New Consumer Preferences Are Now Impossible to Ignore, Say Utility Executives

“I suppose I could have fought the changes at every turn and focused on self-preservation, but that would have meant ignoring my customers and betting against technology.

For Arlen Orchard, CEO and general manager of Sacramento Municipal Utility District, in order to understand how his utility will change over the next decade, it’s helpful to start by looking back.

“It’s 2014. Our revenues are flat or declining despite [having] more customers; our customers want more options and choices; we can’t install technology fast enough to keep up with the changes in our industry; and we struggle to manage the data we have from technology we’ve already installed,” said Orchard, speaking at Opower’s PowerUp conference in Miami earlier this month. “And if that’s not enough, more than 70 percent of the electricity I sell to my customers has to be carbon-free by 2030.”

“We didn’t see the sharp shift in the path. To be fair, a lot of folks in the industry didn’t, but that’s a really small consolation,” he added. “Now we’re playing catch-up, and that’s a pretty uncomfortable place to be and pretty unfamiliar for SMUD.”

Sacramento Municipal Utility District (SMUD) is one of several electric utilities that’s now proactively looking for ways to address new customer preferences and capitalize on the change at the same time. For all types of utilities -- municipal, cooperative and investor-owned -- the growing demand for cleaner energy, at a lower price, with more convenient services and greater choice has become impossible to ignore.

Results from a recent survey of residential customers conducted by E Source, in partnership with the Smart Electric Power Alliance, demonstrate this trend. The survey found that 80 percent of respondents believe policymakers should encourage people to install solar through subsidies. Support was strong across the country, across age groups and across income brackets.

Before conducting the survey, E Source took several steps to educate customers about a utility’s need to cover its fixed costs to support the grid. Even with that information in hand, 69 percent of respondents said it’s fine for solar customers to zero out their utility bill if they produce enough electricity to cover their own needs in aggregate.

“Given this overwhelming support, utility efforts to block subsidies for solar installations are likely to be seen in a negative light by most of their customers, resulting in a hit on the utility’s brand image,” the report states.

While the policy outlook remains uncertain, an increasing number of utilities are positioning themselves to be a trusted provider of solar and other energy services -- mostly because they see no other choice.

“I suppose I could have fought the changes at every turn and focused on self-preservation, but that would have meant ignoring my customers and betting against technology,” said Orchard. “At best, I’d end up as the Comcast of utilities, or at worst the Blockbuster.”

‘Lean in to our discomfort’

To adapt its business, SMUD recently launched a consumer-experience study that includes mapping a customer’s journey through each of the utility’s services. Going through this exercise allows the utility to identify and fix pain points, as well as enhance operational efficiencies, said Orchard.

In 2016, SMUD will focus on improving customer experience with billing and payment. In 2017, the utility plans to launch its own online marketplace for energy products and services.

By 2025, Orchard said he envisions SMUD as the trusted advisor for all things energy-related. In a decade's time, nearly all of SMUD’s customers will have moved to digital services, there will be automatic payment systems and programs to control energy costs, customers will be able to communicate through the channel of their choice, and they’ll be able to use SMUD’s marketplace to buy everything from LED light bulbs to electric vehicles to home batteries.

By that time, SMUD projects that revenues will be on the upswing from the adoption of electric vehicles, fuel switching, sales of new products and services, and by capitalizing on SMUD’s intellectual property.

To transition to a 3.0 utility, “We at SMUD have to shift our perspective from a monopoly paradigm to a competitive mindset,” said Orchard. “We have to reimagine our business to be more robust, nimble and innovative.”

“To be frank, I think SMUD had become pretty comfortable in our past successes, and that’s a real danger going forward,” he added. “We have to lean in to our discomfort to be successful.”

Siri, Watson and shared solar

Innovation isn’t only relevant to new products and services. There are many ways for utilities to improve customer satisfaction and engagement by making the basics better.

At Con Edison, for instance, Twitter has become an effective communication channel that now operates year-round, 24 hours per day. At the PowerUp event, Craig Ivey, president of Con Ed, said the company boasts a 12-minute Twitter response time. In an unprompted test, the utility delivered with minutes to spare.

