Renewables, smart homes, AI and IoT will have a massive impact on how energy companies need to address the market in 2018, predicts COLIN BEANEY, IFS’s Global Industry Director for Energy & Utilities.
Every year we’re seeing a virtuous circle speeding up around renewables; 2018 will be no exception. The more renewables are taken up, the smarter and more scalable the technology becomes, with lower construction, operating and maintenance costs. Crucially, the cheaper the energy produced becomes too.
In 2009, it cost just under US$ 300 to generate 1 MW of electricity using solar photovoltaic panels. In 2016, the cost was down to US$ 100. All around the world, renewables companies are now able to offer cheaper energy alternatives. In September 2016 in Nevada, state energy provider NV Energy lost almost 6 percent of its customer base overnight as 15 of the top casinos and hotels in Las Vegas switched over to smaller renewable energy providers. Why? “The sharp decline in the cost of renewable energy” and “being able to control what your supply looks like”, said MGM Resorts, one of the main companies moving account.
BMI’s 2017 Global Renewables Outlook predicts ‘the capacity of renewables will double between 2016 and 2026’. A 2017 Financial Times report, The Big Green Bang, how renewable energy became unstoppable, shows that renewables capacity globally rose by 9 percent in 2016, a 400 percent increase from 2000. Solar power increased by 30 percent worldwide in 2016, and for the second year in a row renewable energy made up more than half the world’s new power generation capacity.
Asian countries are spearheading the development. China accounted for more than 40 percent of capacity growth in global renewable energy in 2016, but other high-power Asian markets, like India, Malaysia, and the Philippines are also expanding in renewables. This boom will in turn affect players in other geographies that will not want to fall behind.
How will this impact energy providers? Most important will be the new opportunities to adapt your business model, join new joint ventures or create new charging models—all these will be essential. Take energy provider Octopus, which delivers renewable pay-as-you-go energy through its easy-to-use online portal to customers in the UK and France. Octopus is now the UK’s largest investor in solar farms, but focuses heavily on customer service, flexible payment models and transparent billing as key customer benefits—as well as renewable energy.
With smart homes, consumers will call the shots
Amazon Alexa, Google Home, the Sony LF-S50G, the Harman Kardon Allure – what has this new generation of smart home assistants got to do with Energy & Utilities? Potentially, a lot. According to analysts like RBC’s Mark Mahaney, Alexa could earn US$10 billion for Amazon by 2020. In addition, MarketsandMarkets predicts that the smart home market will be worth US$ 138 billion by 2023.
Smart meters constitute a big part of this, enabling customers to check and calculate their real-time energy consumption levels in the home to take appropriate steps to cut down energy costs. Thus, smart meters are expected to hold a major share of the smart home market by 2023.
With one single solution for switching between devices in the home, consuming and storing energy and controlling its costs, consumers will have an increasingly powerful role. Following this, they will be in a position to drive even more flexible service and billing systems.
One example of companies leveraging this demand for increased flexibility is HomeServe, a one-stop digital service company providing emergency and energy services to the home. Through its monthly digital subscription model, it supplies services to over 7.8 million homes in the UK and over 3 million homes in the US—including energy services, boilers and meters through third-party suppliers. HomeServe itself owns no energy assets, but with its strong customer service and simple payment models generating powerful loyalty and revenue, service providers like HomeServe could become energy providers—soon, as customer-centric energy provision booms.
The success of agile, customer-centric firms like HomeServe and Octopus is a wake-up call for energy providers. Customers increasingly hold the balance of power in a digital market. For Energy & Utilities companies, it is a reminder of how new vital, flexible, and agile billing and service, as well as operations, can pose either a competitive advantage or a threat— depending on how you are addressing the market.
The industry gets smarter as AI and IoT move ahead
As consumer demand dictates energy supply and billing, IoT, machine learning and AI capabilities will add another dimension to this, not just in the field at the edge of operations, but at the heart of products and in homes, too.
