Category: Executive Pulse

Welcome to the era of energy abstraction

There’s a lot of talk in the energy sector about a new era of customer choice. Finally, companies can offer not just different kinds of energy, but new tools that make managing it easy. These new offerings are exciting, but they all rest on a common assumption: that customers want to think about their energy consumption habits at all.

Engaging customers who are actively interested is challenging enough; capturing market share from customers who just don’t care may be impossible. To win, companies will need to think in terms of abstraction rather than control; customers will engage with offerings that allow them to manage spend without having to manage price or vendor—to save money without needing to understand how those savings took place. Amazon’s Alexa, for example, may offer suggestions for saving money that just happen to involve your electric bill. Indeed, as technology giants seek to “own the home,” I can see a time where the companies driving consumer energy choice are not sellers of electricity—they simply want the usage and provider data.

Using the principle of abstraction for business advantage means thinking about customer empowerment in a different way. How can you build customer relationships when there will be more intermediaries between the customer and supplier? What are the offerings that keep you connected to your customer rather than make you an anonymous commodity provider?

After Equifax’s mismanagement of customer data, we saw an example of disruption through abstraction. An inventor launched a bot that sues Equifax for you; one webpage is all it takes. The company that launched the bot is not in the business of legal advocacy, yet their model will have an impact on law firms as well as the number of claimants against Equifax.

What’s the energy equivalent? Let’s discuss the concept of “energy abstraction” below. I have several more opinions to share on this topic and I expect that you and your peers do as well.

Best,

Ed Cuoco
Vice President, Market and Policy Development
DNV GL Energy

Edward Cuoco, Vice President of DNV GL Energy’s Market and Policy Development services in North America, oversees delivery of energy advisory services to ISOs/RTOs, utilities and independent power producers (IPPs), wholesale and retail energy professionals and other stakeholders. His expertise combines data science, change and risk management, as well as energy wholesale and retail markets experience. Ed’s dedicated team of energy professionals provide strategic advisory services to energy stakeholders across the Americas who face a changing landscape marked by increasingly complex business challenges. Contact Ed Cuoco.

Millennials are Powering Change in Energy

At our Energy Executive Forum in 2015, many of you may recall discussing millennials, referring to them as renters, cord cutters, digital natives, stay-at-home types, and preferring access to ownership. Millennials are the largest generation in US history (bigger than the “boomers”), with radically different value systems and behaviors than their parents. This generation is expected to have a huge impact on the economy and is poised to drive a world of changes in the energy space.

That day has arrived, and the current reality is more nuanced, demonstrating that consumer surveys may be good at finding blind spots, but this is not enough to fully understand what consumers want. Indeed, recent data show that millennials are moving out of mom’s basement and are embracing home ownership — half of all homes sold in the US are purchased by millennials. They’re buying everything else too, from SUVs, to voice-activated appliances, and the electricity that powers everything. In short, millennials have grown up. How can utilities and energy providers take action to capitalize on this new reality?

Consider that:

  • Millennials’ interest in energy-saving programs and offers far exceeds the interest of non-millennials. (1)
  • 47% of millennials find time-of-use rate offerings extremely/very motivating. (2)
  • 9 in 10 would view an energy dashboard from their utility. Over 50% would actually change their behavior because of it. (3)

Connecting to millennials will require utilities to offer: new products, new ways of engaging customers, and new ways to make energy use and monitoring easy. We need to meet millennials where they are, with choices that put them in the driver’s seat. A good example of this is PGE pilot that simultaneously tests 12 different Demand Response rate structures.

There are roughly 90 million millennials in the US, representing a massive opportunity for energy providers—or an equally large headache. Are energy providers ready to meet the expectations of a generation that is used to flexible products, to instant access to product information, price comparisons and peer reviews?

Navigating the energy Convergence, with many different industry sectors competing for the same customer, requires this kind of experimentation. Including millennials in the discovery process makes them less of a target for marketing, and more of a co-creator, opening the door to customer validation and permission.

Do you have the millennials in mind when devising technological or business innovation initiatives? Do you believe millennials will shape the energy Convergence? Please share your thinking on our website, or contact us directly for a conversation.

Best,

Carole Barbeau

President, Energy Advisory Region Americas

(1) http://smartgridcc.org/wp-content/uploads/2017/08/SGCC-Spotlight-on-Millennials-Report-Executive-Summary-8-8-17.pdf

(2) https://www2.deloitte.com/content/dam/Deloitte/us/Documents/energy-resources/us-deloitte-resources-2017-study-energy-management.pdf

(3) https://cdn2.hubspot.net/hubfs/2224113/KSV_Millennials.pdf?t=1504702456070

Partner or die? Strategies for the Convergence.

