EnergyBiz - January/February 2008 - (Page 50) PlUgging in The conSUmer InnovatIng utIlIty busIness models for the future the result of the persistence of traditional util- ity regulatory models for all but the largest customers has been, for the most part, single-rate, commoditized energy service focused on low unit prices. This “one size fits all” offering and slowness to adapt to the new environmental sensitivities and technology advances have created a growing mismatch of expectations in the utility/customer relationship. The shape of emerging opportunities to differentiate services – and, ultimately, more profitable utility business models – then hinges on an important question – if traditional “consumers” (residential and small business customers) view this mismatch as increasingly working against them, will they take more control over their energy decisions? Three Drivers of Change: Consumers, ClimaTe, anD TeChnology IBM recently completed a survey of 1,900 energy consumers from six countries on their current views of the utilities that serve them and their expectations. We found that many are highly motivated to level the playing field by asserting more control and influence over a purchase for which the conditions have historically been dictated to them. They are looking to leverage provider choice, more actively manage their usage, and making their opinions heard through multiple channels to make this happen. We also found that where current providers and regulators are not willing or able to satisfy their needs, consumers are willing to turn to alternatives that might have seemed unlikely in the past. For example, if self-generation could reduce energy costs by 50 percent, well over half of the consumers we surveyed would be motivated to install, maintain and operate their own power generation systems. Environmental and reliability factors are strong drivers as well, boding well for both renewable and combined heat and power options. While some might dismiss the move to self-generation as an unrealistic consumer dream, it is corroborated by our survey of almost 100 industry executives IBM conducted in July, 2007. Over half of the executives surveyed believe that the value from a low-cost, low-emission generating technology could move a significant percentage of consumers to self-generation within ten years. Climate change is the one driver for which the goals and needs of utilities and consumers converge. Consumers are clearly interested in the environmental practices of those they do business with; 70 percent of the consumers surveyed said environmental considerations were already an important factor in choosing products other than energy, and these concerns will also influence the energy products they buy. Of consumers who are aware of renewable power options available to them, almost 40 percent purchased some or all of their power under such a plan. Among the rest of the consumers, more than 60 percent expressed interest in doing so. Utilities, for their part, are making major investauthors ments and operational changes Michael valocchi to respond to climate change Global Energy and concerns and policies. Utility Industry To make improvements Leader for IBM needed to address the conGlobal Business Services cerns discussed above, utilities will likely have strong support all an schurr for deployment of advanced Vice President, IBM Energy & Utilities energy technologies. Many of Industry Strategy these have been available in & Development some form for years, but their John Juliano business cases have been Energy & Utilities rather lackluster. However, Industry Consultant during the last few years, the ekoW nel son technologies have continued IBM Institute to advance, their benefits have for Business strengthened dramatically and Value Leader the deployment costs have decreased. In the near term, smart meters, network automation and analytics, and distributed generation will likely drive the most industry change. We expect the convergence of these three trends – growing consumer involvement, climate change concerns, and advanced technology deployment – to overturn traditional assumptions about energy consumers and the fundamental value proposition of the industry. Companies will be forced to look at their residential and small commercial customers in discrete segments instead Figure 1 emerging segmentation among residential and small commercial electric Power customers fruGal Goal-seeker (fG) hiGh Decision-MakinG initiative taken An energy consumer who is willing to take modest action to address specific goals or needs in energy usage, but is constrained in what theyare able to do because disposable income is limited enerGy stalWart (es) An energy consumer who has specific goals or needs in energy usage, and has both the income and desire to act on those needs Passive ratePayer (Pr) An energy consumer who is relatively uninvolved with decisions related to energy usage and uninterested in taking or unable to take added responsibility for these decisions enerGy ePicure (ee) A very high-usage energy consumer who is relatively unconstrained by budget limits, but has little or no desire for conservation or active involvement in energy control; likely to own many high-consumption devices for gaming, computing, entertainment, etc. loW loW DisPosaBle incoMe availaBle for enerGy choices hiGh sourCe: iBm insTiTuTe for Business value (iBv) analysis 50 E n E rgyB i z January/February 2008 ThOughT LEaDErship – spOnsOrED By iBM gLOBaL BusinEss sErvicEs
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