As utilities continue to install and embrace advanced metering, the market for demand side management (DSM) programs that target customer engagement is expected to grow steadily over the next 10 years. But analysts at Navigant Research are paring back on their initial bullishness for the sector, describing utilities "unsure about long-term effects and how customers will take to these technologies."
In a new report for utility customer engagement through DSM (CEDSM), Navigant says it expects roughly $270.5 million to be spent globally in 2018, rising to $1.1 billion by 2027. In North America, primarily driven by the United States, that spending could reach almost $700 million within the next decade.
Strong growth, but a significant cut from 2015 estimates. Then, the firm estimated worldwide spending on behavioral and analytical demand management would grow from about $215 million in 2015 to $2.5 billion in 2024, with up to $1.5 billion of that spending in the United States.
"We are still seeing growth of behavioral demand side management," Navigant Principal Research Analyst Brett Feldman told Utility Dive. But the new estimates "are definitely pared down from the report a couple of years ago." Then, he predicted about a 30% growth rate, but has since cut back expectations to the 10% to 15% range.
The new report identifies several market barriers:
- Utilities remain unconvinced about the performance and results of these programs, and how customers will respond.
- Customer engagement programs can be a tough sell, because they may not readily reveal their value. The programs may not always show energy savings, but often increase participation in other DSM programs.
- Internationally, retail electricity providers in deregulated markets remain unconvinced the new tools will be a cost-effective way to reduce the "churn" between providers.
Some utilities are still reticent when it comes to behavioral demand management programs. "They have some trouble believing in it," Feldman said.
Despite some of these tools being around almost a decade, and analysis showing behavioral demand response can be used as a consistent and reliable grid resource, the lack of a committed response is a hurdle for some utilities. Feldman said that by viewing DSM programs as an operational asset and a customer engagement tool, it could help utilities past any doubts they have about data-driven behavioral efforts.
It's not a technology issue, Feldman says, "and that's where the customer engagement piece comes in ... utilities need to understand the value proposition to them." JD Power scores have shown customers with more information available to them are more satisfied — and those scores can translate into better relationships with regulators.
But despite the tempered expectations, Feldman also said it is important to keep the size of the market in perspective. The $270 million in anticipated CEDSM spending this year compares with $6 billion spent annually in this country on efficiency, he said, and about double that amount worldwide.
Internationally, there is growing demand for these services in deregulated markets in Europe, Australia and Asia, where DSM as a customer relations tool can be a good fit.
"The retailers own the customer relationship more than the utility," said Feldman, and they will try just about "anything they can do to have more of a sticky relationship. ... It costs so much more to get a new customer than to retain an existing customer."
One place where utilities are showing enthusiasm is in the development of energy product marketplaces, where customers can purchase products — often with the rebate instantly included. Feldman said it "could be a a new revenue stream for utilities," while at the same time making things easier on customers. Rebates on energy efficiency products, for instance, have historically been a complicated process requiring the customer to mail in documentation.
"A lot of things are moving to online purchases. Whether or not the utility is the place most people will go is a question, but for now its an improvement over the older model where they have to go into a store," said Feldman. "The older method turned a lot of people off."
Feldman remains optimistic for a data-driven, light-touch, behavioral approach to efficiency and demand response. The issue for utilities is to turn data into useable information for customers, while re-evaluating what they need and want from the programs.
"Utilities like to keep things simple and low-risk," said Feldman. "There still is not the clearest understanding of the savings these programs bring." But they are beginning to view customers differently, he added: not just as ratepayers, but as "partners in this endeavor, and it gives them a better relationship with their customers."