Cracking The Code On The Business Of Energy Management

by: Elias Hinckley

By Elias Hinckley and Therese Miranda-Blackney

Energy management is one of the most important parts of our changing energy landscape. It is a market made up of part energy efficiency, part Big Data solution and part Internet of Things. Energy management will be a multi-trillion dollar industry that will reverberate across industrialized economies. The competitive advantage in virtually every economic sector will be redefined by companies’ ability to manage volatile energy prices. It will change how we consume energy. Significant reductions in energy use are an obvious outcome (with corresponding pressure on energy companies), but even more exciting are the social and economic benefits of being able to preform significantly more work with our existing energy resources.

With the trends towards corporate resilience, sustainability, and social responsibility, energy management has evolved beyond the realm of engineers and energy nerds. The growth of Big Data and promise of the Internet of Things is giving rise to exciting, easily used, and powerful energy management tools. The energy management industry is poised to explode in size over the coming years – affecting every aspect of the economy.

If this is going to be so big, why is the market so small today?

Historically, only facility managers of commercial and industrial facilities, and a handful of individuals that were exceptionally excited about energy use or its environmental impact purchased energy management tools. As a result, the tools were developed by engineers, for engineers – they provided only data, and that was typically raw and unmanageable, as the target audience was assumed to have the necessary knowledge and capability to effectively make use of, and act on, the raw data. Not only was the audience tiny, but also existing technology did not provide a viable way to bridge the gap between data and useful information or, more importantly, action. As a result, the market for energy management tools has been had only a handful of success stories.

What will success look like?

Even as the tools and interest have matured, clear success stories remain few, while stories of high-profile failures abound. What we can learn from these recent stories of success and failure are that four key characteristics will separate winners from losers. These lessons will provide guidance on what the energy management tools of the future will be, who the market winners will be, and how these tools will eventually change how we use energy.

1) Intuitive. As awareness of energy spreads to a larger and more diverse group of consumers, many of whom know virtually nothing about energy, products and services need to become increasingly intuitive to the non-expert. This can be seen in Nest’s success. Designers focused on making the product intuitive. Other advanced thermostats require complex sets of directions for effective use – Nest was designed for obvious use and integrates easily with existing systems. Opower (NYSE:OPWR) has similarly tapped into intuitive design. Opower’s detailed reports on behavior changes are simple, obvious, and most importantly are easy to integrate into daily life.

As the target user becomes increasingly less sophisticated on energy usage the products and services must become increasingly intuitive. Look for more “plug-and-play” systems that require limited customization and no training, which will integrate without instruction into all of our energy consuming systems and devices.

2) Low/no time-intensity. Energy management is not a primary focus for all but a handful of people even in today’s changing world (and this isn’t likely to change as market coverage expands). The time commitment required to understand and effectively use energy management products or services must be correspondingly low. Nest achieves this low-time intensity through automation: the Nest thermostat adapts and self-programs. Opower decreases the time requirement for its energy management suggestions by providing short, relevant, and easy tips about how changing a behavior will result in energy savings. The company then recommends fast and easy behavior changes.

Products that have failed in recent years, such as Google Power Meter (Google (NASDAQ:GOOG) (NASDAQ:GOOGL) subsequently bought Nest for $3.2 billion) often required residential users to put significant time into observing and altering their energy usage in order to see results, which most people simply aren’t interested in doing. Businesses have been unwilling to adopt products and services that require more than limited and occasional participation, despite the potential value of full-time monitoring in real-time pricing markets.

3) Value. Energy management customers are a diverse group with varying needs, but in every instance a product must deliver value in a way that is easily recognized by the consumer, and often in multiple ways. A commercial or industrial energy management solution must address the vastly different needs of the CFO (cost savings), the Chief Sustainability Officer (environmental impacts), and the facility engineer (the facility running smoothly). On the residential side, segmenting the market and either choosing a single group to focus on, as Nest initially did, or tailoring your service to various segments, as Opower does, also allows companies to address these diverse needs.

As technology allows more advanced control functions, there are additional layers of value that will be realized. Managing energy consumption provides tremendous access to operational data – from simple aspects like use patterns for appliances in a home, to products like those being developed by ECurv, which combines data collection and controls that can substantially improve efficiency, not just of energy use, but for all of a company’s operations.

4) Desirability. Consumers (including corporate consumers) buy products and services based on appeal. While Nest benefited significantly from customers who wanted to try out a cool new product (developed by former Apple designers), a better example, especially as we factor in changing demographics in the energy consumer market, may be “gamification” – adding a gaming element to new technologies. Simple Energy has been able to increase the amount of time its users spend thinking about energy by introducing an element of competition among friends. These consumers wouldn’t otherwise have cared about how they use energy, but Simple Energy makes the energy usage choices engaging and cool. Eventually an energy management company will create a full-blown Prius-effect, where a product becomes desirable simply for the transformational effect of the product within society.

What happens next?

With today’s information security challenges, consumers have begun to exhibit significant anxiety about giving up information, which will certainly grow as they relinquish control of energy-consuming systems. These concerns have come out in both residential settings, with privacy concerns over something as innocuous as a smart meter, and in commercial settings, where customers have resisted automated demand response because of concerns over the inability to opt-out and the impact on everything from product quality to looking bad in a VIP visit. Much of this will be solved through better tools (to allow simple consumer over-rides), better data and system security, and education. But these concerns will be an important and growing influence the market (a Microsoft (NASDAQ:MSFT) executive acknowledged this at a recent EIA conference, noting that with energy data they could determine not just that your television was on, but what program you were watching).

The energy management industry is ripe for the application of design thinking and human-centric design principles – to drive new products that are intuitive and easy to use, while providing multiple layers of value and tapping into the desirability that will excite consumers. As energy management companies capture and evolve these concepts, the industry will accelerate into a period of explosive adoption and growth, creating massive potential for market success and public good.

This article originally appeared on Energy Trends Insider.

About my co-author: Therese Miranda-Blackney is currently in Rwanda solving low carbon energy finance for Africa and is preparing to return to the University of Michigan to complete her MBA/MS as an Erb Institute Renewable Energy Scholar. Previously, Therese worked with Deloitte Consulting in energy management and at EnerNOC.