With all the talk about customer engagement in the Smart Grid media over the past year, the implied message, even the explicit message, is that electric utilities need to understand the customer and become more market-oriented. The Smart Grid business case will need to be made if Smart Grid projects are to receive funding, and the customers will need to get educated about energy if we expect them to participate in demand response projects and help to lower peak energy costs. In my last two IssueAlert articles (August 18, 2011 Getting Ready for Customer Use Cases, and August 12, 2011 Smart Consumer Maturity Model), I followed this line of thinking as well, first exploring the idea of consumer energy education with The Smart Consumer Maturity Model, then examining the background for how customers will use energy with Getting Ready for Customer Use Cases. Why all the focus on customers? And more fundamentally, can (or should) a utility go from one hundred years of monopoly behavior to become a market-oriented organization in just a few years? One might as soon ask, “Can a leopard change its spots?”
In The Advanced Smart Grid: Edge Power Driving Sustainability, my co-author Andres Carvallo and I argue that electric utilities not only have the capacity to become more market-oriented, but that those who intend to remain relevant in coming years and decades must become more market-oriented, because the advanced Smart Grid is inevitable. The emergence of new technologies that enable energy efficiency and energy production directly by consumers, or “from the core to the edge” as we say, makes adaptation imperative. While central generation distributed over transmission wires may constitute the history of electric utility business, the future lies down two paths, which we bundle in the term “advanced smart grid.” First, utilities must learn to leverage the new technologies of distribution automation, advanced meter infrastructure, and demand response to achieve grid optimization—to get more out of society’s investments in the grid. Second, utilities must begin planning to adapt to the range of new technologies that come under the umbrella term “distributed energy resources” or “DER,” which includes energy efficient buildings and energy management systems, electric vehicles and related charging infrastructure, distributed generation like solar PV, and energy storage systems.
Understanding v. Acting
If one accepts the idea of an emerging new class of energy that occurs at the site of consumption, where use of the grid will become more two-way (i.e., excess generated power put out on the grid), then the corresponding question may be, “What then are utilities to do about that?” Before deciding to remake the utility into a market-oriented organization, it may be more prudent and better conform to conventional utility behavior to first study changes in the marketplace and emerging market behaviors, and then determine the practical path— whether to change, how much to change, what to put in new strategies, and what to leave out, etc.
In order to plan and operate in a highly dynamic environment, it behooves utilities to increase their understanding of both current and emerging market behavior, the better to determine successful market strategies.
Aligning to Meet Emerging Market Needs
A key challenge to determine a market strategy will be the very dynamic nature of the complex changes in the marketplace underway today. According to our Smart Consumer Maturity Model, consumers are gaining knowledge and awareness and becoming more active along a continuum—the marketplace is emerging. As each customer is personalizing his/her energy perspective, a utility can define market segments, even subsegments, and then study motivations, values, and perspectives. Such study begins with listening, accomplished through a variety of media, from traditional customer service departments to feedback from utility websites, to feedback in targeted focus groups and formal customer events, to ongoing interaction via social media like Facebook and Twitter.
The challenge for electric utilities will be to engage in outbound marketing—communicating and educating the market in language and ways relevant to non-utility types—as well as inbound marketing, listening and documenting emerging perspectives, segment by segment. The goal will be to refine the utility service delivery model and organizational structure to meet market needs and retain revenues in the face of emerging competition from third-party energy service providers eager to meet emerging customer needs associated with DER. But utilities will also seek to generate new revenues by taking advantage of new opportunities as they appear. With this newfound knowledge from marketing activities, utilities will be better situated to answer the questions: “Should we act now, later or at all?”—(is this new activity in our defined sphere of activity?); “Do we act alone, or do we outsource?” and “Do we simply stick to our core activity, grid maintenance and optimization, and allow others to meet these new emerging needs associated with DER?”
To be able to answer these questions, utilities will need to adjust their perceptions of the market, from the static world of a monopoly utility’s captive ratepayers—the rate base—to a widely divergent marketplace of different opinions, perceptions, values, and needs, evolving and becoming more dynamic over time. To do that, electric utilities will need to raise the profile of their marketing departments, to become more market-oriented, if not market-active. With dynamic complexity comes opportunity, but also increasing disorder. Utilities must begin now to gain the marketing skills needed to manage that complexity and disorder.
About John Cooper
John Cooper, co-author of The Advanced Smart Grid, has recently joined the team at UtiliPoint and its sister company, Consonus, to further the goals and realize the vision he developed over the last 15 years as a smart grid pioneer and innovator, captured in this compelling and highly useful new book. John may be reached directly by email at jcooper@utilipoint.com.
