Last month, at a renewable energy conference I heard Sayun Sukduang – President and CEO of ENGIE Resources – articulate a vision of where he thought the electricity industry might eventually take us. He painted a vision of the emergence of an as-a-service model, where customers could pay for outcomes rather than kilowatt-hours (kWh).
Do you want the cold beer or the kWh?
Glass of fresh draught lager beer with foam, served on white marble table with green hop and ears of … [+]
For years, energy guru Amory Lovins has famously said that customers don’t care about the price of electricity per se. Rather, it’s the cold beer and the hot showers that matter. But that point of view has not generally been espoused by industry itself, so I was intrigued enough to schedule a follow-on conversation with Sukduang. I wanted to further explore his thoughts on the future evolution and the growing interaction between the customer, the utility, and wholesale power markets. And as a former demand response practitioner who had to address similar dynamics for many years, I also wanted to get his perspective on the barriers that might stand in the way.
The emergence of “Grid X,” combining electrons and end-uses to offer outcomes
Sukduang began the conversation by emphasizing the recent and accelerating shift in the grid towards renewable assets that – while perhaps more economical – are also intermittent. This intermittency creates the need for more energy storage, as well as an enhanced opportunity for the customer to participate in the marketplace. This interaction will go beyond today’s relatively simple demand response to an increasingly sophisticated flexibility, with customers relying on new technologies such as the emerging 5G network and smart devices.
He predicts the result will be a “GridX” that is both more efficient and cleaner than today’s system, with solutions providers having the ability to “manage more surgically with each individual customer.”
That’s the overall trend we are seeing, he says, but the critical question then becomes how does one put that into practice? Potentially, he indicates, solutions providers could combine that flow of electrons with end-use technologies to sell outcomes, such as illumination, climate control, and device functionality that may manifest itself in many ways, such as the operation of machines in the factory, getting other devices to work, “and increasingly geared towards mobility” as well.
Today, customers buy a flow of electrons, “something with zero intrinsic value,” Sukduang notes. But in the ideal world, the customer would pay for the job to be done, whether it be lighting, climate control, or device functionality.” In that ideal world, the end uses could also function in an elastic manner, flexibly responding to the price of energy.
For example, 78 degrees of heating for 24 hours will cost X. But 78 degrees, with 5 degrees of flexibility when you are not home will cost less … significantly less when prices are high. Customers will be empowered to choose … to make the value decision that is right for them. With millions of customers empowered to make individual economic decisions, the system will function more efficiently. People will pay the right price for value and the overall cost and environmental impact of delivering energy and services will go down.”
In a future world where solutions providers offer the technology and the electricity, those providers would have the incentive to offer ranges of outcomes by monetizing optionality in wholesale markets. “The value proposition is in the derivative and optional value of customers,” Sukduang states. However, that has to be the job of the provider and not the customer, because “no customer ever wanted a kWh. Or wanted to sell a kWh back to the market.”
Barriers to change
So with all these opportunities, and with much of the required technology now affordable and available, why hasn’t anybody realized the vision yet?
“That’s the trillion dollar question.” Sukduang comments, “It’s how do you do it.” He observes that part of the challenge is that we are hostage to our own perceptions and experience. The industry measures itself – and is largely measured by regulators – within the context of the traditional volumetric energy and capacity paradigm. Perhaps, though, that conversation can change as a new generation eyes tomorrow’s energy world.
“This new generation sees the problem…I have a hypothesis that somebody will crack the code. They will figure out how to engage and empower the customer, through technology, in order to achieve outcomes.
“When they do,” he predicts, “society will realize ‘why didn’t we always buy energy that way?’ and then overnight it will spread like wildfire. And legislation and regulation will adapt to it.”
Let me sell you some lumens
(Original Caption) Thomas A. Edison exhibits a replica of his first successful incandescent lamp, … [+]
In some sense, the model existed once already, during the dawn of the electric age. Thomas Edison and his contemporaries sold lighting before moving to the kWh. Over a century ago, the French marketed the sale of heat (chauffage), rather than selling furnaces and coal separately.
And today, Sukduang points out, companies such as Lyft and Uber have created new and quickly growing companies because “they focused on the true job to be done” delivering a relatively predictable and cost-effective means to get from point A to point B, with simplicity. However, unlike electricity markets, that model was scalable across multiple geographies. The cars, drivers, and roads already existed and the key issue to be solved could be largely addressed through a software overlay. Regulatory issues existed, but they were relatively minimal compared with the regulatory structure that governs utilities (though this is somewhat less the case with municipals and cooperatives).
Sukduang highlights key elements of the regulatory thicket, including wholesale markets (overseen by the Federal Energy Regulatory Commission), and retail electricity markets (governed by states and sometimes cities). On top of that, each utility has its own complex mosaic of rules and tariffs that defy economies of scale. Sukduang cites the simple issue of billing, performed on behalf of a retail supplier by the utility, and asks rhetorically, “How do you cram selling comfort in a single line item on a bill?“
Then there’s the highly critical issue of getting timely access to customer usage data. “How do you know where opportunity resides when you cannot get meter data?” The result of such idiosyncrasies, he asserts, is to “make it not scalable…You have to think about what’s scalable and where do you do pilots, make those into programs, and turn that into a business.” Thus far, that has proven to be not worth the investment.
At the same time, Sukduang expresses confidence that the market will continue to change, technologies will emerge, and new business models will evolve, including at ENGIE which has been working with customers to lead the transition to a zero carbon economy. “The spark will happen,” he predicts, “and then we will have that proof of life, and you will be able to articulate to commissioners with such precision that it will light up many territories in the United States.”
