2013 DECEMBER
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A Perfect Storm
A PERFECT STORM –
A ONCE IN A GENERATION OPPORTUNITY TO RADICALLY
ALTER THE ENERGY MARKET, REDUCING ENERGY SPEND
AND SAVING THE UTILITIES
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A Perfect Storm
A PERFECT STORM – A ONCE IN A GENERATION
OPPORTUNITY TO RADICALLY ALTER THE ENERGY MARKET,
REDUCING ENERGY SPEND AND SAVING THE UTILITIES
There is a perfect storm brewing that is presenting either the greatest threat or biggest opportunity for utilities. It seems that everything is stacked against the current
model; increasing costs, declining margins, disloyal customers and encouragement
from government to switch suppliers as often as possible. At the same time there is
more pressure due to carbon emissions targets, the gap between shutting down generation and getting new generation on stream and so on.
You might think this spells disaster for the incumbents – and with no action you might
be right. However, this situation also presents one of the biggest opportunities for
utilities we have seen in a generation. It is possible to drive down energy consumption
at the same time as increasing profitable revenues for the utility. It is possible to have
a positive impact on the environment, to address fuel poverty, to help consumers understand their behaviour really does make a difference – to their wallet, their quality of
life and – perhaps more importantly for utilities – their relationship with their energy
services provider.
This is not about being sensationalist. From every angle there is a real and present
threat to the status quo in the energy market. Equally, there is a real and present
chance to evolve, innovate and capitalise on the opportunity. Maingate’s experience
in working with utilities proves that it is possible to positively impact utility business
performance, at the same time as improving the quality of life for consumers and have
a positive impact on the environment.
This paper focuses on the impact of Home Energy Management Services – HEMS.
There are barriers, such as the up front cost of hardware preventing mass adoption.
Who should take the hit? The consumer has demonstrated that there is no appetite
to spend hundreds of pounds. Utilities do not yet have the business case to cover the
CAPEX for a mass rollout. Based on our experience, Maingate can demonstrate how
the business model can work; how taking a more holistic view results in a solid business case that will yield significant returns for the utility and positively impact people’s lives.
BASED ON AVERAGE SAVINGS ACHIEVED OVER THE COURSE
OF MAINGATE TRIALS, HEMS COULD LEAD TO:
20%
of reduction of domestic
energy consumption
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20%
reduction in energy bills equivalent to £230 per year, which in total
represents savings of over £6 billion
pounds for UK households
20%
reduction in
churn
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A Perfect Storm
THE UK - A SENSE OF URGENCY
Over the next 10 years, around 20% of the UK’s existing electricity generation capacity will be shut down as ageing power stations are taken offline, which means that
the Government would need approximately £100 billion ($155 billion) of investment in
electricity generation and transmission by 2020 - double the current rate. In addition,
energy imports were at record levels in 2012, up 6.9 per cent on 2011 levels (DECC,
Digest of UK Energy Statistics 2013, 25.7.13).
Energy prices in the UK are rising. The country is increasingly dependent on imports
and the Government’s controversial energy bill, which seeks to avoid what it sees as
an impending energy crisis, aims to increase the amount of energy generated in the
UK through renewables and nuclear. Meanwhile, the UK has big ambitions to cut CO2
emissions by 80% by 2050 yet CO2 emissions are up 4% on last year.
The UK government must find a way to balance the country’s energy needs with longer-term
economic and environmental issues. If it doesn’t, the UK will continue to lose badly-needed
investment in the sector and the country’s energy security will be put further at risk.
(22 August 2013, Time to reset energy policy, Petroleum Economist)
Despite significant efforts being undertaken on the supply and regulatory side, there
still remains a lot more which can be done on the demand (unregulated) side to drive
greater efficiency in usage by consumers, businesses and the utilities to deliver significant reductions in the country’s energy consumption. Contrary to popular perception,
the delayed rollout of smart meters in the UK does not have to signal a delay in offering smart energy services. Affordable technology exists today that provides two-way
communication around usage between the home and the utilities and the means for
users to manage their consumption real time and remotely. But technology is just the
enabler – for service success, the trick is to package technology to trigger emotional
values with the consumers, like convenience and comfort, being perceived as green or
eco friendly, or of course to save money.
