Smart homes: regulation and the market


Ed Butler,
Conference Producer,
Ed Butler, Conference Producer, Synergy

“In failing to plan, then you plan to fail.” So goes the well-worn adage widely ascribed to Benjamin Franklin. Such trite phrases have a habit on falling on deaf ears. But, its application to the smart home agenda exposes serious shortfalls and raises some interesting questions. The all too familiar story of the Mr Blogs driving home from work whilst simultaneously arranging the lighting, closing the curtains, putting the kettle on and running a bath for the Mrs never fails to stoke the enthusiasm of its readers. Yet those same accounts consistently fail to explain quite how this scenario might ever be realized.

In an article recently published on the Smart Home 2012 website Colin Calder, CEO of PassivSystems wrote, “Good policy starts from the future and works back. Our energy policy is starting with the past and stumbling forward.” He was referring to the need to have in place a set of policies which can accommodate, support and encourage the development of smart energy provision into the home and thereby maximize the customer value proposition. For smart homes we have that end vision in sight, but if we were to plot the course of development starting from the end and working backwards, how would that developmental path look? Can it be expressed in such linear terms? Is it even possible? After all capitalist advancement is built upon technological innovation born of a competitive market, and who can preempt what technological innovations might emerge over the next few years and where these will lead?

Regulatory framework
Though we may not predict what ingenious new gadgets will emerge, it may be possible to set down a regulatory framework with appropriate targets and subsidies which can train entrepreneurialism and innovation towards the government’s 2020/50 carbon reduction ambition. That same regulation can also help utilities plan ahead with greater certainty whilst offering impetus to financiers to provide backing. We’ve all witnessed the transformative effect regulation has had in Europe on cleaning up the energy industry. The carbon market, renewables subsidies and the subsequent explosion in wind and solar, as well as the proliferation of smart metering, all derive to a greater or lesser extent from the need to meet the European carbon reduction targets. Though less regulatory intensive and of patchy consistency, the US has also made significant strides in carbon cutting and it now stands on the verge of introducing laws to double the fuel economy of cars by 2025. Smart meters, to which Calder was specifically referring, are now mandated to be present in every UK home by 2018. Without regulation to enforce this, such a statistic would be but a distant dream.

The home of the future can become a repository for energy storage – a means to balance the grid and to consume energy more efficiently. But for this to happen there must be interconnectivity between household appliances and with the central grid. Already we are seeing piloted projects of appliances connecting with the grid and functioning in accordance with power availability. Yet there is scant regulatory requirement about the need to ensure the continued promulgation of such technology. No doubt market forces will push for their dissemination over time based on consumer appetite. But, by enacting targets, governments could arguably take a lead in catalyzing this development. There is a moot point here which is about ensuring open standards as opposed to closed loop systems, which will inevitability create a balkanized and weak smart home movement. But, this aside, if governments were to state that by say 2016 all appliances had to be designed so as to be interconnectable, then the slowly rising consumer appetite would be supplanted by regulatory compliance as the driving force. The popularizing of smart homes would be realized more quickly and energy savings targets may well come one step closer to reality.

The EU Mandate 490 has already laid down the requirement for a fully integrated and interoperable smart grid. It goes on to recommend the need for similar action to be taken vis-à-vis smart homes and buildings. Yet no such action has been taken to date. Industry initiatives, meanwhile, have been launched, notable amongst which is the Energy@Home alliance – backed by such industry heavyweights as Indesit, Electrolux, Enel and Telecom Italia – which “envisions a protocol… to build an integrated platform to allow cooperation between the main devices involved in residential energy management.” But without government backing, this alliance lacks the capacity to effect industry-wide change.

Vision or direction?
There is another side to the argument that would say centralized regulation of the smart home agenda is a fairytale vision at best and downright damaging in the worst case scenario. After all, the EU has struggled long enough to harmonize the earth system in power sockets across its member states. Who can expect the EU to take a firm and responsible grip on such fast moving world of home connectivity and technologies such as IOT, the cloud, streaming, etc., and still deliver an overall positive effect on the industry? As Morten Bremild, owner and founder of Axelerate, suggests, “if governments take on the mandate of regulating the smart home, everything will freeze.”

In describing the way forward Bremild sees the process ahead more like a walk through fog. “We can only see the path a few meters ahead, but it reveals itself as we take the next steps.” Consequently, he states, the important thing is not the future state of the industry (the ‘vision’), but the direction of the industry. “And the direction right now is innovative connectivity platform solutions and not regulated smart homes.”

But, the government can incentivize without overly regulating and stifling innovation. Susan Furnell, head of Smart Networks at npower, points to the example of the UK’s ECO and Green Deal financial mechanism. ECO subsidizes some energy efficiency measures (entirely for certain specific groups of vulnerable customers), while the Green Deal provides reassurances that the cost of the measures should be covered by savings on the electricity bill over many years, with a loan attached to the house rather than its occupant. In effect the government helps to create some useful parameters and incentives without meddling in market activity.

As things stand, smart home controls are mostly excluded from the majority of homes entitled to ECO and the Green Deal. However there has been pressure on the government to change this. In a letter co-written by Calder of PassivSystems along with colleagues from WHEB Group and Honeywell, the point was made that smart controls ought to be separated from standard thermostats and receive a particular weighting in recognition of their positive contribution to correcting human behavior and building performance. Such a change would significantly help to promote smart, energy efficient homes.

As energy prices continue to rise, so the golden triangle of consumer interest, government targets and commercial gain will naturally become more closely aligned. The customer will take added interest in energy saving, sensory automated taps, lights and other appliances; the government would see a gradual improvement in energy efficient usage, and product providers would have a door wide open to an expanding and lucrative market. (Here again the government might take the initiative by subsidizing certain appliances to facilitate their uptake). The key to succeeding in breaking this market, as Peter Crayfourd, group head of Customer Experience Lifestyle at France Telecom states, is to couch the benefits of new technology in a pro-consumer, cost efficient way. In these straightened times acquiring low energy consuming, cool looking appliances may fall low on the agenda of most households. But articulating their cost saving properties against the backdrop of rising energy bills should provide the necessary customer appeal.

Government leadership of the smart home agenda need not be driven by regulation or by financial stimulus only. Simply by coordinating the movement a little bit more it could help pull all actors in one direction to deliver a cohesive effort. The 2020 and 2050 carbon reduction targets will cause great upset and change to the energy generation and distribution system as we know it with a concomitant knock-on effect on smart home innovation. Therefore, as Joris Knigge, ‘innovator’ at the Dutch utility, Enexis points out, the biggest need today is that governmental policy and decision makers work closely together with industry to develop a consistent, rational policy that will offer much needed stability. Widely dispersed distributed generation, storage of energy, consumer microgeneration input, etc. each represent major developments in the energy market. Industry needs reassurance to help in the laying down of long term plans whilst investors need the certainty that homes of the future represent a sound investment option.

Perhaps unsurprisingly all industry experts interviewed for this article believe that commerce is best placed to lead the smart home agenda. And indeed, historically markets function best when unshackled by burdensome regulation and red tape. But it remains for the government to help shape the market arena, provide financial prompts, leadership and even coercion at times. If the smart home market were a yapping dog straining at the leash, then as the owner, the government has a responsibility to guide that dog in the right direction. The prime concern of the dog, after all, is to sink its teeth into a meaty bone. The owner, however, must look at the bigger picture.