Gartner predicts that “by 2022, more than 80 percent of enterprise IoT projects will have an AI component, up from less than 10 percent today.” But what would a machine-to-machine, cloud-based energy system, discretely sited in consumers’ homes, look like? In 2016 in Hawaii, Microsoft collaborated on a renewable energy initiative using 499 IoT-connected home water heaters, all IoT-enabled and connected to Microsoft Azure Cloud, to create an autonomous discrete energy grid that stores overspill energy for future use. The 499 water heaters are called Grid-Interactive Electric Thermal Storage (GETS) devices. The machines monitor energy consumption and performance, and store hot water when there is a surfeit of renewable solar and wind energy. Each heater is able to store 52 – 120 gallons of piping hot water. Combined, the water heaters can hold 15 to 25 kilowatt-hours energy. Hawaii spends about US$ 6 billion every year importing oil, so being able to store excess renewably generated energy could have a major impact, helping Hawaii reach its goal of its state utilities generating 100 percent of its electricity from renewable resources by 2045. One of the most impressive aspects of the Hawaii story is its precision business case. For an island with a lot of renewable wind and solar energy, storage was a key priority and would deliver obvious customer benefits.
For energy providers, 2018 will be about finding the sweet spot, connecting consumers’ demands for increased flexibility and cost control to new services and charging models based on renewable energy sources and emerging technologies—those who succeed with this will be the winners.
VoD cuts the cord in SA
Some 20% of South Africans who sign up for a subscription video on demand (SVOD) service such as Netflix or Showmax do so with the intention of cancelling their pay television subscription.
That’s according to GfK’s international ViewScape survey*, which this year covers Africa (South Africa, Kenya and Nigeria) for the first time.
The study—which surveyed 1,250 people representative of urban South African adults with Internet access—shows that 90% of the country’s online adults today use at least one online video service and that just over half are paying to view digital online content. The average user spends around 7 hours and two minutes a day consuming video content, with broadcast television accounting for just 42% of the time South Africans spend in front of a screen.
Consumers in South Africa spend nearly as much of their daily viewing time – 39% of the total – watching free digital video sources such as YouTube and Facebook as they do on linear television. People aged 18 to 24 years spend more than eight hours a day watching video content as they tend to spend more time with free digital video than people above their age.
Says Benjamin Ballensiefen, managing director for Sub Sahara Africa at GfK: “The media industry is experiencing a revolution as digital platforms transform viewers’ video consumption behaviour. The GfK ViewScape study is one of the first to not only examine broadcast television consumption in Kenya, Nigeria and South Africa, but also to quantify how linear and online forms of content distribution fit together in the dynamic world of video consumption.”
The study finds that just over a third of South African adults are using streaming video on demand (SVOD) services, with only 16% of SVOD users subscribing to multiple services. Around 23% use per-pay-view platforms such as DSTV Box Office, while about 10% download pirated content from the Internet. Around 82% still sometimes watch content on disc-based media.
“Linear and non-linear television both play significant roles in South Africa’s video landscape, though disruption from digital players poses a growing threat to the incumbents,” says Molemo Moahloli, general manager for media research & regional business development at GfK Sub Sahara Africa. “Among most demographics, usage of paid online content is incremental to consumption of linear television, but there are signs that younger consumers are beginning to substitute SVOD for pay-television subscriptions.”
New data rules raise business trust challenges
When the General Data Protection Regulation comes into effect on May 25th, financial services firms will face a new potential threat to their on-going challenges with building strong customer relationships, writes DARREL ORSMOND, Financial Services Industry Head at SAP Africa.
The regulation – dubbed GDPR for short – is aimed at giving European citizens control back over their personal data. Any firm that creates, stores, manages or transfers personal information of an EU citizen can be held liable under the new regulation. Non-compliance is not an option: the fines are steep, with a maximum penalty of €20-million – or nearly R300-million – for transgressors.
