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Why all smart roads must lead to customers

 

With many multi-billion smart meter and Smart Grid schemes poised to roll out across Europe, consumer experts stress that their success depends on winning the backing of consumers.

 

Kelvin Ross, Deputy Editor

Customer drive: "Ultimately, consumers will bear the cost of any Smart Grid or meter rollout, so it is imperative that they understand the reasons and rationale behind them," says Andy Corkhill of consultancy Convergys Source: Dreamstime

The customer is king, so the saying goes, but recent history can show some prime examples of their being treated as pawns by large companies.

And some of the guiltiest parties – by their own admission – are energy firms, which are now in the midst of a charm offensive in many European countries to win back confidence. Without customer confidence and backing, many high-profile and costly initiatives are doomed to fail, and few schemes have more riding on them than the deployment of smart meters and Smart Grids.

The US and Canada have seen a significant roll-out of Smart Grid and smart meter schemes in recent years and the bandwagon is picking up pace by the month. Analysis by US firm Pike Research finds that global smart meter shipments hit 19.2 million in the third quarter of 2011, a 5.3 per cent increase from the second quarter of the year.

"Global Smart Grid deployments continue to enjoy strong growth momentum, particularly those involving smart meter rollouts," says Pike's senior analyst Neil Strother. "Projects continue to expand in the United States and Canada, and we are seeing the beginning stages of a massive smart meter deployment in China."

In Europe, some countries have already initiated smart projects and almost all the rest are planning to do so. A recent joint report by consultancy The Future Laboratory and Oracle Utilities claims that the successful deployment of Smart Grids could save the European Union (EU) €52 billion ($71 billion) annually. Another, from the European Climate Foundation, estimates that €68 billion must be spent on Smart Grid work, including offshore wind connections, between 2020 and 2030 to bring online an extra 109 GW of capacity that it predicts will be needed to meet EU decarbonisation targets.

Hans Martens, chief executive of the European Policy Centre, sees implementing Smart Grid technologies as essential: "It is one of the most important measures because it can help achieve goals without changing lifestyles, and sometimes with relatively small investments. Using ICT [information and communications technology] also creates a win-win situation: we reduce the use of carbon-based fuels, we reduce emissions, we stimulate growth, jobs and innovation, and we save money."

With many European countries' grids creaking under the energy demands of the 21st century, many argue the Smart Grid is not a 'win-win' situation, but a 'must-win' scenario. "We occasionally encounter assets that date back to the beginning of the last century," says Paul Smith, operations manager of the UK's Energy Networks Association. "The roll-out of smart meters and Smart Grid technologies represents a once-in-a-lifetime opportunity to address many legacy issues."

Smith estimates some network operators are dealing with 20 000 network issues a week. "There are insufficient resources to manage this situation in the long term," he says.

What is stalling Europe's smart grid bandwagon?

So, if traditional grids are at a tipping point and the potential savings and supply benefits stark, what is holding back Europe's Smart Grid bandwagon? The answer, according to the study by The Future Laboratory and Oracle, is poor investment in consumer awareness and education, and the need to ensure end-to-end privacy and security.

Bastian Fischer, vice president of Industry Strategy at Oracle, said: "The Smart Grid is crucial for a smart energy future and to meet 2050 energy-efficiency targets. Although good progress has already been made by many countries, we still have a long way to go to make the Smart Grid a reality."

In particular, guaranteeing privacy will be important in winning customers' confidence and essential to encouraging their participation in smart energy, he adds.

All successful smart meter projects have the customer as "one of the key stakeholders", he told PEi. "The customer has the ownership of the data. Customers will become more and more active participants in the energy supply chain," he says.

This sentiment is echoed by Monika Stajnarova, an economist at the European Consumers' Organisation: "The consumer is not sure of the technology and that must be addressed before the deployment of smart meters can be successful. Consumers must be engaged with smart meters if their energy behaviour is to be changed." Jessica Stromback, executive director of the Brussels-based Smart Energy Demand Coalition, adds: "Pilot projects show that customer acceptance is key. Once they have customer involvement, these initiatives are delivering results year after year."