Social media is just one part of Con Ed’s customer engagement strategy. The New York utility recently announced a partnership with Opower to modernize its relationship with customers as part of its Connected Homes demonstration project, which aims to make energy-saving and energy-generating as seamless as an Uber ride. Con Ed plans to spend $50 million to enhance the overall digital customer experience, as it rolls out advanced metering infrastructure starting in 2017.

As the industry evolves, Ivey said utility call centers could soon deploy services similar to Amazon’s Alexa, Apple’s Siri and IBM’s Watson. These digital agents would know every rate schedule and rate change, and speak 150 different languages.

“Imagine a world where we have Watson or Siri talking to any New Yorker in their own language. I think that’s pretty amazing, and I think that’s a trend that’s starting to happen,” said Ivey.

Opower president Alex Laskey said it is easy to see how utility services will become increasingly automated, and how utilities could offer increasingly sophisticated energy programs like peer-to-peer solar sharing. But most utilities need a major digital upgrade before any of that becomes possible, he said.

“There’s some basic infrastructure utilities have to have if they’re going to be this new energy market-maker -- they need a better website and customer experience,” said Laskey. “If it takes you four calls to start and stop service, how are you ever going to buy your neighbor’s power?”

Better service benefits the bottom line

J.D. Power and Associates has been measuring electric utility customer satisfaction since 1999. The good news for utilities is that there’s been a noticeable increase in customer approval in the last three years, according to Jeff Conklin, senior director of J.D. Power's energy practice. The bad news is that non-utility segments are improving much faster.

“Service expectations of the utility, from a consumer point of view, are set by the experiences they get from Amazon and American Airlines and other service providers,” Conklin said. “So that’s the challenge utilities have -- to continue to accelerate and have a sense of urgency about improving their overall customer experiences.”

Some may argue that utilities have a harder time providing top-notch service because of the size and complexity of the electrical grid. But Conklin doesn’t think utilities are limited at all. In fact, they have the advantage of having a direct physical link to the customer -- and access to a mountain of customer data as a result.

J.D. Power research shows that customer engagement goes a long way toward improving customer satisfaction. By providing customers with information on where the utility is investing in grid upgrades or how they’re responding to an outage, it makes customers feel like they’re getting more value for their money, which can benefit a utility’s bottom line.

J.D. Power conducted a study looking at customer satisfaction one year before a rate ask and one year after a rate ask, over more than 10 years of rate cases. Utilities that came into the rate process with top-quartile-level satisfaction for the industry were allowed a much higher rate of return, said Conklin. Rate asks from high-approval utilities were also approved faster. 

Interestingly, the J.D. Power study found that rooftop solar customers are more satisfied with their local electric utility than customers without solar, Conklin said. A third of solar customers surveyed last year said they have a positive opinion of their utility.

“The engagement, even while you’re assisting your customer to take away electricity sales, improves the satisfaction that customer has with [the utility] as a trusted energy services provider,” said Conklin.

The challenges and opportunities distributed solar brings are likely only to continue to grow. Today, rooftop solar customers only make up around 1 percent of all residential electricity customers. But that number is expected to increase dramatically, with 28 percent of households surveyed by J.D. Power last fall saying they “probably will” or “definitely will” consider going solar in the next two years.

Next steps all mapped out? Not quite

More and more utilities see value in becoming a trusted energy services provider, but the economics are still messy.

“When customers are satisfied, it doesn’t directly translate to a higher rate of return, but it translates to a higher confidence that we’re meeting customers' needs, which is exactly what we’re all supposed to be doing,” said Ed White, vice president of the New Energy Solutions unit at National Grid.

Through New York’s Reforming the Energy Vision proceeding, utilities in the Northeast are working with regulators and industry stakeholders to find new ways to make money, so that utilities aren’t always reliant on the traditional rate of return.

“Regulators are actually looking for us to find other ways to make money -- how to split some revenue, how to earn money for connecting customers to folks in the marketplace,” said White.