GDPR marks a step toward improved individual rights over large corporates and states that prevents the latter from using and abusing personal information at their discretion. Considering the prevailing trust deficit – one global EY survey found that 60% of global consumers worry about hacking of bank accounts or bank cards, and 58% worry about the amount of personal and private data organisations have about them – the new regulation comes at an opportune time. But it is almost certain to cause disruption to normal business practices when implemented, and therein lies both a threat and an opportunity.
The fundamentals of trust
GDPR is set to tamper with two fundamental factors that can have a detrimental effect on the implicit trust between financial services providers and their customers: firstly, customers will suddenly be challenged to validate that what they thought companies were already doing – storing and managing their personal data in a manner that is respectful of their privacy – is actually happening. Secondly, the outbreak of stories relating to companies mistreating customer data or exposing customers due to security breaches will increase the chances that customers now seek tangible reassurance from their providers that their data is stored correctly.
The recent news of Facebook’s indiscriminate sharing of 50 million of its members’ personal data to an outside firm has not only led to public outcry but could cost the company $2-trillion in fines should the Federal Trade Commission choose to pursue the matter to its fullest extent. The matter of trust also extends beyond personal data: in EY’s 2016 Global Consumer Banking Survey, less than a third of respondents had complete trust that their banks were being transparent about fees and charges.
This is forcing companies to reconsider their role in building and maintaining trust with its customers. In any customer relationship, much is done based on implicit trust. A personal banking customer will enjoy a measure of familiarity that often provides them with some latitude – for example when applying for access to a new service or an overdraft facility – that can save them a lot of time and energy. Under GDPR and South Africa’s POPI act, this process is drastically complicated: banks may now be obliged to obtain permission to share customer data between different business units (for example because they are part of different legal entities and have not expressly received permission). A customer may now allow banks to use their personal data in risk scoring models, but prevent them from determining whether they qualify for private banking services.
What used to happen naturally within standard banking processes may be suddenly constrained by regulation, directly affecting the bank’s relationship with its customers, as well as its ability to upsell to existing customers.
The risk of compliance
Are we moving to an overly bureaucratic world where even the simplest action is subject to a string of onerous processes? Compliance officers are already embedded within every function in a typical financial services institution, as well as at management level. Often the reporting of risk processes sits outside formal line functions and end up going straight to the board. This can have a stifling effect on innovation, with potentially negative consequences for customer service.
A typical banking environment is already creaking under the weight of close to 100 acts, which makes it difficult to take the calculated risks needed to develop and launch innovative new banking products. Entire new industries could now emerge, focusing purely on the matter of compliance and associated litigation. GDPR already requires the services of Data Protection Officers, but the growing complexity of regulatory compliance could add a swathe of new job functions and disciplines. None of this points to the type of innovation that the modern titans of business are renowned for.
A three-step plan of action
So how must banks and other financial services firms respond? I would argue there are three main elements to successfully navigating the immediate impact of the new regulations:
Firstly, ensuring that the technologies you use to secure, manage and store personal data is sufficiently robust. Modern financial services providers have a wealth of customer data at their disposal, including unstructured data from non-traditional sources such as social media. The tools they use to process and safeguard this data needs to be able to withstand the threats posed by potential data breaches and malicious attacks.
Secondly, rethinking the core organisational processes governing their interactions with customers. This includes the internal measures for setting terms and conditions, how customers are informed of their intention to use their data, and how risk is assessed. A customer applying for medical insurance will disclose deeply personal information about themselves to the insurance provider: it is imperative the insurer provides reassurance that the customer’s data will be treated respectfully and with discretion and with their express permission.
Thirdly, financial services firms need to define a core set of principles for how they treat customers and what constitutes fair treatment. This should be an extension of a broader organisational focus on treating customers fairly, and can go some way to repairing the trust deficit between the financial services industry and the customers they serve.