Through a number of trials including Europe’s largest energy experiment, Maingate,
a European technology company that works with utilities and energy companies to
provide consumers with the tools to manage their energy usage, has found that demand side efficiencies can lead to a 10-20% reduction in energy consumption. As well
as presenting these findings, this paper will argue that the UK is well positioned to
become a leader in driving down domestic energy usage. The paper will also introduce
research-based recommendations on how this can be achieved in conjunction with the
thoughtful rollout of smart energy services. Services that provides end-users with
a better understanding of their energy consumption, whilst also strengthening relationships between utilities and their customers, empowering their energy users, and
adding to the top line.
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As well as providing the business case for the utilities to offer smart energy services,
we will also present case studies based on Maingate’s experience that show:
A. How the provision of smart home services:
1. Reduces consumption of energy and energy bills
2. Improves consumer engagement
3. Increases loyalty
B. How utilities can encourage the adoption of smart home services
and increase revenues
Although the technology is available today, consumers have little awareness of the
benefits that HEMS can deliver. Not only do they have very little insight into how they
consume energy, but they also lack the practical tools to manage their usage. Secondly, utilities need to package these services in ways that motivate the consumer to
engage with their energy consumption.
The key question facing utilities is how to best facilitate a reduction of consumption
without destroying current revenues?
By helping customers to save money, utilities can start to build trusted, two-way relationships with their customers, which has not previously been possible. In doing so,
they will have the perfect platform upon which they can offer new revenue-generating
services that are tailored to meet the needs of their customers. If they are not successful someone else will and utilities will lose both energy revenues and revenues
from HEMS.
THE TIME IS RIGHT TO LAUNCH HEMS
IN THE UK
The UK has the perfect storm of high prices, concerns around energy security, austerity, environmental concerns and depleting margins, which together provide the right
market conditions for utilities to innovate their offering and provide energy management services to their UK customers.
The energy bill is about to be passed. Government and the green and nuclear lobbies
are doing their bit to try to resolve supply side issues. However, the regulator and the
government’s focus on encouraging switching is not enough to bring down household
bills. There should be pressure on utilities to provide consumers with greater transparency around usage and greater control, as this will have a more sustainable impact
on household bills and a material impact on consumption, especially as the domestic
sector is the largest consumer of energy in the UK.
Furthermore, the technology to allow households and businesses to be in control of their
energy usage exists today, as stated earlier in the paper. Empowering the customer by
providing information around usage of energy and the ability to manage it will lead to
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A Perfect Storm
lower bills as the case studies above have demonstrated. Utilities are searching for
ways of becoming providers of value added services in order to increase loyalty and
reduce churn and HEMS offer utilities the potential to do just that.
Given that the conditions discussed above, the indications are that UK consumers are
willing and able to reduce their energy consumption – as long as the service is packaged in a way to suit the consumer: market led not technology led. The take up of
smart energy services in the UK could be the highest in Europe, making the UK ideally
positioned to take the lead in revolutionising our relationship with energy. And if the
utilities can help households to generate 20% savings a year based on their usage data
and knowledge of what motivates behavioural change, the nature of their relationships
with their customers will be completely transformed for the better and new revenue
opportunities will be created.
WHAT’S IN IT FOR THE UTILITIES?
The sustainability of utilities’ traditional business models is at risk. Offering HEMS can
help to increase customer loyalty, provide much needed new income streams and the
opportunity to engage much more positively with customers. This could translate into
reduced churn and margin improvements for utilities, up from 4% on average over the
past four years1. And given that they own the relationship with the customer, incumbent energy providers are well positioned to market these potentially higher margin
HEMS to their existing customer base.
There is some urgency to act, as non-traditional providers of energy look to increase
their share of wallet of essential services for the home. SKY, Virgin and O2 are seen as
much more innovative by end users than utilities. However, consumers may feel more
at ease sourcing energy management services from their existing energy provider
vs. non-traditional providers such as their satellite TV or Cable Company. In the US,
“much of the activity for home and small business energy services has come from
companies outside the electric industry. In late 2011, Verizon became the first major U.S. telecom to launch a connected-home service, selling equipment and a $10 a
month service that lets customers monitor and control locks, lights and thermostats2. AT&T
announced its Digital Home service earlier this year in 15 markets, including Chicago
and St. Louis, including an energy package for $5 a month plus equipment and installations 3. This summer, Comcast unveiled a new cloud-based smart thermostat service called EcoSaver and said it would start selling remote-controlled, energy efficient
light bulbs 4. Time Warner Cable, as well as home security companies ADT, Alarm.com
and Vivint have all come out with similar services, too.
The reality is that the development of energy management services is likely to be a
collaborative endeavour with various partners in the mix of technology, energy and
telecoms providers for example. But being the branded provider of these services will
be essential to maintaining ownership of the customer relationship in order to monetise the ensuing loyalty.