National Grid created the New Energy Solutions group last year to take on this task. One part of the answer is the creation of a distributed solar marketplace in Rhode Island that allows customers to shop for solar in a transparent manner and receive an incentive for improving energy efficiency at the same time.

These types of initiatives take time and money, and require policy shifts as well as business-model changes. It’s taken stakeholders in New York about nine months just to have a conversation around the various types of assets utilities have to offer -- be it infrastructure, IT capability or labor -- and how they can be leveraged to provide services that third-party vendors will pay for.

“Do we have it all mapped out how [reforming the electricity industry] is going to be profitable? No,” said White. “But are we being thoughtful in how we put our businesses together? Absolutely.”

“I think where other industries and other companies have struggled is if you’re fighting to preserve a business that needs to change, you’re in trouble,” he added.

by Julia Pyper for GreenTech Media

Why Solar and Wind Are Thriving Despite Cheap Fossil Fuels+

Low oil prices are rattling stock markets, but investors remain bullish on solar, wind, and other clean energy. Here are three reasons why.

Wind turbines provide energy for the residents of Samso Island, a Danish island that gets all its power from renewable sources.

The prolonged plunge in fossil fuel prices is rippling across the globe. Yet it’s barely put a dent in the booming market for clean energy, heralding perhaps a new era for wind and solar.

Oil prices of less than $30 a barrel—the lowest in 12 years—have shaken stock markets and ravaged the budgets of major producers such as Russia and Saudi Arabia. Along with falling gas prices, they’ve slashed the profits of fossil fuel companies, which are delaying dozens of billion-dollar projects and laying off thousands of workers.

In Texas, home to shale-rich oil deposits, once-crowded trailer parks that housed workers are now largely empty.

But solar, wind, and other clean energy? They’re expanding. Last year, they attracted a record $329 billion in investment—nearly six times the total in 2004, according to a report this month by Bloomberg New Energy Finance or BNEF. Wind and solar also installed a record amount of power capacity.

The clean energy revolution is not entirely immune to cheap oil, which has lowered prices at the pump. In the United States, where gas prices are now below $2 a gallon in many places, sales of SUVs rose last year while those for electric vehicles fell after several years of growth. Yet globally, sales of EVs continue to increase.

“We’re not saying there’s no impact, but we’re not seeing a significant impact yet,” says Angus McCrone, BNEF’s chief editor. “There’s a lot of momentum behind clean energy.”

 

He and other experts explain why:

1. Prices have fallen as government incentives have risen.

Oil and gas may now be a lot cheaper than a few years ago, but solar and wind are cheaper, too. Since 2008, according to U.S. government data, prices have plummeted 60 percent for large-scale solar, and 40 percent for wind. 

Solar and wind are “competitive in many countries,” says Alex Klein, senior research director of renewables at IHS Energy, a research firm. He notes they don’t compete much with oil, used mostly as a transportation fuel, but they do compete with natural gas, often used to power plants that produce electricity.

Despite low natural gas prices, solar and wind accounted for 60 percent of new U.S. power capacity last year and will likely account for 70 percent this year, says Marlene Motyka, U.S. alternative energy leader at Deloitte.

Such competitiveness is new. “The last time oil was at this price, the cost of renewables was much higher,” says Jonathan Grant, director of the climate change team at PwC (also known as PricewaterhouseCoopers.)

Their economics could improve. “For renewables, particularly solar, substantive improvements in cost and efficiency are not only possible but likely,” writes Sott Nyquist, director of McKinsey & Company's Houston office. In contrast, he says, coal is facing steeper costs partly because of tighter U.S. regulations, and gas is already using technologies that are highly efficient.

Solar and wind got a huge boost in December, when the U.S. Congress renewed their tax credits for another five years. BNEF expects this extension will add an extra 20 gigawatts of solar power—equal to the total amount installed via solar panels in the U.S. prior to 2015.

