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The Next Big, Digital Economy Is In 'Smart Energy'
Guest post by Mary Turner, CEO of AlertMe
The energy market is undergoing a major transformation. It’s moving towards a so-called Smart Grid, which will not only manage supply and demand of energy more effectively, but also integrate new, lower-carbon sources of electricity. This sort of transformation comes with massive infrastructure investment, often influenced by government policy. That can be a good thing.
Smart meters are the essential end points of a Smart Grid connecting up the home, meaning a new meter connected directly to the utility. It collects up-to-date usage data and transmits it back to the utility for billing and it also allows the supplier to send data such as tariff information to the meter in the home.In Britain, which may be seeing the biggest move towards smart energy anywhere, this means the rollout of 43 million smart meters to 26 million homes by 2019, and in North America, conservative estimates predict around 95 million electricity smart meters alone by 2015.
But experience of other markets tells us that changes to infrastructure will not necessarily lead to a successful transformation. The real magic only happens when we effectively combine infrastructure investment with customer innovation. Only then can the industry create compelling services at the right price, and ensure mass-market customer adoption.
Take the mobile market, which in the U.K. only achieved 7% penetration in 10 years from 1985 to 1995. Operators saw this as a service for premium customers and the market lacked the vision or ambition to become a mass-market consumer service. Then the network moved from analogue to digital in 1995 and the industry started to innovate with new customer propositions. Pre-pay packages, more accessible handsets and huge marketing campaigns became the catalysts for a mass-consumer service driving adoption from 7%, to 46% by 1999.
Similarly, in fixed-line Internet access, dial-up achieved just 5% in the first eight years, modems were cumbersome to install, content was limited and no real choice of packages to suit the pocket. All this changed in Britain when Freeserve introduced pay as you go, which catapulted dial-up services to the mass market.
It was the same for broadband in its early years — it was expensive, engineer-installed and confined to tech-savvy, high-end consumers. However, in 2003 regulation to open up the BT network resulted in viable wholesale competition. Retail providers could now invest in the network and quickly innovated to develop affordable, self-install broadband products with mass-market appeal.
As a result, broadband prices plummeted from £30 to £15 ($47 to $24) a month in 2004 and the scale created allowed providers to invest further to provide today’s higher speeds and bandwidth to accommodate more sophisticated use. Penetration of broadband increased from 7% in 2003 to over 40% in the first quarter of 2006. This led to further innovation, a huge amount of content and was the beginning of a now thriving e-commerce and digital economy.
Most recently, digital TV has transitioned in just five years, and as the broadcast network has been transformed, the content and TV hardware markets have helped to ensure consumer conversion to digital TV has achieved over 96%.
The combined transformation of our communications infrastructure over the last 18 years has acted as the platform for a whole new digital economy, beyond connectivity, of new services estimated to be worth $130 billion (with $72 billion in e-commerce alone) in revenues for Britain. Today the U.K. has a much stronger business-to-consumer digital economy than other countries and a business-to-business ecommerce percentage of GDP, three times the global average. This means every £1 spent in connectivity supports £5 in additional revenues for our economy, according to the research consultancy A.T. Kearney.
For the energy market too there are two fundamental parts to transforming this market – infrastructure AND customer innovation. One is less effective without the other.
Connecting the eGeneration
Thanks to the efforts of the communications industry, today’s consumer is now part of the eGeneration – ‘smart’ in every way. They are connected by the cloud to almost everything that matters to them – family and friends, work and school, banks and shops, government, the media and entertainment. They are already connected to everything except their home, and the energy market is a big part of this disconnect.
It’s estimated that in Britain £11 billion ($17.6 billion) will be invested in the smart meter rollout. But the market needs to maximize the return on its investment. Boston Consulting estimated that while 60% of the business case for smart meters can be made through operational efficiencies, a further 40% is consumption related. We need to look at making consumer-friendly services that engage the customer, providing them with usage information, flexible pricing and easy tools that will help them to control their energy consumption. Such measures can help utilities to meet customer demand with fewer resources.This is a generation that’s time starved, cash limited and is used to instant access to services and information wherever they are. So the energy market needs to provide these customers with greater visibility about energy use in their homes, and intelligent automation that makes homes more comfortable, more efficient, more convenient and smarter. With very high levels of broadband penetration and the increased adoption of smartphones, we can use the technology that consumers already have to inform and engage them to give them control in the palm of their hand.
This is where the real innovation begins. To truly engage with the customer, the services utilities need to make sense for the customer, they need to be easy to adopt and fit in easily with their lifestyle. It is not just about more accurate billing; it’s also about using the devices in the home to make life more efficient.
The new wave in the digital economy
Creating the smart home is a huge opportunity, but it’s an opportunity for more than just the energy sector. Industry analyst Strategy Analytics recently forecast that nearly 5 million broadband homes in the United Kingdom would have at least one smart home system by 2017, generating £1 billion (about $1.6 billion) in digital revenues.
This is a new wave in the digital economy, creating smarter homes and smarter customers. Cisco Trends 2011 predicted 15 billion connected devices by 2015. This so-called Internet of Things will create a unique environment for innovation.
If energy providers, device manufacturers and technology companies are able to grasp this opportunity to innovate, we will see rapid growth of the smart home. It will be an opportunity for customers to benefit in many ways, for the energy sector to meet its commitments while getting a return on its investment and it is an opportunity to build the new digital economy.
Mary Turner is the CEO of AlertMe, a British company that provides utility monitoring services for the home. Prior to taking her current role in Feb. 2010, she was CEO of broadband provider Tiscali U.K.