According to RWE 16.4.13. FT. Npower angers MPs over low tax payments
http://www.greentechmedia.com/articles/read/verizon-launches-home-automation-via-z-wave
3
http://news.cnet.com/8301-1035_3-57581532-94/at-t-rolls-out-home-security-and-monitoring-service/
4
http://corporate.comcast.com/news-information/news-feed/comcast-launches-new-xfinity-home-control-and-energy-management-service-2
1
2
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WIN-WIN - THE BUSINESS CASE FOR
OFFERING HEMS
The case study below is based on Maingate’s findings from extensive customer projects and a model based on the average UK household. The case study details:
• Expected savings to an average UK household as a result of having an
energy management system in the home
• The reduction in kWh revenues by the energy supplier due to lower
household consumption vs. the increased revenues to the utilities as a
result of reduced churn
• By charging the average household as little as £2 a month, utilities
can make up for lost revenues from customer churn and increase customer loyalty
REDUCE CHURN, INCREASE LOYALTY, PROTECT REVENUES
AND ADD A NEW REVENUE STREAM
The model suggests that the increased loyalty generated by providing customers with
savings and convenience translates into a reduction in churn. Maingate’s trials have
shown churn come down by 10-20% due to increased customer satisfaction and loyalty.
By charging the average household as little as £2 per month, utilities can make up for
lost revenues from reduced consumption of energy where HEMS are operational.
Smart home
10 0
10 0
80
80
£ / YE AR /CUSTOMER
£ / YE AR /CUSTOMER
CASH FLOW TO UTILITY
60
40
20
60
40
20
Heating
Electricity
0
2 0 15
2 0 16
BUSINESS A S USUAL
2 0 17
0
2 0 15
2 0 16
2 0 17
SMART HOME
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HOUSEHOLD SAVINGS
Based on the usage patterns of the average household5, after year 1, the average
household will save £230 off their energy bill.
The alternative to incumbent energy providers offering HEMS is bleak; as they will lose
the revenues from reduced energy consumption anyway, if a competitor offers HEMS.
Being it a utility or non-traditional provider.
END USER COST / BENEFIT
10 0 0
800
600
474,2310
220,4107
400
£
200
0
-20,7394
-2 0 0
-249,8430
-400
-600
2 0 14
2 0 15
2 0 16
2 0 17
Cumulative net savings
Heating bill savings
Electricity bill savings
Customer charges (Monthly Subscription)
5
Average annual bill based on a national average usage of 3,300 kWh of electricity and 16,500 kWh of gas
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CONSUMER ENGAGEMENT IS
THE KEY TO SUCCESS
Offering HEMS is only half the story. Whilst some utilities are accelerating the launch
of HEMS ahead of smart meter rollout, there has been a low take up of services such
as smart heating solutions.
The business case for offering HEMS is only half of the challenge faced by utilities. The
key is to know how to encourage consumers to become more proactive in managing
their energy consumption. In the UK, one might expect the biggest trigger to change
customer behaviour and attitudes is to demonstrate how HEMS can positively impact
customer’s wallets.
Causes of low adoption of HEMS - Possible explanations include:
• Poor understanding of benefits: Low demand can be attributed to poor under-
standing of what benefits these services will bring and potentially the period
over which these benefits will be achieved. The consumer benefit is not the
service as such, but rather emotional drivers, such as convenience, control,
being green or saving money
• Low
quality customer relationships: Absence of anything other than billing
correspondence between utilities and end users means that the quality of the
relationship is poor and trust in new service offerings may be low as a result
• Customers are sceptical: Utilities are not seen as innovators therefore new
product offerings may be viewed with caution
Consumer trust in the big six UK utilities is at an all-time low. Charging more and
reporting higher profits, as well as other repetitional issues continue to undermine
consumer confidence. Unless utilities build relationships and trust with customers,
launching paid for HEMS is unlikely to be a commercial success.
The UK public is sceptical. The findings from a Uswitch study in February
this year found that:
• Just 4 in 10 consumers trust energy suppliers
• 48% cite poor value for money whilst 37% cite lack of openness and transparency
• On a positive note, those who DO TRUST energy supplier have been won over by
easy to understand bills and information, (49%), good customer service, ease
of communication and helpfulness
• A quarter distrusts their supplier because of consistently poor communication,
from tariff information to billing
• Over one third of customers say they do not trust their supplier to help them
reduce their energy bills
Despite this apparent lack of trust, even around utilities helping consumers to lower
their bills, Maingate’s experience has shown that negative sentiment towards utilities
can be turned around.
