innovation impact: residential energy...

Innovation Impact: Residential Energy Providers

How Micro-Grid Innovations Could effect Residential Energy Providers

Innovation: Threat or Opportunity?

2

AlternativeEnergy

HomeAutomation

BatteryStorage

Internet Connectivity

Warren Walker • [email protected]

SUMMARY

One thing that you can predict is that every industry evolves whether the industry players are ready or not. Many times companies fail to recognize the innovation warning signs that lead to radical industry changes because it is not one big breakthrough, but rather an accumulation of very small, seemingly unrelated changes. Often industry changes are driven by fast-moving start-ups not bound by institutional inertia that attack industry leaders by leveraging innovation and risk in ways the established players may not.

Many market factors will influence Residential Electricity Providers (REP’s) in the future, we will focus on four that when combined, have the po-tential to significantly alter the relationship struc-ture between providers and their customers.

Alternate energy, battery storage, home automa-tion and internet connectivity will eventually lead

to residential customers declaring their inde-pendence from centralized electric providers. Even more alarming is the possibility that the fundamental relationship structure that com-panies have with their existing customer base could be disrupted with serious financial con-sequences. The revenue generating residential customer of today could become an electricity supplier of tomorrow. The commercial deliv-ery of electricity has a different dynamic so the focus will be restricted to evaluating the resi-dential marketplace.

This paper will explore how innovation will likely impact residential energy providers current business models and how this could create future opportunities. Change is com-ing to this industry, it is just a matter of who is prepared to benefit and who will be caught off guard.


3Warren Walker • [email protected]

ALTERNATE ENERGY

Once the topic of conversation of survivalists and end of the world preppers, living off the electric grid is becoming more mainstream with potential consequences for providers. Widespread adop-tion of alternative energy production requires two major components that are in varying stages of readiness for the mass market: architectural design and mechanical infrastructure.

Existing companies are capable of designing and constructing residential homes that meet various low energy use designations such as Passive House, Net Zero Energy, Super-Insulat-ed, Deep Energy Retrofit, and Zero Fossil Fuel Consumption. Despite these advancements, most homes that can achieve these various designations are new construction since retro-fitting existing homes is often cost prohibitive or structurally impossible.

Federal and local laws may someday set standards for res-idential building that will ac-celerate the adoption of zero use construction standards but for true widespread adop-tion, retrofitting 130+ million existing homes in the U.S. may not be feasible due to the cost and age of the homes. For existing homes, the focus will likely be a mix of easy/inexpensive efficiency gains and new external mechanical infrastruc-ture.

For a home to be independent from centralized electricity producers it will have to generate, but more importantly, efficiently store energy on-site or within a very geographically limited local grid. There are a number of ways a home could generate electricity ranging from wind, solar and geo-thermal, but the most promising may be fuel cells.

A Maryland company named Redox is close to going to market with a one cubic meter, 1,000 lb. natural gas fuel cell that generates 25 kW and can be installed inside a building. The Redox fuel cell is modular and they are devel-oping a smaller household version that could deliver power at a price lower than existing residential provider plans. Fracking technology has enabled natural gas producers to signifi-cantly increase natural gas production result-ing in a price point that would enable a gas powered fuel cell to be economically feasible.

Neighborhoods could create a cooperative and invest in a fuel cell and develop a microgrid to meet the electricity needs of dozens of households and largely become independent of the existing grid. An advan-tage of this system is that each home would need relatively minor modifications to link to the new local microgrid, and as more homes join the network, additional capacity could be added to the same generation infrastructure. The microgrid would also be insulated from regional power generation and distribution disruptions. In

addition, any excess electricity generated by the fuel cells could be sold back to centralized power companies. Microgrids would lead to new business opportunities as they contract for support services and products.

BATTERIES

One significant hurdle of any electric power generation system is the need to match supply with anticipated demand. There is no way to effectively store large amounts of electricity to be used when demand spikes. Storage is also a challenge for individual homes that plan

Redox 25kW Natural Gas Fuel Cell



to use renewable energy in an effort to become a net-zero household. What does a household do when the sun isn’t shining or the wind is not blowing? Outside of fuel cells, households will need to implement an affordable and appropri-ately sized battery storage solution.

Early in 2015, Elon Musk of Tesla Motors an-nounced they would release a “home battery” within a number of months. Nissan has also an-nounced development of a whole house battery and their marketing materials mention the Leaf electric vehicle can produce 6kW of electricity for a home by reversing the flow through the vehicle’s charging station. As more and more

electric cars are introduced the scale and pace of battery development will also increase. Electric/hybrid vehicles and their internal batteries could become a significant component in household electricity generation and storage.