2. Demand has expanded, driven partly by public policy.

Countries are looking to renewable energy to meet the pledges they made as part of the UN climate accord last month in Paris. They agreed to cut the carbon dioxide and other greenhouse gases that are emitted when oil, gas, or coal are burned. President Barack Obama is requiring U.S. power plants to cut their emissions 32 percent by 2030, compared to 2005 levels, and automakers to nearly double the fuel economy of their vehicles by 2025.

Some countries, such as India, see renewables as a way to reduce their severe air pollution. China is cutting back its use of coal, the dirtiest fossil fuel, even though it’s cheap.

Developing countries in Africa, where many people don’t have access to a central power grid, are pursuing solar projects as a quicker and less costly way to provide electricity. Wealthier countries are using solar to create microgrids that can keep the lights on when storms like Hurricane Sandy knock out the central power grid. Even college students are designing solar-powered homes that can provide backup power in their neighborhood. (Check out what such a home looks like.)

States and local governments are pushing low-carbon or carbon-free energy alternatives as well. In the U.S., dozens of states now require they account for at least a certain amount of their electricity. On Thursday, New York Governor Andrew Cuomo announced his state will spend $5 billion over a decade to promote clean energy. Hawaii has pledged to get all its power from renewables by 2045, Vermont has pledged to get 75 percent by 2032 and California, 50 percent by 2030.

I don’t see businesses stepping back.

Marlene Motyka 

3. Corporate and investor support is strong.

Companies are making similar pledges. The Paris climate summit prompted a “tipping point” in corporate support, says a report this month from Influence Map, a nonprofit based in the United Kingdom. The report says more than half of the world's largest companies now back steps to cut heat-trapping emissions and a third support putting a price on carbon.

“The corporate side is here to stay. I don’t see businesses stepping back,” says Deloitte’s Motyka. In a recent Deloitte analysis, more than 55 percent of companies report generating some of their electricity on-site, 13 percent of which comes from solar panels or wind turbines.

Renewables are attracting capital. A recent study by Goldman Sachs says the combined market size of low-carbon technologies—including wind, solar, LEDs, and hybrid or electric vehicles—now exceeds $600 billion, about the size of the U.S. defense budget.

Investments are expected to rise. Some oil-importing countries, including China and India, have saved money from low prices that they can invest in renewables. Even some oil-exporting countries are investing in solar. Saudi Arabia, Russia, Iran and Kuwait are trying to curb fossil fuel use at home so they can maximize profits for oil exports.

“Fossil fuels will be here for decades to come, but their share will fall,” says PwC’s Grant. Even in the transportation sector, where oil is so important, he expects electric vehicles will eventually catch on—but not because of price.

Consumers will see them as more “desirable,” he says, noting EV perks such as dedicated parking spots and use of HOV lanes. Besides, he says they promise all sorts of self-driving and gee-whiz tech features, adding: “They’re much cooler.”

By Wendy Koch for National Geographic

PSEG is investing $1 billion in solar

People haven't thought of PSEG as a solar company, but to a growing extent, it is. There isn't a cleaner or more inexhaustible power source and we recognize how critical it is to meet the demand for cleaner energy.

So we are following Thomas Edison's advice and have invested more than $1 billion over the last seven years in solar technology – yielding a rich and growing harvest of green energy and jobs on the path to a more sustainable future. The company has dedicated the largest part of this investment to develop or help finance solar installations in New Jersey. PSEG's efforts are playing an important role in helping the Garden State achieve its renewable energy goals – benefiting all of our customers, creating jobs and growing a new industry.

Public Service Enterprise Group is a publicly traded diversified energy company with annual revenues of $10.4 billion. Its operating subsidiaries are: Public Service Electric and Gas Company (PSE&G), PSEG Power, and PSEG Long Island.

How Home Energy Modeling Will Transform the Real Estate and Solar Sectors

As Tendril builds an energy database of every home in the world, the company looks beyond traditional efficiency.

Consumers have more choice and transparency than ever before. With the tap of a smartphone, a person can find out almost anything about what they're buying. But information about the energy component of their purchases is still somewhat limited.