Should I look to form a strategic alliance? And if so, with whom? This question is on the minds of many energy executives looking for ways to survive—and thrive—in the energy Convergence. As just one recent example, Google and Walmart have announced a partnership that brings together Walmart’s huge retail operations with Google’s online mastery; now anything consumers would buy at Walmart stores can be purchased through Google Home via Google’s web platform, mobile app, or voice assistant. The benefit of this partnership must have been unmistakably compelling for both entities when you consider the following:

  • Never in Walmart’s history have they sold products through websites other than their own.
  • Walmart’s 2-day shipping competes directly with Google Express, offering free shipping over a set price threshold.
  • Just one year ago Walmart paid $3.3 billion for Jet.com so they could compete with sophisticated digital players like Amazon and Google directly.

As the Convergence accelerates, more and more companies will form strategic alliances like this with companies outside their industry—unexpected pairings that make a great deal of sense when viewed from a radically different frame of reference. The newly announced partnership between Comcast and Sunrun is another recent example. Sunrun will be the exclusive rooftop solar provider for Comcast’s vast base of customers, while Comcast builds a whole new revenue stream.

But these alliances aren’t just about boosting sales. Sunrun gains a way to improve customer relationships through Comcast’s existing customer service model. Comcast gets to portray itself as the go-to resource for all things related to the home. Walmart instantly becomes more digital on a grand scale. Google makes a Google-sized statement about its ability to compete and win against the world’s largest online retailer.

To succeed in an unlikely partnership, today’s energy players have to critically examine their own strengths and weaknesses in the context of new relationships. Successful partners will identify the business practices and assets that are truly unique to them, accept shared ownership of new territory, and determine their tolerance for risk in this very dynamic energy landscape.

What are your thoughts? Please share below, or contact us directly for a conversation.

Best,
Carole Barbeau
President of Energy Advisory – Americas
DNV GL

Amazon – friend or foe for energy retailers?

As we’re navigating the Convergence, one company name keeps popping up into our conversations: Amazon.

Amazon’s achievement goes far beyond being a top global retailer. They have redesigned (i.e. disrupted) the direct-to-consumer business model and transformed the marketplace. Amazon’s fast delivery model (distribution), Prime program (consumer loyalty) and Fulfillment program (3rd party sellers/partners), are all enabled by a robust digital platform, advanced analytics and IoT—this is the foundation of its strategy. As a result, Amazon’s role has shifted from “seller” to “servicer,” seamlessly covering the end-to-end customer experience. This strategy triad, once in place, allows for instant access to new market segments at a near-zero marginal cost, further fueling the fast and lowest cost mantra. Consider the recently launched Amazon Fresh—less than 60 days after Blue Apron’s IPO. Almost overnight, Amazon Fresh started to sell out. Amazon “owns” the customer and is able to act quickly, giving them a huge advantage; almost impossible for competitors to overcome. Consider this:

  • Is there a player anywhere across the energy landscape equipped with the technology, distribution, wide customer pool, and sheer agility to compete at this level?
  • Are energy retailers with lots of customers and the willingness to take risks positioned to succeed in this changing energy landscape?
  • ​How can utilities adapt quickly, building on existing customer relationships to bundle and sell new services and products?
  • Will incumbents be willing to invest in new technology to lower their marginal cost, and thus thrive in a near-free electricity rate environment? Will they be willing and/or able to shift their model towards managing energy use more efficiently, and selling less rather than more electricity?

What can retailers, utilities, DER and IoT learn from a company like Amazon? No single company is going to have the answers, but I do know that conversations amongst executives of different backgrounds will help to illuminate how the energy industry can be more agile in the age of disruption. Please share your thoughts on our website, or contact us directly for a conversation.

Best,
Carole Barbeau
President of Energy Advisory – Americas
DNV GL

Should my mortgage include energy costs?

Sonnen recently announced a deal that brings the energy Convergence into sharp focus—on real estate. Through a contract with an Arizona homebuilder, Sonnen’s battery systems will be integrated with rooftop solar on new homes. Homebuyers won’t have to worry about getting separate financing for their solar panels or their battery as the related costs will be bundled into their mortgage.

The implications for the US real estate industry and other sectors may be just as significant as those for energy:

    • Will home solar + storage integrated systems become standard in new homes? For clues we can look to the automotive industry, where the concept of “standard” versus “options” has always been central to sales. In 1995, Mercedes-Benz was the first to equip a production model with electronic stability control. By 2012, the technology was standard in every brand of car sold in the U.S. If there is a similar time horizon for built-in home energy systems, this could force the hand of many incumbents currently dominating the energy space (utilities, manufacturers, retailers, etc.).
    • How would trends in home mortgage affect the deployment of integrated home battery systems?
      Will solar + storage become just another appliance included in the price of a home, or will it follow the Uber model of a platform for robust community trading?
    • How will these customers interact with the grid? What energy services will they be offered to maximize use of their assets? Offered by whom?

As with so many aspects of the Convergence, the timeframe of the change in real estate and energy will be driven by the people in charge. History has shown that in some cases this has been driven by consumer demand, but much of today’s rapid change and innovation can be attributed to the vision of business leaders.