The feasibility of a whole house battery for pow-er storage may still be months or years away, however, it is clear some very large and inno-vative companies are aware of the need and are working on delivering a solution despite the revenue model being unproven. Once the bat-tery technology becomes feasible on an individ-ual house level, becoming a net-zero household gets much closer to reality.

HOME AUTOMATION

Home automation is a development that holds much promise, is often talked about but is always a couple of years away from widespread adop-tion. The time for whole home automation may actually be here due to marketing efforts from providers such as Nest thermostats, AT&T’s Dig-

ital Life automation and Kwikset Kevo remote door locks. Home automation has always had an Achilles heel in that many solutions re-quire an electrician to change electric outlets, switches and alarm systems. The proliferation of home WiFi, RF communication devices and Bluetooth will make the transition to automat-ed household devices much easier. Instead of getting an electrician to change a wall switch, you can add a RF enabled lightbulb and auto-mate that function.

Home automation is not a required compo-nent of enabling homes to move off the grid but it is a strong contributing factor. When

home automa-tion becomes more common, homeowners will become aware of how their home consumes ener-

gy. As home automation sensors become increasingly sophisticated and common, it will be much easier for homes to decrease electric bills.

Does it make more sense to turn off the air conditioning while you are at work or is it more economical to let it run avoiding a heat-ing and cooling cycle? With advanced home automation you would not even have to ask the question, your system would automatical-ly determine how to maximize efficiency and reduce cost. Home automation would also allow a microgrid to see electric usage in a home down to the device level and anticipate demand cycles based on a homeowner daily

usage patterns.

INTERNET CONNECTIVITY

Connectivity is important because it creates a pathway for wholesale disruption of estab-lished business models. Internet connectivity allowed Netflix to drive Blockbuster into bank-

“We are going to unveil the Tesla home battery, the consumer

battery that would be for use in people’s houses or businesses

fairly soon,” Elon Musk, CEO of Tesla Motors, 2/11/2015



ruptcy and Skype to drive the cost of domestic long distance calls to practically $0.

Innovative fast moving companies will use the internet to get into the homes of energy provid-ers customers and present well designed, intui-tive products and services in the electric power market. Home automation software, billing, alarm response and fault detection are areas ripe for internet disruption. New data streams from connected devices will spur innovation for resi-dential focused products and services.

Some of the connectivity driven innovations will be accretive to providers, but many will be dis-ruptive. A home automation system combined with residential sensors could detect the air conditioning unit compressor is vibrating ex-cessively and is louder than normal. The system would automatically check the owner’s calendar and determine when they are usually home, call a repairman and schedule an appointment while also delivering diagnostic information to the re-pairman. The repairman will arrive at the house with a replacement compressor since the system told them that part is failing. In that scenario, the company that controls the home automa-tion software would be able to control which Heating and Air Conditioning company gets that business. Who gets that repair appointment will probably be determined by existing homeowner relationships and a provider who embraces this type of innovation first.

CONCLUSION

Alternate energy, battery storage, home auto-mation and internet connectivity will change how REP’s offer services and interact with their customers. In some instances, it will not be clear who owns the customer relationship since inno-vation and automation will make those connec-tions less established and more fluid. Alternate energy generation and storage will make home-owners less dependent on centralized providers. Home automation and the internet of everything

will result in an explosion of device data and usage patterns. Internet connectivity will result in an ease of delivering innovative services and provide an opening for fast moving new com-petitors.

From the REP’s perspective, the world of res-idential energy services is likely to get more complicated and move at an uncomfortable pace. The leaders in this industry will be or-ganizations that are forward looking and agile enough to embrace this opportunity. Some REP’s will be displaced by this coming innova-tion.

WHAT COULD A PROVIDER DO

An REP that embraces change needs a fluid outlook on the future of the industry, a strat-egy to capitalize on innovation as it develops and a culture that allows for possible dramat-ic iterations in strategic direction. The home services capability should be leveraged as an increasingly important component given the direct connection to homeowners and the possibility to service household infrastructure. Partnerships with leading consumer facing technology companies need to be initiated since many REp’s will not have the required expertise in evolving technology. Corporate structure and culture will have to be aligned to embrace a future that could look dramatically different in the coming years

Finally, and probably most important industry players will have to pay attention to micro-ad-vances along the innovation continuum. The company that has a vision of the future and can change course accordingly will have a good chance of succeeding.

Warren [email protected]

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