This is changing in the electricity sector, where deregulation and ever-cheaper distributed energy like solar PV are expanding choice. The rapid improvements to modeling, analytics software and metering technologies are also dramatically improving transparency for energy consumers.

There are many other markets where energy modeling is important, however. And the tools to provide consumers with the choice and transparency they've come to expect must improve.

"There's a need for better solutions in markets where energy is relevant," explained Hunter Albright, the senior vice president of new markets at Tendril, a data science and software company focused on personalization of energy in the electric sector.

Over the last decade, Tendril has applied its TrueHome Simulation Model to behavioral energy-efficiency programs, utility customer engagement initiatives, and, most recently, customer acquisition for things like community solar.

The company is now using that model to create a library of energy-related content for markets where data access is limited, or hasn't been effectively harnessed to improve the customer experience.

"The capabilities that we have can help solve some core problems around acquiring new customers, engaging existing customers and activating or orchestrating the activities of customers," said Albright. "They're highly relevant to other sectors."

In the immediate term, those sectors include real estate and rooftop solar -- areas where Tendril's work with regulated utilities on customer retention and efficiency engagement has direct applicability. 

Using physics-based modeling to build the library and expand applications

Tendril's move into new markets is enabled by its core underlying technology: the physics-based model.

Tendril models home energy consumption using physical characteristics of the home such as year built, construction material, and square footage to calculate the heat transfer and energy balance properties of the home. This differs from statistical regression models, which require historical data to make predictions. While utilities in North America have historical data, it's rarely available in markets like real estate and solar.

"The regression model falls apart in these new markets. The physics-based approach is much more universal," said Mark Gately, Tendril's senior manager of decision science.

Tendril has already mapped all 133 million homes in North America and is in the process of mapping out the physical characteristics of homes all over the globe using this model. With local tax assessment records, it's possible to fill the database with information on the size, age and occupancy of homes. Image analysis makes it possible to gather details on the shape and orientation of homes. And Tendril can also simulate local weather conditions based on latitude and longitude.

With all of this information compiled, Tendril applies existing assessments of residential building stocks that help infer information about insulation, infiltration and occupancy. 

The model, which feeds Tendril's constantly growing database, is the reason the company can expand into sectors like real estate.

"Because we can simulate the energy consumption of every home in the North America, we can create a scoring algorithm to compare homes against each other," said Gately. "We can also simulate particular home-specific upgrades. If you upgraded the windows or add insulation, we can simulate those and the return on investment you get for those and provide a very personalized cross-sell offer."

The same is true for solar, where Tendril can use its database to customize and cross-sell solar services.

"We can size systems and simulate solar generation on any home in the U.S. and provide a very personalized return-on-investment estimate for a solar offer," said Gately.

Making real estate more transparent

Within real estate, Tendril is focused on two different segments: the search process and brokerages.

Real estate search sites that help consumers compare homes continue to improve. But energy is not often included among the many dimensions tracked on these sites. Considering that energy costs typically make up the largest monthly expense behind the mortgage, this is a vastly underserved area.

"Energy should be a key factor to compare and filter homes," said Albright.

The second offering is the build-out of energy-related content and software to engage customers who are searching for homes or apartments. There is already a big strategic push in the market to engage with customers beyond just the initial home search. Adding information on how to improve energy use or how to choose a home based on energy consumption could be one way to improve customer engagement.

"The real estate search sites are trying to develop deeper relationships with consumers during a potential home transaction. We're starting to work with them about how they can create ways to get consumers to come back to the website," said Albright.

Brokerages are critical players in home transactions -- also making them a key target. Tendril is providing agents with detailed information about homes in order to educate the consumer about energy expenditures and potential improvements.

"That kind of additional content will allow an agent to develop trust and credibility to help close the sale," said Albright.

Arming real estate professionals with energy information also benefits utilities and retail providers. Providing this type of insight to homeowners and potential buyers creates cross-sell and up-sell opportunities for related products and services.

Expanding solar with better customization

Although solar installers are growing quickly and expanding into new markets, customer acquisition costs for some leading companies are actually going up as they reach beyond early adopters.

