The Internet of things is both a blessing and a curse for utilities companies. The curse lies in the way smart devices give customers increased control over their own energy generation and distribution needs. The blessing is the chance for utilities to sharply improve efficiency, reduce costs and expand their businesses in whole new directions. The winners will choose to see this shift as an opportunity.
IoT is taking shape as utilities find themselves at a crossroads. Their industry is highly regulated, and most providers have monopolies or semi-monopolies over their service areas. But alternative-energy technology is eroding their market control. The market for solar energy is expected to reach $422 billion by 2022, growing nearly 25% annually in the process. In Europe, entire office complexes have gone effectively off the grid as they serve their own energy needs through a combination of solar, wind, geothermal and other alternative energy sources. Some residential communities are beginning to set up energy exchanges to buy and sell the power individual homeowners generate, effectively removing the utility from the picture entirely.
In most industries, these trends would be alarming, but utilities aren’t like most industries. Most are in the unusual position of actually wanting customers to use less of their product, and IoT could be their best ally in achieving that goal.
The reason is that utilities want to avoid the enormous investments and regulatory procedures that are involved in building new generation plants. Getting customers to reduce energy usage ultimately costs them less in capital costs avoided. That’s why U.S. and Canadian gas and electric companies invested $8.8 billion in 2017 to help customers become more efficient.
Connected devices could contribute to significant reductions in consumption. Some utilities already use remote-controlled thermostats to adjust temperatures in their customers’ homes and businesses to reduce pressure on the power grid and take advantage of low use periods, saving costs on both sides. As more devices become instrumented, these opportunities will grow.
For example, sensors will turn lights on and off or adjust temperatures to optimal settings depending on how many people are in a room. Machine learning will make these adjustments more precise over time. Devices such as printers and monitors can be powered down when not in use or refrigerator temperatures throttled depending upon the contents. Managing energy consumption can even be a lucrative new service that utilities can sell to customers who want someone else to manage their fleet of intelligent devices.
Room for Savings
There is plenty of efficiency to be wrung out of the system. The International Energy Agency estimates that Canada could cut energy costs about 2% per year through investments in efficiency, reducing overall demand by about one-third by 2050.
Smart devices can also be utilities’ best allies in making their own operations more efficient. Sensors installed in power generation and storage plants can balance equipment loads for peak efficiency with minimal wear and tear. Predictive analytics can sort through historical maintenance records to help plant owners fix problems before they occur and avoid sending workers into remote and often dangerous settings for emergency repairs. McKinsey expects this form of machine-learning technology to help companies save $630 billion annually by 2025.
In the field, drones are emerging as a valuable resource for utilities to inspect equipment located high above the treetops or miles from the nearest road. This IoT scenario is emerging as a natural fit for utility companies, whose assets are often located far from populated areas by design. Early adopters report dramatic cost savings and better inspection quality because drones can go places humans can’t.
The scenarios described above are the low-hanging fruit of IoT for utilities. Creative new business models will also emerge. For example, utilities could manage the community-based “microgrids” described earlier to optimize power generation and save customers the inconvenience of bookkeeping and billing. They can provide services to the growing population of electric vehicles. There will also be new ways to leverage the massive amount of data utilities will be able to collect from connected devices to better understand consumer usage habits and recommend products accordingly.
The utilities that will thrive in this new environment will be those that best apply creativity and innovation to their businesses. Their highly regulated businesses haven’t traditionally been fertile grounds for innovation, but the changing environment will reward companies that do the best job of thinking outside the box – or the grid.