What are your thoughts on the real estate market and energy? I invite you to share your perspectives to spark conversations among the energy executive community. Or contact us directly for a conversation.

Best,

Carole Barbeau
President of Energy Advisory – Americas
DNV GL

P.S. In the coming weeks we’ll be releasing video highlights and insights from this year’s Forum. You can visit our website to stay up to date on new content as it’s released.

We should all learn to think like Coca-Cola

I am convinced that the value in continuing the Convergence conversation is to understand not only the implications of events within our industry, but to look beyond the Energy space to form unexpected connections, identify unexpected opportunities.

You have likely read about Volvo announcing to offer electric and hybrid car models only from 2019. This announcement hit the mark as brilliantly intended by Volvo, since it made headlines for a few days, with many speculating it to be an iPhone moment for EV. The reality is a bit different – only 3 of all models offered by Volvo starting in 2019 would actually be all-electric, indicating that this is not quite yet the tipping point of mass adoption of EVs. But perception is king and Volvo is now viewed as the first “large” car manufacturer committing to phasing out gasoline engine and boldly pushing EV offerings to the marketplace. Make no mistake about my previous comment, this tipping point is coming, most likely as other “large” car manufacturers are now fully prompted to follow suit and push EV platforms further.

Mass adoption of EVs will have a disruptive ripple effect on multiple industries. Coca-Cola, who is already preparing for the disruption, provides an excellent example of how we should test the readiness and adaptability of our enterprise/business model and find opportunities in ways we traditionally didn’t expected.

The gas station network in the US is quite extensive, with a whopping 150,000 locations. It’s not difficult to understand why gas stations have been a top 5 distribution point of Coca-Cola products. Yet with EV mass-adoption, drivers will more likely to be “filling up” on electric power at home, at work, i.e. in any mid-to-long term parking areas, while cars owners/drivers are busy doing something else and going on with their busy life. Nobody will be expected to wait beyond a few minutes to recharge a car battery as we do now to refill a gasoline tank.

Coca-Cola understands that gas stations will stand little chance in this transition, as BlockBuster did when online movies and video streaming came along. How are we in energy also preparing for this change? Distribution strategy is key for any retail business:

  • How will EV change the daily load curve? Will workplace be the new frontier for demand or will home remain where the recharging will mostly take place?
  • Will EV mass adoption shift customer thinking about the value and price of electricity (the idea of pumping gas directly from a parked car for refueling does not even cross our mind, but we don’t think twice of plugging our mobile phone for a “free” recharge while waiting for an appointment at the dentist office)?
  • Will the Tesla charging model (offering your home outlet to other fellow Tesla car owners traveling long distance) become an Uber moment, challenging the incumbent business model of Retailers and Utilities?

As I’ve said before, we are smarter together than any one of us is alone. No industry sector is immune to what’s coming. It’s only through an ongoing dialogue that we find the insights needed to chart our course through the Convergence. DNV GL’s commitment is to drive the energy transition, supporting you with these pressing questions and by establishing your enterprise/business model readiness, adaptability and emerging opportunities. What are your thoughts on the impact of EV on your business? Have you already consider different scenarios and/or identify opportunities and future revenue streams? I invite you to share your thoughts on our website or contacting us directly for a tailored advisory engagement.

Best,
Carole Barbeau
President, Energy Advisory
Region Americas

Is corporate energy procurement the new normal?

While the DNV GL 2017 Energy Executive Forum in Dana Point, CA has come and gone, what has remained top-of-mind for me is the importance of keeping the Convergence conversation going. In today’s disruptive energy environment, cross-sector perspective is a powerful advantage.

In the aftermath of the United States’ exit from the Paris Agreement, more U.S. businesses—from Apple to General Mills to Goldman Sachs—are leaning into corporate energy procurement, following in the path of the internet giants whom initially led the way. This further supports initial assumptions on the future of energy markets and raises some interesting questions, with implications for verticals ranging from utilities to DER:

  • Will corporations with large energy footprints and ambitious sustainability goals foster the convergence of energy markets with independent partners?
  • Are investments in clean energy projects (such as Apple’s recent additional $1B green bonds issuance) reaching a tipping point?
  • Will green tariffs and aggregation of low-volume PPAs enable utilities to meet the varying energy demand of C&I customers and help their retention?
  • Will big brand mass adoption of carbon-neutral energy supply transform to residential consumer purchasing habits and expectation regarding their electricity consumption as it does in other parts of their life?

Let’s keep the Convergence conversation going. Over the next several months, I will be sharing insights and observations from news stories that may have applications to your vertical through this semi-weekly “Convergence Pulse” email.

Though no one of us has all the answers as to what the future of energy holds, asking the right questions and exploring trends and probable scenarios together will help us all move our industries, verticals, and companies forward—with confidence—through the swell.

Best,
Carole Barbeau
President, Energy Advisory
Region Americas