With more customized reports using Tendril's modeling, solar installers will be able to speed up sales and make the entire customer acquisition process more efficient. After the sale is closed, customer engagement strategies can be improved by bringing together generation and consumption data in creative ways to make the investment more real for consumers. 

"The solar companies that we've worked with so far don't have the tools to simulate energy consumption and give highly personalized solar ROI offers. That's why they're working with us to do that for them," said Gately.

The utilities are a crucial target as well. In order for solar to become mainstream, traditional power companies need to see it as complementary to their business. With better data, utilities can proactively plan for the future by knowing which consumers are likely to install rooftop solar. That data could also help utilities identify which homes are not suitable for rooftop solar, thus allowing them to plan out different engagement strategies.

Complementary markets

Tendril has been working with regulated utilities on customer engagement and energy-efficiency strategies for 10 years. This push into new markets is an extension and complement to that existing business. 

"We're just taking the capabilities we've already built and expanding them into new verticals," said Albright.

Because Tendril can go into a market and offer complete coverage across all single- and multi-family homes, it makes sense to use that data in more diverse ways. As the company refines its real estate and solar offerings, new verticals will likely open up. "We're setting the foundation for expansion into more new markets," said Albright. 

That foundation will be Tendril's growing database of homes -- the most sophisticated in the world.

"Nobody out there can compete with the amount of utility data or consumption data that we have. And we will continue to get to improve the models as we go forward," said Gately.

Find more details on Tendril's offerings for the utility, real estate and solar sectors here.

GreenTech Media

Pricing for Solar Systems in the US Dropped 17% in 2015

Residential system prices hit $3.50 per watt in Q4 2015, according to GTM Research.

The following is an excerpt from the newly released U.S. Solar Market Insight 2015 Year in Review report.

According to GTM Research and SEIA's U.S. Solar Market Insight 2015 Year in Review, overall PV system pricing in the United States fell by up to 17 percent over the course of 2015. The price varied by market segment, with the largest declines in the utility fixed-tilt sector.

FIGURE: Modeled U.S. National Average System Costs by Market Segment, Q4 2014-Q4 2015

Source: GTM Research / SEIA U.S. Solar Market Insight 2015 YIR

On a quarterly basis, pricing continues to trend downward but with some leveling off in the residential sector. The was due in particular to strong investment in customer acquisition and the stubbornness of other residential soft costs. In the non-residential and utility sectors, there were annual declines of 10 percent and 17 percent, respectively. This reflects continued aggressive cost reductions (both in hardware and soft costs) in national system pricing on an aggregate basis.

Moreover, as installers and EPCs expand to regions with lower labor and regulatory compliance costs, these regions will have a larger impact on aggregate pricing. Due to advantages from scale, variations in utility system costs are much smaller than variations in residential and non-residential solar costs.

FIGURE: Modeled U.S. Average System Costs by Market Segment, Q4 2014 vs. Q4 2015

Source: GTM Research / SEIA U.S. Solar Market Insight 2015 YIR

Average pricing for residential rooftop systems landed at $3.50 per watt in the fourth quater of 2015, with nearly 65 percent of costs coming from on-site labor, engineering, permitting and other soft costs. While residential hardware costs have fallen by over 16 percent in the past year, soft costs have actually risen on an industry-average basis by 7 percent, primarily due to rising customer acquisition costs among national and local players alike.

In the non-residential market, soft costs remain a challenge as well. Hardware costs fell 15 percent year-over-year, while soft costs saw a modest decrease of 6 percent. In Q4 2015, soft costs accounted for approximately 50 percent of total system pricing. These costs can be even higher for projects in areas with strict labor requirements and particularly high in jurisdictions with stringent permitting and interconnection requirements. In order to continue reducing costs, developers and EPCs are looking to squeeze additional power density for commercial sites and amortize fixed costs over more power output -- and therefore reduce dollar-per-watt and dollar-per-kilowatt-hour costs.

by Ben Gallagher for GreenTech Media