Distributed energy resources and new energy management technologies are steadily transforming the power grid from a one-way electricity delivery channel to complex ecosystem of buyers and sellers. As a century-old utility business model begins to fade away, what role will energy providers define for themselves going forward? Last week, our cofounder Dan Yates made a strong case for utilities as market makers: the "orchestra conductors" who will use software to connect billions of homes and businesses to the energy products they need — from community solar panels and storage batteries to pricing programs and demand management services. Dan shared his vision on Greentech Media's acclaimed Energy Gang podcast. It sparked spirited debate between Stephen Lacey, Katherine Hamilton, and Jigar Shah about a host of other topics, including the role of regulation in tomorrow's power grid, the forces that drive utility companies, and the fastest way to curb climate change and accelerate a clean energy future.
Stephen Lacey: I’m curious. What do you actually call Opower these days? Some call you a behavioral efficiency provider. You’ve evolved, you’ve called yourself a software-as-a-service company, a utility customer care provider. What’s the most accurate description?
Dan Yates: We created Opower to do three things: to fight climate change, to do it using software, and to do it by working with energy incumbents, not against them. And we started the business with a very simple idea: laser-focused on energy efficiency. It fueled our early and rapid growth. As we’ve grown, it’s given us this very fortunate position to look forward, to see where things are going, and to have the cash to invest much more heavily in building the software to help utilities get there. When we look out, what we see as a future [for distribution utilities] … is that they are evolving, and they are really the pivot point for this entire industry. They’re transitioning from a world where everything was centralized and regulated to a world with a lot more decentralization and deregulation. The market maker, the coordinator — the orchestra conductor, as I like to think of it — [will be] the grid providers. What they need more and more is software that enables them to play this role as the market maker. Our role is providing the customer interface to do that.
Jigar Shah: Dan, I think what you’ve built is extraordinary. But do you really believe these utilities are doing anything more than blowing smoke at you — that they [care] about actually delivering this stuff as one of their top three priorities?
DY: I do. First, broadly, we’re seeing across all of these utilities a reorganization and the creation of a role we haven’t seen before, which they’re calling increasingly a Chief Innovation Officer, or an SVP of Innovation. What we see is explicit, C-level attention to creating new services and starting to experiment with new business models.
"[Utilities] have a very powerful asset, the grid, and they have an opportunity to become a market maker. That’s a real business."
Some of our clients, you’d expect them to be some of the most hard-line, entrenched utilities. The reason why they’re investing in Chief Innovation Officers ... is that they honestly see that their business is evolving and that they can’t continue to be the commodity provider in exactly the same form that they have been. Another example: look at the top four priorities that the CEO of Xcel Energy laid out for his company and for Wall Street. One of those priorities is, "compete for our customers." He thinks about his business as needing to compete for his customers today. [Xcel Energy] is still a regulated monopoly, but ... they’re competing with burgeoning residential solar businesses in Colorado, and now in Minnesota. So this is a very real thing. This is well beyond lip service. And the reason why is that [utilities] have a very powerful asset, the grid, and they have an opportunity to become a market maker. That’s a real business.
Katherine Hamilton: Dan, utilities have two major entry points for consumers: outage reporting and billing. And those are two things that I would consider not very positive touch points where consumers are concerned. How do you turn those negative touch points into positive experiences?
DY: We have a two-pronged approach. One prong is enriching the moments when [utilities] communicate with customers already, like billing and outage. The second prong is helping them manufacture more positive moments in addition to the existing ones. As an example, one moment that matters is when you move in and move out [of your home]. Moving in is, right now, a pretty unpleasant experience in most utility territories. It ought to be a time where you get keyed in: you’re introduced to the utility, you’re introduced to energy efficiency programs, you’re introduced to new pricing plans, your email is collected, and you begin your digital, personalized experience with the utility. Some of our clients, including competitive market retailers, are very focused for revenue reasons on retaining customers when they move. And we’ve been able to have tremendous effect with them on deepening those relationships.
JS: I think what you guys are doing is fantastic. But I’m still trying to figure out whether utility companies really want what you want. You know what I mean?
DY: They do. There was a great article last month about the Clean Power Plan and the utility response to it. The topline of the article was, utilities are not fighting the Clean Power Plan, and the question was, well, why not? And the quotes, over and over again — from big, national utilities that are not associated historically with progressive politics and climate change concerns — were that this is where the world is headed. We don’t have time to fight this anymore. That’s the reality today. It was not the reality ten years ago. It was not the reality when I started Opower, it was certainly not the reality when you founded SunEdison. These things have changed.
JS: Look, I’m not disagreeing that things are changing. I’m trying to figure out whether utility companies are committed to negawatt-hour contracts, or demand response flexibility, or load control flexibility.
DY: I think if we sat down with the CEOs of the top 50 U.S. utilities and asked them, would you put on your top three priority list driving down end-customer energy usage 30 percent in the next 20 years, probably none of them would raise their hands. But if you said, driving the efficiency of your business and adjusting it so you could simultaneously participate more in the higher-priced renewable energy future that you see as an inevitability, and maintain the cost effectiveness of your overall offering to continue to justify your existing grid investments, they would all raise their hands. And then if followed up by saying, and do you agree that demand management is a critical component to that first priority, I think they would all raise their hands. Most utility executives aren’t saying to their legislators, I want nothing more than to triple the efficiency of my system. What they’re saying is, I want a regulatory structure that allows me to participate in solar, in other renewables, in the distributed generation and distributed storage. And as costs inevitably go up, I want to keep bills down, and I’m going to invest in demand management and new rate structures in order to achieve that.
SL: And this is not really an individual utility problem, this is the way that utilities have been structured for years. It’s a regulation problem. And the regulators around the U.S. are stepping up behind this, and enabling some of these changes.
DY: I couldn’t agree more, Stephen. I think if you look at the REV proceedings in New York, it’s a very good window into where we’re going to head.
SL: Last question. There’s a lot of debate about whether utilities are going to control the customer relationship. Do you think the utility is still going to dominate that area?
DY: I think it’s going to be a yes-and. I don’t think that utilities are going to dominate for things like energy management inside the home. It's going to be hard to compete with titans like Samsung and Google.
"We created Opower to do three things: to fight climate change, to do it using software, and to do it by working with energy incumbents"
What the utility has is the power grid. The climate change challenge of our era is getting to clean energy fast and cheaply. It is a political and economic issue, not a technological issue. We could do it today, but we don’t feel that we can afford it. The grid makes the transition affordable, and our clients own the grid. And I believe the grid is here to stay. Will the grid potentially serve only 85 or 90 percent of the customers and not the 100 percent it serves today? Maybe. But it certainly won’t serve only 25 percent. And I’ve tethered my company and our future to the grid, and to making utilities and their businesses successful. And I firmly believe that if we can help them accelerate, to offer new services, to get more deeply involved in distributed generation, and pricing schemes, and storage, and all of these things, and do it through the customer experience, then we will help drive this clean energy future faster.
Dan and the Energy Gang covered a lot more ground. Hear the full podcast below. Header image credit: Flickr user drestwn