The utility industry has spent US$67.7 million on Internet of Things (IoT) technology in 2015, according to Tata Consulting Services. Duke Energy, PG&E, ComEd in the US and Enel and Endesa in Europe are just a few examples of electric power companies adopting smart devices to add digital processing, data analysis and communications capabilities to an aging analog infrastructure.
Customer demand for rich information through, access to smarter, digital utility services is not the only catalyst driving IoT. Larger factors such as climate change are boosting city and community initiatives considering similar modernization. Today smart cities are leveraging IoT to gather multitudes of data which can be used as distributed intelligence, across most, if not all verticals – energy, water and transportation.
Over the past several months, there have been an overwhelming number of reports that point to IoT transformational impact in the utilities industry.
A BI Intelligence report states that the global smart meter installed base of 400 million devices in 2014 is expected to more than double to 925 million by 2020. Revenues for smart grid sensors, notes IHS, will hit US$350 million in 2021. From a regional smart grid perspective, by the end of 2015, annual smart grid spending in China could total US$20 billion, with smart meters driving US$2 billion of that total. Moreover, with Internet of Things (IoT) architectures rapidly driving smart lighting technology, Gartner forecasts that the smart lighting installed based, estimated at 46 million units in 2015, is projected to grow to 2.54 billion units by 2020. Finally, the global number of connected devices managed by utilities is expected to grow to 1.53 billion in 2020, according to Ericsson.
But what does this mean for the utility? How do they monetize this opportunity?
US-based IoT analyst firm Machina Research has released a report, prepared for Redknee, which estimates that the successful monetization of IoT could realise revenues of US$1.3 trillion. The report looks at global forecast through the “prism” of monetization and found that a growing proportion of revenue associated with IoT is related to sophisticated monetization opportunities. It identifies seven capabilities needed by a monetization platform, which includes the following qualities: “scalable, open, real-time, flexible, transparent and secure, agile, and built with the diverse requirements of the IoT in mind.”
One of the key points related to “sophisticated monetization opportunities” in IoT, is the change in the positioning of selling IoT-based business models – that is, offering products as a service, rather than a piece of hardware. Sokwoo Rhee, Associate Director of Cyber-Physical Systems Program at National Institute of Standards and Technology (NIST), expands on the importance of a move toward service based IoT models.
MI: What value can IoT bring to the utility industry? How do businesses capitalise on this trillion dollar opportunity?
SR: The Internet of Things is an enabler that can help utility companies and businesses in other industries alike grow beyond what has or what could have been imagined initially. At the core of IoT is connectivity. However, in order to drive value for the business and its customers, adopters of IoT need to create new, innovative services to attract and retain clientele. Having a network of purely connected devices is of no worth; companies need to develop digital services that are enabled through communication technology.
There is a common misunderstanding that IoT solely encompasses “connectivity”. IoT includes the services that are built “on top” of that connectivity. Businesses will have to evolve and develop a service orientated, IoT-as-a-service approach in order to differentiate themselves.
IoT has four layers – the bottom layer encompasses the hardware (chips, sensors, actuators etc). The second layer is the connectivity layer; the third layer is the software and data analytics layer; and finally the fourth is the service layer from which data is gathered and decisions are made to provide end-users with valuable, actionable information – also referred to as “closing the loop.”
MI: What are the major factors driving IoT and what are the primary factors accelerating its adoption by energy providers?
SR: 1. The emergence of new data science: This involves big data, fast processors, analytics cloud technology and combining data sets. One great example is the thermostat. Conventional thermostats provide basic functions of displaying and controlling temperatures with setpoints. With the emergence of additional processing power, low power wireless capabilities and cloud technology, now the thermostats can analyse the history of the temperature and control the HVAC system to optimize energy profile for maximum savings and comfort.
2. Rapid improvement of the performance and the reduction of cost of the critical electronics components for IoT (CPU, radio, sensors, etc): eg. air quality monitoring through amalgamating data sets “data fusion” to create efficiencies across several different platforms/devices , for example, smart home.
Additionally, there has been a change in mindset, especially in the last five years, in terms of what is possible with data gathered from sensor technology. More and more, industry is seeing the value of data in improving operational efficiencies, creating new services, performing risk analysis, creating new revenue streams, gaining enterprise-wide insights and more.
MI: To what extent will change management be required when implementing IoT? What does this process look like? How does a utility and its staff prepare for that?
SR: A utility company or any business considering IoT, should have a full understanding of its different elements, including the hardware and software requirements, how to combine different domains, a roadmap/strategy, and a team with the necessary expertise who have a holistic understanding of what their role is in the transition toward a more integrated business model. In many IoT applications, a new business model will emerge when the existing business is properly combined with the IoT concept. So it is critical that the team have both expertise in the business and IoT technology side by side. Employing IoT could be a potentially difficult task if silos remain. Businesses need to break down these silos to create efficiencies and drive down costs.
MI: What are the major factors hindering IoT uptake?
SR: A lack of identified and proven business cases, which could lead to challenges in acquiring financing. Also, cybersecurity at policy level – considering not only the physical security of assets but also taking into account, risk management, safety management and so on. Again, there is a lack of application examples to create practical discussions around trustworthiness.
Finally, with the volume of technology and varied connectivity protocols, standardisation also poses a challenge to uptake.
MI: How do you think IoT has impacted on a business’s relationship with their customers? What do you think this will look like in 5-10 years’ time?
SR: Due to the fact that the energy landscape is changing, customers perceptions have also changed. Utilities will find it difficult to innovate through the traditional model of creating a new product/service, marketing the product/ service and selling it – “push” strategy.
Forward thinking energy companies are ones that involve their customers prior to product and service development. They engage their customers to decipher their needs and create an ecosystem, where the utility has established interest and a community of customers that are ready to buy its new offerings, prior to marketing and selling them. We will also continue to see the development of platforms to manage IoT devices and services – Google and Apple are two examples of this.
MI: What do you see as being the next big wave in IoT?
SR: The next big trend in IoT will appear in the public and industrial sector, with the emergence of smart cities and the integration of different city verticals – energy, water, transportation. There will also be an increase in IoT in the manufacturing sector with hardware costs decreasing. MI