Andy Corkhill, director of EMEA Utilities at relationship management consultancy Convergys, says: "Ultimately, consumers will bear the cost of any Smart Grid or meter roll-out, so it is imperative that they understand the reasons and rationale behind it. More importantly, they must be aware of what it means to them in terms of available services and, most importantly, the associated costs." He cites some notable examples of smart schemes that failed to put the customer at their centre.

"Pacific Gas and Electric rolled out millions of smart meters in the US without worrying too much about educating the customer. Then, in 2010, the combination of a heatwave and new rates drove up energy prices and the backlash on the smart meter programme cost the utility greatly.

"A rollout in the Netherlands saw a lack of consumer engagement and understanding, resulting in a public referendum. This resulted in a resounding 'no thanks' from Dutch consumers and privacy organisations who [were] worried about data privacy. As a result, the roll-out was stopped in its tracks."

Selling smart grid benefits to consumers

Corkhill claims that consumers are also demanding more information than ever before. "Utilities, governments and their regulators cannot ignore this desire for engagement and information from consumers, especially considering consumers will ultimately be paying for it," he says.

Smart meter deployments depend on a top-down, holistic approach down to the consumer Source: Siemens

"Utilities need to empower the consumer. When effectively engaged with, the consumer will share information and is more likely to co-operate as they feel empowered, informed and enabled to make smarter choices. The consumer will embrace the opportunity to take control of their consumption, usage and ultimately their bill."

In the UK, where the government's timeline for a national smart meter launch started at 2018 and has been steadily brought forward, the Energy Saving Trust calculates that the rollout of smart meters from 2014 could save UK customers £7.3 billion ($11.2 billion) in fuel bills over 20 years.

With the potential savings there for the taking, and the lessons from previous smart initiatives writ large, how should utilities approach educating consumers about the benefits of switching to smart meters?

"It must be simple," stresses Corkhill. "The benefits to the consumer must be presented in clear and simple language including the impact on their wallet, the reasons for the change, the direct opportunities for them, the rationale for the utilities themselves, and the role that they can play."

He warns that consumers in Europe and North America are becoming increasingly sceptical about utilities and their motives, and "a failure to fully explain why the change is happening and its benefit to the utility will only enforce the message that utilities are 'hiding' the truth".

Key to winning the consumer battle is a joined-up approach between utilities, regulators and governments. "Governments need to address the economic and sustainability issues, and utilities need to explain how this will result in more flexible tariffs, incentives for the right behaviours and improved information," says Corkhill. "A holistic approach, from the top down, that clearly sets out the policy drivers and then flows down to the consumer will be most likely to succeed."

Again, Corkhill turns to the example of the Netherlands, where the public debate over security of private data stalled the smart metering programme. He says consumers were worried that their utility would have access to near real-time consumption information. "Yet, at the same time, these same consumers are perfectly happy to use smartphones that actively track their usage activity," he says.

He speculates that, rather than concern over data privacy, the Netherlands may have seen a backlash at poor engagement from the government down through utilities to the consumers. Or was the problem that consumers baulked at paying for a smart meter roll-out from which they neither understood nor saw benefits for them?

An example of positive public engagement held up by Corkhill is the UK's system of feed-in-tariffs, through which customers receive a fixed amount of money for every kWh they generate and more money for power they put back into the grid. "The real selling point is that these rates are good for 25 years in most cases," says Corkhill. "This hits consumers where they are most sensitive, in their wallets. The programme is enjoying phenomenal success and adoption rates."

Keeping up with the Joneses

But the financial benefits of smart programmes are less clear-cut than for feed-in-tariffs, so how else do you educate and incentivise customers? "What about driving conservation?" suggests Corkhill. "Some of the best programmes play on a healthy 21st century habit of 'keeping up with the Joneses', something rampant in the US. Many energy-efficiency programmes in the US are now providing comparative analysis to consumers to help drive changes in behaviour."

He explains how it works. "The companies – OPower and Tendril are two – work with utilities to deliver household-specific usage reports. But they do not only report on usage, they also tell the consumer how much energy their 100 closest neighbours are using." Consumers who are told they are spending twice as much as the 'Joneses' are more than 85 per cent likely to changes their behaviour, he says.