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KEY LEARNINGS FROM MAINGATE’S
CONSUMER TRIALS
Through extensive trials with customers of E.ON and residents of JM, a leading housing company based in the Nordic countries, Maingate has amassed extensive experience in understanding what motivates consumers to become proactive with regards
to their energy consumption, how to maximise the adoption of HEMS and how to promote greater customer engagement. We will also show how gathering, analysing and
sharing usage data in the right way can help utilities build stronger relationships with
customers and drive sales from tailored smart energy services to ultimately grow the
top line.
INCREASING DEMAND FOR HEMS,
IMPROVING CUSTOMER ENGAGEMENT
AND BUILDING TRUST
By familiarising customers with the benefits of HEMS, utilities can overcome the challenges cited above and deliver on the following:
• Increase consumers’ awareness of their energy consumption by providing transparency and real time information on their usage
• Provide tools for consumers to manage their consumption both in the
home and remotely
• Generate real savings for households
• Create a need for smart services
• Build dialogue and relationships with customers which will translate
into increased trust and loyalty
• Provide utilities with the ability to collect more and better information
about their customers and develop more appropriate and relevant services to meet their needs
• Increase the adoption of HEMS
• Reduce churn
• Increase sales of energy services; increase recurring revenues and
the stability of their earnings profile
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SWEDEN’S LARGEST ENERGY
EXPERIMENT WITH E.ON
With some forecasts predicting that €500bn needs to be invested in grid infrastructure
in the coming years; utilities and governments are struggling to come up with alternative solutions to improve capacity. However, innovators in the energy space are looking
to Demand Side Reduction (DSR) to help negate the impact of reducing energy production, increasing unpredictability of energy production through renewables, increasing
CO2 emissions and, of course, the massive budgets required for grid modernisation.
To prove the impact that DSR can have, Maingate created Sweden’s largest energy experiment with E.ON. The trial consisted of 13,000 households across the country, with
each given the technology tools and hardware to enable realtime energy visualisation,
as well as a smart phone app connected to their home that allowed them to monitor
their energy usage in realtime from wherever they are. Participants were then tested
over a one-year period to determine which emotional drivers would lead to the greatest reduction in energy consumption.
Out of the five different drivers trialled, the most impactful drivers from most to least
were: Challenge, Empathy, Reward, Reminder and Economy. The trial confirmed that
home energy management systems can generate real financial and environmental
savings, and that community driven incentives drove the biggest savings.
1. CHALLENGE
Virtual competition between communities in realtime to see which group
that was saving the most. This allowed participants to compare consumption to others with similar homes or profiles.
2. EMPATHY
Households needed to save enough energy to keep a ‘Tamaguchi’-like
character alive.
3. REWARD
Participants could win prizes for the best energy saving tips.
4. REMINDER
A “coach” spurred householders on to reduce their energy consumption,
based on previous consumption.
5. ECONOMY
The display showed households their usage as real money spent real time.
Drivers are likely to vary from market to market. However, The Energy Saving Trust
recently published evidence that UK consumers too are keen to use technology to
share and compare their energy consumption (11 June 2013 – SmartGrid GB). Economy
scored the lowest in this trial and it would be expected to be at the top, or near the top,
of the list in the UK, given the higher cost of energy compared to Sweden.
Through awareness of their energy usage alone, households saved over £264 per year,
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equivalent to 11% saving on the average bill. Applied to the UK, this would equate to a
saving of £125 per year, per household on their electricity bills, based on Ofgem’s forecast for electricity spend for households in the coming 12 months. And when given the
ability to manage their usage remotely via an Internet enabled device, average savings
of 20% were achieved, representing savings of £230 per year.
The trial confirmed that the aggregation and analysis of usage data, when coupled with
the right tools and the way in which the data is presented back to the end user, could
generate real financial and environmental savings for households:
• Real-time visualisation on total household consumption and appliance
or device level led to an 11% reduction in average, 20% peak reduction
during more intense consumer engagement activities including incentives and competitions
• The information needs to be presented user friendly way and, more
importantly, available on any device. This means the right data is presented in the right way, at the right time, in a way that suits the user
• Savings
projections and carbon footprint comparisons with other
households also influenced behaviour
• The
ability to act upon the data real time. Consumer will learn the
cause and effect of changes in the energy consumption presented in
realtime
EXAMPLE OF A DATA DISPLAY ON A
CONSUMER’S SMART DEVICE
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ENERGY IN MIND6 / JM CASE STUDY
JM is one of the leading developers of housing and residential areas in the Nordic
region with the main focus on expanding metropolitan areas and university towns in
Sweden, Norway, Denmark, Finland and Belgium. JM sought to promote long-term
quality and environmental considerations in all its operations. Low energy consumption was a high-priority environmental issue and JM needed tangible, result-focused
and behavioural changing tools to engage their homeowners on their environmentally
focused agenda.
