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Internet of things a smart opportunity for energy companies

We investigate how energy companies are taking advantage of internet-connected devices to support smart home initiatives

According to analyst firm Gartner, the number of internet-connected devices in the home will almost double each year up to 2018, by which time there will be almost 1.1 billion devices.

There is a huge opportunity for utilities to ride this IoT wave and deliver smart home technology and services to consumers.

The Connected Home Survey 2015 from McKinsey reported that, in the US, while 60% of devices are bought retail, up to 50% more would be purchased from a service provider.

Since 66% of the people who McKinsey surveyed thought that connected devices are too expensive, utility companies could be well placed to develop smart home subscription-based services to offset the upfront cost of the technology.

While smart home technology has evolved rapidly over the past few years, there are still too many barriers to its wide-scale adoption, especially to interoperability and integration among different suppliers. This represents one of the opportunities for service providers and utilities: to provide a single hub and app, linking disparate connected home technologies together.

Paul Howard, technical director of D-Link, which provides internet-enabled cameras and smart hubs, said: “Devices are not seamless but there is a lot of joint work going on.”

Read more about smart homes

Howard admitted that security is one of the challenges holding back interoperability. “If you start opening up your environment to enable people to connect and operate a device, it becomes less secure.”

But D-Link is working with the Nest thermostat and Yale. “Nest will not open up the API on the thermostat, so we can’t programme it directly. But Nest does have an API at the cloud level, so we use our API at the cloud level to communicate with the Nest cloud.” As a result, he said, D-Link can now control a Nest thermostat. “Equally, its triggers can control our devices.”

Howard is responsible for D-Link’s service provider business. In the past his focus would have been telcos, but he said: “We are seeing a massive flow in interest among utilities. In particular, D-Link is among the partners working with energy company Npower on its smart home initiative.”

Last year Npower launched a six-month trial in partnership with D-Link and lock company Yale to understand how people use technology in the home. Neil Pennington, director of innovation for RWE Npower, said: “There are two ways an energy provider can go. You can decide to have a proprietary platform or you can recognise that in the future what is needed is a strong ecosystem of platforms.

He said that utilities have generally focused on their supply. Working as part an ecosystem is something new for Npower and RWE. The issue for us is to understand which combinations of technologies would mean something to our customers.”

Getting the business case right

Smart energy expert Susan Furnell, founder of Furnell Consult, believes that among the challenges facing utilities is how they account for the cost of a smart device. “Most consumers do not want to buy this stuff – it is expensive.” If a utility wants wide-scale adoption, Furnell believes it needs to look at ways to subsidise this cost.

Dutch energy provider Eneco, for instance, offers Toon, a completely subsidised internet-connected thermostat as part of its fixed energy tariff.

In the past, utilities had very little direct contact with customers. However, Furnell said an internet-connected thermostat enables them to have daily engagement, which is often highly rated by the customer. Furnell said: “It changes the relationship, which is highly valuable for a utility.”

Furnell argues that utilities looking to roll out smart home technologies, need to focus on executive buy-in. In her experience, many utilities are asking the wrong sorts of question: “Rather than look at how to make a business out of connected homes, which boils down to the margins on a smart device, they need to ask how they can move into a high-margin business like energy services and look at how can connectivity help.”

Trojan horse

In many ways, Furnell regards the internet-connected thermostat as a Trojan horse, opening up doors for the energy company to provide higher value maintenance services, such as analysing whether a house is losing too much heat due to poor insulation.

Hive from British Gas is arguably the most success commercial rollout in the UK of smart energy technology, with its internet-connected thermostat installed in 250,000 homes. The company sees its business growing through services.

Kassir Hussain, director of British Gas Connected Home, said the company is now working with central heating boiler maker Worcester Bosch on an initiative to feed boiler diagnostics to Hive, enabling its HomeCare boiler team to monitor the health of a Hive customer’s boiler.

“We offer HomeCare to 4 million customers.” With a connected boiler Hive starts to become a service, he added.

Internet-connected central heating boiler thermostats put consumers in control of their energy consumption.

Energy companies have an opportunity to embed such products and services into people’s lives to become a key component in the connected home revolution. The market for smart home technologies is quite fragmented. But initiatives like the one between Npower, D-Link and Yale with Nest integration show that work is under way to make connectivity seamless.

Differentiation opportunity

As Furnell points out, a seismic shift will occur if utilities begin to treat smart home technologies as an opportunity to differentiate their business.

According to Accenture’s Technology Vision 2016, 82% of executives surveyed agree that organisations are increasingly pressed to reinvent themselves and evolve their business before they are disrupted from the outside or by their competitors.

Using Hive or other smart home devices to power a home maintenance services business could be the way companies like Centrica, the parent company of British Gas, ultimately reinvent their unique selling point. In fact, in a transcript of the company’s interim earnings call posted on the Seeking Alpha website, Centrica CEO Iain Conn said: “We’ve developed offerings to protect and enhance the core energy and services business through bundling of connected homes products.”

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