32/EC) on energy end-use efficiency and energy
services (ESD)
–
–
–
–
Indicative national 9 % energy saving target 2008-2016.
Minimum requirements on reducing energy end-use of its clients.
Directive will be revised (and tighten) in 2013.
In Finland implemented through renewed voluntary Energy Efficiency
Agreement system, obligate 80 % of energy utilities
• National, ESD complimenting law on energy efficiency services,
obligate all energy utilities (1211/2009).
• Remote reading, billing must be based on verified energy use by
2014.
• EU 20-20-20 targets
– Obligate energy utilities through different ways e.g. City of Helsinki
engagement to carbon neutrality by the 2050.
Eeva-Lotta Apajalahti 10.6.2011
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Energy utility as an energy saving promoter
• Role of energy utility...
– has been traditionally strong but reduced since market liberalisation.
– has been decreasing since new intermediary organisations, energy
saving companies (ESCOs) have taken the task (Breukers et al. 2009,
Heiskanen et al. 2009, Bertoldi et al. 2006).
– is not natural in implementing energy saving (Demand Side Management,
DSM) initiatives because it does not gain monetary benefits of doing so
(Didden & D’haeseleer 2003).
– in developing new energy-efficient products and services in liberalised
and privatised energy markets is uncertain (Vine et al. 2003).
• Past DSM efforts often led to negative business experiences.
– Past experiences and learning outcomes of load shifting and DSM
initiatives/programs introduced in 1980-1990 in US. (Strbac 2008, Gehring
2002, Eto 1996, Vine 1996).
Eeva-Lotta Apajalahti 10.6.2011
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Electricity retailers operating environment
in Finland
•
Energy Market Act (1995/1998)
– Large energy users (1995) and small energy users (1998).
– Unbundling electricity trade operations from other trade operations.
– Separating electricity network operations from other business operations.
• Operating environment of electricity retailer
Energy delivery
Energy trade
Power generation
NordPoolSpot
– Nordic
power
exchange
District heating trade and
distribution
Electricity retailer
Electricity network
Eeva-Lotta Apajalahti 10.6.2011
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Energy enduse:
Households
Industry
Motives to improve end-use energy efficiency
of Finnish Energy Utilities vs. case utility (n=7)
Main motives
1
Complying the EU ESD. “Complying the EU ESD is challenging for energy
Case
+
utilities [but not for the case company].”
2
Differentiation of the product portfolio. “The only thing matter [in
++++
competition] is the price and production type. We have extent product portfolio,
but so have others. All the electricity retailers have somewhat the same
products.”
3
Improving customer benefits and attracting more clients. “Advising
+++
service backup long-term customer relations...some product that could reward
the customer and he/she could experience being beneficial for himself and for
environment.”
4
Market positioning and reputation. “To be Finland’s leading energy utility
+++
in energy saving issues.”
5
Strategic motive to respond the climate change challenge. ”Energy
saving campaign was part of the company strategy on how to respond climate
change.”
Eeva-Lotta Apajalahti 10.6.2011
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+
Current energy saving activities by Finnish
Energy Utilities vs. case utility
Electricity retailers activities in complying EU ESD
and improving end-use energy efficiency and saving
(n=35) 2008-2009.
Advising
Communication
Feedback
Billing
Share
Case electricity retailers activities in
Case
of
improving end-use energy efficiency and
utility
utilities
saving (n=7)
Lending energy consumption meters
54%
yes
from energy centre and library
Energy saving advising by e-mail and online
51%
yes
Energy saving advising by phone
40%
yes
Energy saving advising in energy centre since
1973
Writing about energy saving in customer magazines
60%
yes
Own customer magazine
Energy saving communication online
60%
yes
Own EnergyAdvisor webpage
Participating Energy saving week
49%
yes
Active campaigning during the week.
Energy consumption feedback yearly
46%
yes
Yearly basis feedback on reference
consumption, in 1990s first in Finland.
Possibility to follow consumption online
43%
yes
Renewed web based reporting service on realtime electricity, water and heat consumption,
(first version early 2000s) in 2010.
Use of hourly and remote reading metering
34%
yes
Half of the customer’s meters have been
switched, all by the 2012.
Billing the clients by verified consumption monthly basis
49%
yes
• Energy utilities have long and active role in energy saving advising.
• Next step is utilizing hourly basis metering in load shifting and energy saving.
Eeva-Lotta Apajalahti 10.6.2011
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Why promoting electricity saving further is
challenging? Household perspectives (n=289)
Own electricity provider
73 %
Newspapers
57 %
Appliance manufacturers
Energy field expert
organisations
Housing
manager/company
54 %
Basic energy saving advising is
wanted from own energy utility
but...
45 %
29 %
... sceptical
perspectives emerge
when integration level
increases.
“Energy utilities are listed privately owned
companies, why would them want to save
energy, the very product that they get profit
from?“
Source: NCRC –survey 2009
Eeva-Lotta Apajalahti 10.6.2011
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energy saving
contract model
Selling energy saving
services
Basic energy saving advising
Why promoting electricity saving further is
challenging? Case utility’s perspectives
• Unbundling the business
operations:
 reduced flexibility of sharing the
costs between the units.
 operating environment narrow -> slim profit marginal
• A production utility becomes an energy service provider
 Is there willingness to pay for services?
• Pricing problems of contract model:
 How electricity providing, saving incentives, advising and services are combined?
 Energy saving -> absolute reduction or reduction from trend consumption?
 Is the product interesting?
Eeva-Lotta Apajalahti 10.6.2011
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Energy utilities are motivated and active
... but
• Energy market privatisation have had some negative side-effects
 energy end-users mistrust towards energy utilities have increased:
whose benefits energy utility is driving for?
 stresses the business logic of offering energy saving business solutions.
 which in turn create more uncertainty in developing business.
• Unbundling business operations
 responsibilities between different business units are unclear.
 the past DSM principles work poorly for electricity retailer.
• Growing pains: energy producer becomes energy service provider.
• Pricing difficulties:
 energy end-users are not ready to pay for services
 fear of unprofitable business operations
Eeva-Lotta Apajalahti 10.6.2011
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Implications
• To decrease mistrust, new strategic reorientation towards energy
saving is needed?
• Competing with energy saving products and services might fit better:
 For publicly owned utilities who have strong traditions in advising.
 For those who cannot compete with production: strong carbon lock-in.
• But if they success, it might be copied elsewhere.
• Remote metering advances provide new possibilities for energy use
load shifting.
• If/when energy prices rise, the demand for energy saving business
solutions might increase.
• New ideas and innovations often follow new entrants - new retailers
focusing energy saving might emerge?
Eeva-Lotta Apajalahti 10.6.2011
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