Pushing all the right buttons: smart meter schemes need to empower the customer, who will then share information and is more likely to co-operate as they feel informed and enabled to make choices Source: Siemens

One of the key issues consumers – and consumer groups – have with smart schemes is data security. If, as Fischer suggests, "the customer has the ownership of the data", then that customer wants to know that the data are secure. And on this count, the lessons from America are harsh. Bob Lockhart, another senior analyst at Pike Research, describes utility cyber security as in "a state of near chaos".

"After years of vendors selling point solutions, utilities investing in compliance minimums rather than full security, and attackers having nearly free rein, the attackers clearly have the upper hand. Many attacks simply cannot be defended."

With cyber crime already costing the UK economy alone some £27 billion in 2010, "we cannot afford to have this impact on the energy networks, because we cannot just shutdown our energy infrastructure", says Fischer. "The protection of ICT platforms and integrity of all active Smart Grid components is a prerequisite."

But Stromback at the Smart Energy Demand Coalition believes if the best possible public communication plan is in place, public acceptance of smart meter data security will come in time, as it did with online banking. "As long as the issue is given the proper respect and built into regulatory structures, I don't think this will be a long-term barrier," she says. David Weatherall of the UK's Energy Saving Trust agrees: "If we get the education and awareness phase right, I think people will be willing to let their information be used in a flexible and empowering way so that we can help them save energy."

But Convergys' Corkhill rejects the comparison with internet banking. "I believe customers are much savvier and far better informed than they were with the mass introduction and roll-out of internet banking over the past ten or 12 years," he says

"Many of the current fears are fuelled by the levels of mistrust between consumer and utility. Fix this, and we will see a more informed consumer base that actively begins to engage with the industry to make smart metering and grids the success it needs to be. Don't fix this, and we will see the programme, in many cases, fail."

Instead of internet banking, the example he would like to see followed is the UK's roll-out of digital television. "The UK government mandated a decision that as a nation, we would switch off our old analogue-based transmission services and that everyone would be forced to accept new digital TV transmissions. The impact on consumers, who pay for the service through a national TV licence, was potentially much larger than smart metering, as every 'old' analogue television was either going to have be upgraded or, much more likely, replaced with a TV that had a digital receiver. The potential cost to the consumer was well in excess of £1000 as many UK households have several televisions."

Corkhill says the government's approach to digital television was very different to that taken so far with smart meters. "It set out [a] clear rationale for the need to change and ran a TV, newspaper and magazine, and billboard campaign. This explained to the consumer the need for change, the timescales and roll-out approach, and the benefits that this change would bring to them. They even created a 'mascot' or character that appeared throughout the adverts, on TV and in print.

"Consumers were told that they would have to upgrade or replace their TVs by a set time and a regional roll-out programme was devised. A process of information broadcasting was defined and a slick repeatable machine was rolled in to play as each region was switched over. Vulnerable customers, including the elderly and those with disabilities, were identified and support schemes, including financial help, were devised, costed into the plan, and deployed."

Why governments – not utilities – must take the lead

With the digital television roll-out in the UK now largely complete, Corkhill stresses that "there was no backlash from the 30 million households and their consumers – the very same group that is being targeted for smart metering roll-out". Unlike smart meter rollouts, the government "took control and drove the high-level messaging, explaining to consumers the rationale for change" so consumers saw it as a government programme, he says.

"With smart metering, the UK government has not had such a clear communication policy and such a proactive campaign to consumers," he adds. "Rather, it has mandated through its policies and regulation the move to smart metering. It has then left the communication of the programme and its benefits to consumers to the utility companies. As such, consumers have developed the view that the programme is being pushed by the utilities and is therefore for the benefit of the utility, its bank account and shareholders, and not them."

But if the power industry is going to win the smart battle on both the consumer and security fronts, it had better get a move on. The EU wants 80 per cent of energy users to have smart meters by 2020. And that is the deadline for a substantial increase in renewable energy online and feeding into national grids.

For Fischer, the Smart Grid needs to be "planned, rolled out and installed" by 2020. "We are running a fast-paced race to meet that deadline," he adds.

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