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Capturing the Value of the Internet of Things
By Robert J. King, President, Good Company Associates
Robert J. King, President, Good Company Associates
The potential for a fleet of connected thermostats, or water heaters, or pool pumps, to relieve pressure on utility grids is significant. Each device, or connected home or business system, creates some value, if operated in concert with the customer’s rate structure, or the utility’s demand profile, or a wholesale energy market. With the right rate, utility incentive structure, or wholesale market participation model, a service provider creating this value can be compensated. Yet many emerging service providers are struggling to discover a viable business model incorporating this idea despite its prima facie appeal.
From the point of view of a connected device manufacturer, or an energy management systems provider, responsibility doesn’t end with the product sale. Connected devices require ongoing attention, which provides both an opportunity and ongoing costs. Connected energy devices offer a possibility for an ongoing relationship, and a revenue stream to offset the associated costs. An energy management service might be provided free to a consumer if their ongoing cost can be covered from selling the energy flexibility value created. A home security company may cover its costs in a bundled service charge, but, even there, monetizing the energy value created can allow more competitive pricing, or improve company margins.
To demonstrate the real value of smart energy devices and appliances, vehicles, batteries, solar arrays, or smart homes, there has to be a way to measure their impact. How much did each save or shift or produce, and exactly when and where, because all that matters.
Large potential savings have allowed large commercial and industrial customers with responsive energy management systems to negotiate interruptible rates with utilities or negotiate pathways to participate directly in wholesale electric markets for decades. Large consumers can justify investment in relatively expensive telemetry or sub-metering systems to validate the impact of their demand response or on-site generation.
"To demonstrate the real value of smart energy devices and appliances, vehicles, batteries, solar arrays, or smart homes, there has to be a way to measure their impact"
For the emerging mass of connected homes and small businesses, however, this is not the case. Despite the aggregate value of the population of connected devices, each individually is of relatively modest value. The energy market value of the flexibility offered by a single thermostat ranges from about $35 in Texas to near $200 in Hawaii. But the cost of bringing a single thermostat’s flexibility to a utility or to a wholesale market is almost always prohibitive, resulting in a large supply of flexibility sitting on the sidelines.
The primary cost driver stems from the difficulty in accessing meter readings from utilities’ advanced meters. Every utility AMI implementation has been justified to regulators, in part, upon the value that incremental consumption data offers consumers, utilities and energy markets. Mass-market exploitation requires that third-party service providers can get access to this data, with customer permission, at very little cost. Balancing this need, state utility regulators also require utilities protect the privacy of individual consumer data. Most explicitly require the customer’s knowing authorization to share data with a chosen service provider.
Responding to this need, the White House’s Chief Technology Officer, in 2011, challenged utilities across the country to develop a “Green Button” process—a means of providing detailed customer energy-usage information available for download in a simple, common format.” The name derived from the previous inception of a ‘Blue Button’ process for simplified access to, and sharing of, electronic health records. Created together by the Department of Energy, the National Institute of Standards and Technology and utilities, Green Button was ratified by the North American Energy Standards Board in 2013 as REQ.21, the “Energy Services Provider Interface.”
Even while the Green Button standard is gaining traction among utilities and regulators, however, it is becoming apparent that the current approach to its adoption will ultimately fail to achieve its intended purpose.
The standard assumes that consumers will initiate the process of shopping for an energy data-driven application or service, through its local utility. In contrast, the market is growing in response to commercial marketing of such services. Attention-constrained consumers demand push-button simplicity and seek services from brands they trust, often delegating responsibility to third parties. California’s Customer Data Access Committee is actively addressing how Green Button might be morphed into a more third-party centric process. Texas has just adopted an approach simplifying the consumer role, and shifting nearly all the responsibility for obtaining data access to the service provider.
Second, for the most part, every utility is adopting its own Green Button portal, and unfortunately, each is slightly different. Some fault the utilities, others the lack of specificity in the standard itself. It is no help that each utility must look to regulatory authorities for funding approval, making each implementation rigid and inflexible over time. But more fundamentally, even were every utility implementation ideal and identical, to offer a national product, a device manufacturer or service provider or application developer will ultimately have to integrate their online customer marketing and enrollment and authorization process thousands of times, once for each utility. That is not commercially viable, and new approaches are being explored.