By Richard Bevelander and Marco Bijvelds
For decades the core processes of the utility industry have relied on meter readings provided by traditional analogue meters. Only recently smart AMR meters have been introduced, induced by governmental regulations, innovation, environmental consciousness or cost reduction. In an increasing number of European countries, large scale rollouts of smart meters at residential and multi-site customers have been initiated or are expected in the coming years.
Given this recent history of smart metering within utilities, it is understandable that the focus is laid mainly on the actual rollout of the meters and the integration of the smart metering data with the business processes. Typically utilities first focus on the precise military operation they have to fulfill to rollout the huge number of meters, which is a time and money consuming exercise. As a consequence, the full potential of the smart metering data is currently not being used in most utilities. It can be expected that attention will gradually shift towards the development of smart metering products that will add value for the end suppliers of energy.
Creating value with smart data
Energy may be labeled as a commodity and therefore innovative products are the key differentiator for utilities. The smart meter facilitates the development of these new products, business models and value propositions.
To give an example, traditionally the annual meter read combined with the unit price has formed the basis for the calculation of the annual invoice sent out to customers. Now, much more data can be collected at lower cost, which creates the opportunity for more dynamic pricing and billing models. Another feature which has become feasible with the introduction of smart metering is the new ways of customer interaction, such as providing feedback to the customer on their usage. It is beyond doubt that the availability of high resolution metering data creates virtually infinitely possibilities for product innovation within utilities in the coming years, and companies that show a high level of flexibility in this innovation process are likely to benefit most.
To elaborate a bit more on the range of possibilities that is created by the introduction of smart metering, some possible applications of the data are given below.
Variable and dynamic billing
With high resolution smart metering data, characteristics of the billing process can now be combined in different ways. For example, one may vary the frequency of billing, the moment an end user has to pay the invoice, and the billing concept. Similarity can be found in the telecoms industry where telecom bundles and prepayment phone services have become common. In utilities, the moment of payment for energy usage is currently fixed by the supplier whereas it may be desirable for end users to define the frequency and moment of payment.
Hybrid models are, however, most likely to emerge. Imagine a monthly (pre)payment amount that is selfadjusting based on the actual usage of the previous period. In that case the traditional annual invoice will be close to zero and will no longer need to be generated.
Also borrowed from telecoms is the application of flexible pricing plans. Such plans would aim to supply energy (“call minutes”) for free, depending on the amount of energy that is delivered to this customer. Alternatively, discounts or special prices may be awarded above or below a certain threshold usage. Both concepts are easily translated to utilities using smart metering data.
Customer feed back on usage
In several European countries the environmental effect of smart meters is seen to be one of the main drivers for rollout. It is commonly believed, and partly proven, that customers will reduce their energy consumption significantly when they are confronted with their usage on a regular basis. The assumptions made in this area will only be met when relevant and personal feedback can be provided. Research shows that the effect will be less significant and not very long lasting in other cases. Examples include providing digital and perhaps paper-based insight in usage data, the corresponding costs and future prognoses of usage, and the translation of energy usage into an ecological footprint stated in carbon emission kilograms.
Customer interaction is the cherry on the pie in the relationship between the customer and utility. An effective way to create customer awareness of their energy behaviour is to make use of signalling functions. When the usage crosses a certain predefined threshold, an alert can be sent to the customer using, for instance SMS or email notifications. These levels can be based on the usage itself or the corresponding costs, or they can be used to signal disturbances or other exceptions. Furthermore, from a utility perspective it might be interesting to notify the customer in case of water pollution or water or gas leakage, for example.
The above demonstrates that high volume frequent metering data will most probably change the world of utilities drastically within the coming decades. To facilitate these changing requirements, interfacing to third parties such as banks, credit card companies and technology providers will need to be created. Related to this, availability and security become increasingly important. Hence, significant investments in the current ICT landscape are to be expected. As a result the concept of application service providers (ASP) becomes beneficial for utilities.
Benefiting from ASPs
Application service provider generally refers to a company that provides services via the internet. The ASP owns and operates a software application and owns, operates and maintains the servers that run the application. The ASP also employs the people needed to maintain the application and bills for the application either on a per-use or periodic fee basis.
The ASP concept is already widely adopted in the telecoms industry, where mobile virtual network enablers (MVNE) form the backbone of a mobile virtual network operator’s (MVNO) business of wireless network services by providing help in the broad areas of product development and marketing. Typically the outsourced services include data services, content management, customer relationship management, profile management, service provisioning, work fulfillment, billing, invoicing and settlement, and revenue and service continuity assurance.
The need for ASPs has evolved from the increasing costs of specialised software that have far exceeded the price range of small to medium sized businesses. In addition the growing complexities of software have led to huge costs in its distribution to end users.
The long history of traditional utilities brings an enormous legacy in their ICT systems. Development of new ICT functionality has become costly and time consuming for that reason, which impedes the development of new market offerings. Additional complexity results with the realisation that optimal use of smart meters in both the short and long terms requires a sound insight into current and future requirements. It is the set up of today’s projects that determine tomorrow’s functionality – a sobering fact considering that a typical smart meter rollout period is between 5-10 years, a period in which most technologies and even market structures will change and new markets emerge.
For energy suppliers and service providers, the key differentiation may be obtained by leveraging from the proven concepts and infrastructures of the telecoms industry. In particular for small businesses and startups the biggest advantage of the ASP is the low cost of entry and, in most cases, extremely short setup time.
ASP:a leap ahead of competition
Up to now the replacement of conventional meters by smart meters has been driven mainly by legislation or process optimisation, the latter the essential contribution for most business cases. One should question, however, whether the rollout of smart meters is of interest to the utilities themselves and their customers without the deployment of new products or product features, especially bearing in mind that the smart meter has shown to be an important instrument to effectively influence the consumers’ energy consumption behavior.
In this era of increasing environmental awareness this is a virtue indeed. But the green strategies need to go together with cost reduction programmes. Benchmark studies indicate that the costs per serve within European utilities is on average 50 percent higher than the servicing costs within telecoms and the banking and insurance industries.
The ASP model helps in exploiting this saving potential and adopting the ASP model offers flexibility and rapid time to market for utilities. It allows the conventional business model and new concepts to coexist initially at acceptable cost levels. In the short term the model also fits well with the slowly developing demand for new products and propositions. In the long run, as operational costs may be easily estimated, it will contribute significantly to the reduction of the cost-to-serve of utilities and their strategic market position.
Perhaps today is the moment to decide on tomorrow’s architecture, creating the solution for demands that are not crystal clear. With the roadmap above, it becomes obvious that the steps need to be taken. The only question is now how big these steps and their corresponding footprints will be.