In their article, The Emerging Open Market Customer, Clark Gelling, P.E., vice president of client relations at PERIL, and Ken Grudger, principal at Ken Grudger & Associates, explore the subjects of market-smart customers, new suppliers and new products, and how they will all combine to shape and form the new energy industry.
The authors identify four energy periods, the first being the infant energy industry of 1880 to 1910. The second period, from 1910 to 1970, was marked by a turn toward regulation as a means to control perceived excesses of the electric utility industry. This time period brought technological progress and consolidation, and it extended service to all but the most remote locales.
The third period began in the 1970s, when OPEC oil embargoes triggered a worldwide energy crisis. Compounding these shocks were the growing environmental criticisms of electricity production as the root of environmental evil. Nuclear power suffered the double blows of Three Mile Island and Chernobyl.
The fourth period, beginning in the early 1990s, grew out of a growing impatience and frustration with the third period's reliance on regulation and centralized planning. The fourth period envisions the energy industry as one governed by market forces instead of pricing regulation, resource planning, and energy acquisition.
With that as a backdrop, the authors offer up ten ideas about the future of the fourth period as it continues to spin forward. As a reader of Power Quality magazine, we thought you might want to review and reflect on their predictions. How do their ideas measure up against the current realities and the marketplace as we now know it? Do their writings have a ring of, I told you so? We think they do.
-
Technologies that convert energy to services will go through a resurgence of research, development, and successful commercialization. Energy/environmental systems and energy/process systems have historically enjoyed a high growth rate of development and implementation. Lower energy prices will significantly improve the cost-effectiveness of many energy process technologies compared with nonenergy industrial processes (mechanical, chemical, etc.). As sales of these technologies increase, state and federal regulators may be more inclined to mandate technologies for environmental improvements, further reducing equipment prices.
Energy efficient lighting and heating/ventilating/air-conditioning (HVAC) technologies have benefited from utility rebates. While rebates will be drastically reduced, other forces will foster new developments, such as 1) renewed energy services industry by the retail affiliates of energy companies; 2) the “public purpose programs” that are developing in more states as regulators cling to the efficiency ethic; and 3) continued federal and state interests in appliance and building standards.
-
The quality of energy could become a significant price and service differentiator. Some electric utilities were surprised by the robust customer response to interruptible tariff offerings. At the same time, other customers were paying for facilities to ensure uninterrupted service. This demonstrates potential demand for a wide variety of power quality services and a ready market for interruptible power, firm power, standby power generation, cogeneration, uninterruptible power systems, clean power technologies, and similar offerings.
-
The open energy marketplace will unite with the information management and telecommunications industries to produce dynamic new products and services. One of the more exciting opportunities in the open market customer energy industry will be the monitoring, management, and integration businesses area. Data management, computer control systems, and telecommunications media (microwave, fiber optic, power line modulation, etc.) will provide almost unlimited opportunities in residential, commercial, and industrial marketplaces alike.
Customers' multisite locations across the United States will have instant monitoring, management, and integration capabilities that will allow them cost and service enhancements that are unfathomable now. Residential appliances could transmit data through house wiring to smart meters and then over the Internet, providing information on appliance usage, maintenance, and replacement opportunities. Knowing when and for how long refrigerator doors are open could suggest food use patterns and help supermarkets target certain products. Such information would have more value to equipment manufacturers, distributors, and marketers than it would to the customer who used the energy.
-
The energy metering business area will experience dynamic growth and renewal. One of the most important and growing business areas will be the energy metering function. The right to provide this primary interface between the upstream commodity supply and downstream energy services is heavily contested in industry restructuring. Not only has hourly pricing created a demand to replace millions of meters, the aggregation of multisite customers, electronic billing, and smart meters that choose the best supply options will spawn many more advances in technology. It seems that the days are numbered when the American home will continue to have separate meters for electricity, gas, and water.
-
Customers will devote greater attention to the management of their energy infrastructure. Like metering, this area lies at a critical juncture in the integration of all energy and energy service solutions. Sound management practices will give large energy users greater flexibility to operate upstream and downstream. Onsite generation will grow because of 1) customers requiring on site reliability; 2) customers wanting to sell into the energy market; and 3) efficient small generation systems and new technologies.
-
Suppliers will use innovative marketing strategies to sell into the open marketplace. The open market customer will benefit from some of the same innovative marketing strategies used by other deregulated industries, particularly in residential and small commercial and industrial markets where mass marketing prevails. Customers will be able to choose a wide variety of options.
-
More energy consumers will take advantage of energy and energy service outsourcing. Customers with a greater variety of choices will experience frustration from a lack of familiarity with energy and energy service issues. Residential and small commercial and industrial businesses will be more inclined to look at outsourcing energy services. This will lead to significant bidding and selection of energy partners with groups of small customers.
-
A plethora of financial offerings will creatively respond to financial and investment challenges. The amount of funds expended and invested by the open market customer will be an incentive for the financial business to develop new financial offerings. These will be designed to attract residential and small commercial and industrial energy customers. Creative financing could involve packaging energy procurement expenses with energy capitalization. Financial arrangements also could involve new forms of packaged energy services, such as end-use metering.
-
Mergers, partnerships, and collaborations will be commonplace throughout the industry. Various product, service, and information companies will come together to offer specific customers and/or projects the technologies that best meet their needs.
-
Opening the upstream to the open market customer will open the downstream end of the marketplace. After energy customers exercise choice in energy procurement, their remaining decision will involve energy use. As costs on the front end come down, costs on the back end proportionally will be more significant. A host of agents will emerge to educate users about methods to control energy consumption. Potential profits will spur product offerings for design, construction, operations, maintenance, and financing services for downstream equipment systems.
Now that you've read and thought about these ten fearless predictions, let us hear from you. What are your hopes and dreams about the brave new energy world we live in?
You can reach me at [email protected].