Maingate created a customised HEMS solution for JM, built around its cloud-based
information management system. The tool gathered real-time electricity meter measurements, analysed large amounts of data and compared apartments to similar-sized
apartments. Homeowners became more aware of how they used energy consequently,
their energy usage – along with energy bills and environmental impact went down.
Electricity consumption went down by an average of 4.7% and peak savings achieved
were in the region of 7%. Crucially, savings increased over time.
Qualitative studies and focus groups have also been performed with participants in the
project and the findings included:
• Over 95% of respondents felt more informed, engaged and aware of
energy consumption
• Over 95% claimed that they also understood what they could do to reduce their energy consumption and their environmental impact
6
Energy in Mind was a governmental funded project run within the frames of Sustainable Innovation (http://www.sust.se/in-english/).
Both JM and Maingate were engaged in the “Energy in Mind” project during 2012 and 2013.
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WHY THE UK IS WELL POSITIONED
TO LEAD THIS REVOLUTION
REDUCING ENERGY CONSUMPTION IS A HIGH PRIORITY
• Reducing households’ bills is a top priority for the government
• Wholesale energy prices are rising faster compared to Europe
• The UK has poor connectivity to Europe compared to France and
Germany and there is no short term or inexpensive solution to this
dilemma
• Shale is not the silver bullet to lowering our bills and will not provide
a short-term solution
• Environmental concerns - UK ambition to cut CO2 emissions by 80%
by 2050
• Taxpayer funded subsidies and investment in dirty fuel or expensive
renewables can be reduced
• Reduce the need for large investments in extra capacity by utilities
• There will be greater support for UK technology companies focused
on energy efficiency
• Smart demand response programmes will encourage international
industrial companies to invest in the UK
CONSUMERS WANT THE POWER TO BRING DOWN
THEIR ENERGY BILLS
As well as getting the best deal, consumers need to be empowered to manage how
they use energy. The government is promising to increase competition and contain rising energy bills and “put consumers in the driving seat”. However, simplifying switching mechanisms will not be enough and will do little to restore trust. To truly put consumers in the driving seat, consumers need greater transparency around their energy
usage so that they can take control of their consumption and in turn lower their bills.
THE POTENTIAL SAVINGS ARE SIGNIFICANT
Based on average savings achieved over the course of Maingate trials, HEMS could lead to:
20%
of reduction of domestic energy
consumption
20%
reduction in energy bills equivalent to
£230 savings per year for the average
household representing a £6 billion
saving for UK households overall
18%
reduction in households’ carbon
footprint, equivalent to a 3%
reduction in carbon emissions
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ABOUT MAINGATE
Founded 15 years ago, Maingate is a leading provider of energy management systems
for the smart home, smart enterprise and smart grid. Accessible via any smart device,
Maingate’s apps and analytics allow end users to monitor and manage their energy
consumption real time and reduce their bills and carbon footprint.
Maingate mvio™, Maingate’s open architecture technology platform, allows utilities to
connect seamlessly with external data sources and provide value-added energy management services to their customers.
As well as providing utilities with smart solutions for households and businesses,
Maingate also helps utilities to reduce energy loss on the grid, improve power quality,
detect faults and monitor and manage abnormal loads. Maingate has over 1,000 customers, including some of Europe’s major utilities such as E.ON and Vattenfall. Maingate also has strategic partnerships with many industry leaders, such as Deutsche
Telekom, Gemalto and Schneider Electric. Maingate currently connects over 55% of
smart meters in Sweden and 20% of smart meters in Finland to energy providers.
In addition to the company’s leading data aggregation, analytics and communications
capabilities, the secure and reliable communication of data is at the core of Maingate’s heritage and products. Maingate is also a leading communications provider for
a number of industrial segments including home alarm systems and mobile payment
terminals.
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BUSINESS CONTACT
MR DAVID OWEN Managing Director
Email: david.owen@maingatesolutions.com
Phone: +44 7753 815066
PRESS CONTACT
MRS KAJSA LILIUS SVP Marketing & Communications
Email: kajsa.lilius@maingatesolutions.com
Phone: +46 703 20 13 07
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