How DR and smart thermostats have revolutionized the utility-customer relationship

How DR and smart thermostats have revolutionized the utility-customer relationship
Jun 10, 2019

Smart thermostats ushered in a new era for the utility-customer relationship. Now, new demand response programs are capitalizing on this momentum to create wins for both parties.

Last update: 5/19/2021
What is Demand response?

Demand response is a resource for balancing power supply and demand by allowing consumers options to reduce or shift their energy consumption away from peak periods.

Utilities have traditionally relied on demand response (DR) strategies to reduce the cost of supply-side resources by curtailing energy use during peak demand periods. While successful, managing these events has required costly controls, like direct load control hardware that required ongoing maintenance, and created a rigid customer experience.

Today, utilities are implementing new technology solutions and programs to better manage supply-side generation costs, as well as to optimize the use of demand-side resources. The surge of cost-effective new technology (smart thermostats, solar, storage, electric vehicle technologies, etc.) combined with time-of-use rates and increasingly innovative load management practices gives utilities and customers greater choice—while also providing an opportunity to integrate the benefits of energy efficiency and demand response. The net results are more flexible ways of managing grid loads and improving customer experiences.

Eventually, these “load flexibility measures” will become increasingly important to assist with the management of intermittent renewable supply and to actually increase the amount of variable resources, such as solar, that can be reliably integrated onto the grid. Until then, the current wave of technology is just one piece of the equation.

Currently, the key shift in how utilities are leveraging DR is actually in the relationship between utilities and customers. More than ever before, consumers have more choices regarding their use of technologies. Not only do these choices impact how customers generate and consume energy, but they can also impact the customers’ relationship with—and perception of—their energy provider. As customers gain more control over energy usage and access tech that better serves their needs, utilities have the opportunity to re-establish themselves as providing a range of customer-centric energy services, not just electrons.

A smart paradigm shift

The introduction of smart thermostats together with advanced metering (AMI) was a paradigm shift in the residential utility space. With smart thermostats, consumers are able to minimize their energy costs, track energy usage, and control their environment remotely, among other features. This new dynamic demonstrates that there is a segment of customers who have an affinity for technology and an increased willingness to collaborate with their utility on household energy consumption. To that end, utilities now have the opportunity to cultivate a different kind of relationship with consumers, where each party plays a role in establishing a healthy and flexible grid.

Some of the benefits of a symbiotic consumer-utility relationship include:
  • Lower bills for hard-hit customers and resiliency benefits for the most vulnerable.
  • Cost savings from reducing and shifting peak demand and reducing supply-side resource procurement obligations.
  • Capital efficiency from deferring or avoiding local distribution investments; these benefits can be shared with all customers.
  • Improved carbon metrics resulting from reduced hourly carbon emissions.

By coupling flexible load management strategies—like using cost-effective new technologies, time-of-use rates, and a new way of thinking about the role of DR—with smart thermostats and their data (and smart meter data, if available), utilities get more granular insights on customer energy usage and load shapes. Utilities can then leverage this information to more accurately predict and target customers who are likely to benefit from savings at certain times of the day, which customers participate in more active device management over what period of time, and which customers prefer to opt-out.

Utilities can also use this data to further engage customers to better manage their energy consumption during high-demand periods—potentially saving them money by reducing monthly bills. For example, by pre-cooling homes during off-peak times, customers can remain comfortable during peak time events while also providing utilities a way to better manage peak-coincident load. Smart thermostats are a conduit to moving these forward-thinking customers toward future offerings that will not only help utilities meet the evolving needs of the grid, but benefit consumers as well.

Consumers can help manage the load challenge

There is a growing segment of customers who are embracing and engaging in new technologies; they are active, informed, and interested in leveraging smart devices to manage their energy use. Meanwhile, the majority of consumers can benefit from a more passive DR experience that they sign up for once with guaranteed savings, and then forget about for the rest of the year. Utilities must accelerate how they meet a number of challenges—including identifying their customers’ unmet needs—while managing and optimizing load in real-time. Some of these hurdles include:

  • Legacy organizational structures do not focus on value creation and customer experience and make it difficult to adapt to new strategies, customer products, and services.
  • Customer expectations of an easy, convenient experience with choice over technology, installation, and participation options.
  • Regulatory complications that limit the ability to integrate energy efficiency (EE) and DR in some cases, as well as limitations on cost recovery and earnings opportunities for customer-sited assets, like behind the meter (BTM) storage.

Smart thermostats are an enabling “key” of flexible, responsive demand initiatives for consumers—having opened the door for an evolved relationship—but utilities must find ways to advance through this door without tripping over regulations, unanticipated expenses, or organizational silos. Customer engagement and education, as well as experience, are cornerstones for effective implementation and customer-value delivery. Today, the consumer is critical to the utility’s success in providing a reliable grid that benefits all customers.

Driving adoption to achieve load management goals

So, how do utilities meet their goals and bring early-adopter customers along the journey with them?

It starts with a holistic approach and a solid foundation. Best practices include:

  • Develop an enterprise customer-experience strategy that emphasizes user-centered design and fully considers the utilities’ evolving value proposition relative to consumer needs, including choice, comfort, control, and convenience.
  • Establish a 10-year BTM distributed energy resource (DER) strategy that fully considers evolving customers’ needs and leverages the combined value of energy efficiency, DR, and DER.
  • Create a roadmap that aligns with current and future customer and grid needs, informs future grid modernization investments, and supports revenue recovery over time.
  • Adopt scalable load management technologies—such as customer-sited distributed resources and devices connected to a technology control platform—that enable the utility to meet the needs of today and tomorrow.
  • Gain direct experience of customer preferences and technology performance via intelligent and rapid use of pilots to inform program design with “boots on the ground” implementation know-how.

These five elements—plus a test-and-learn feedback loop to continuously improve and refine the approach—need to be in place from the onset. By doing so, utilities create the best possible environment for success. Utilities will also minimize the complexities and risks of repositioning their value-proposition as an energy service provider; provide products, services, and programs that can potentially lower system costs; and provide for a healthy grid, savings, emissions reductions, and/or opportunities for customers to engage further.

We are witnessing a transformation. Smart thermostats are just the beginning of the evolution of the new relationship between utilities and customers. The goal is to leverage these forward-thinking customers by educating and engaging them in preparation for new technologies. This will help orchestrate the adoption of distributed and renewable resources to benefit all customers as well as the grid.

Utilities that partner with savvy customers will ultimately set themselves up for a bright future and a strong grid when they utilize best practices and consider flexible load management as well as regulatory and customer needs.

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