What can power companies learn from iTunes?

The rise of distributed energy resources (DERs) is transforming power companies from traditional utility controlled vertical networks to networks that more closely resemble the Internet. While this puts pressure on traditional business models, it also gives utilities an opportunity to rethink their role in the energy system and come up with new, future-proof business models.

Consider how Apple used its iTunes platform to transform from a struggling computer company to the most important player in the music industry. What can power companies learn from this example, and is there really a path for “iTunes for electrons”?

Not long ago, the ability to generate and push electrons was exclusive to utilities with the resources and expertise required to build and operate enormous, expensive generators. Today, solar and wind power, energy storage and electric vehicles are undergoing their own revolution. All this is tied to an ever-growing number of connected homes, businesses and industries.

Access to proprietary data drives the business models (and high margins) of many Internet companies. It’s easy to see how utilities, considering their position in the value chain and the trust people put into them, are also becoming aware of the value of their data, and what it can do for them. Quo vadis, utilities?

When artists and music labels agreed to sell their music on iTunes, consumers had a more convenient way to get any song they wanted compared to stealing. Apple had created the de facto digital marketplace for media.

In a way, utilities are looking to emulate the iTunes business model, leveraging their customer base to become a trusted provider of third-party products and services. While this evolution may promise market growth, it also introduces a new set of challenges.

One of the most difficult is likely to be the lifeblood of any Internet business: how to handle the data? What can power companies learn from the Internet while avoiding its pitfalls? How can new data-driven business models help utilities not only survive, but also thrive in the new economy?

For every electron, there’s a bit of opportunity

As electrons become more abundant, the margins for them will continue to decrease. Conversely, the information associated with electrons will become more valuable than ever.

As more and more homes become internet-connected and DERs are attached to grids, knowing and/or predicting what the users and the grids need is highly valuable information. The necessity of facilitating information between third parties and end users in a trusted way, instead of simply selling electrons, may prove to be a boon for utilities of the future.

The value of data increases when companies use it to collaborate with partners and even competitors. When electrons become the indirect proxy for the value of data, they enable multi-party marketplaces to emerge, and entirely new services and business models can be built. ISPs and telcos know this first hand.

Using the iTunes analogy, if you replace the songs and albums with services, you create a data-driven utility business model. Organizations that are unable to effectively control their data flows risk becoming second-rate players in these new data-driven marketplaces.

When the entire energy system is networked and digitized, all the stakeholders can claim their rights to their associated data. This places the onus on utilities to protect the ecosystem from bad actors. Data breaches resulting in the loss or theft of consumers’ confidential information may carry significant financial, personal and operational damage consequences, let alone undermine trust towards the utility.

Operational grid data is also sensitive for national security reasons, meaning that proper cybersecurity measures need to be in place. It is imperative that energy providers strike the appropriate balance between allowing data exchanges to take place while protecting the security and privacy of the data driving them.

In a way, U.S. utilities have already experienced the results of a lack of trust that they would protect consumer privacy. The initial roll-out of advanced metering sparked a backlash amongst many consumers who were concerned that these devices would lead to the tracking of all of their interactions with electrical devices.

Consumer fears are not the only challenge. Regulators are rightfully increasing protections of personally identifiable information.

The European Union’s General Data Protection Regulation (GDPR) that went into effect in 2018 is reshaping how companies across every industry store and use personally identifiable information. In the U.S., California has already passed the California Consumer Privacy Act and in response to recent revelations about privacy missteps by Facebook and other Internet companies, observers believe there is a good chance that federal lawmakers will pass similar legislation in 2019.

Since DERs generate data from multiple customer premise systems, the issues around handling sensitive customer data will become even more severe than advanced metering. This is true not only for consumer data, but also for commercial customers since this data reflects proprietary business details.

Again, Apple’s focus on and messaging around respecting the privacy of their users has given the company room to not be as drawn into privacy controversies — unlike companies like Facebook.

The link between grid transparency and a new modus operandi

The ability of appropriate third-parties to access grid data is necessary for the effective integration of DERs. Yet, since utilities are understandably reluctant to share this data, regulators are considering a number of options to solve this challenge: This includes creating regional regulatory bodies, such as the District of Columbia’s proposal for a Distributed Energy Resources Authority.

Utilities must also follow applicable regulations and standards around data privacy and security, and monitor for compliance, in a manner that respects the interests and concerns of all the data owners. And, as if that is not complicated enough, the data itself is often stored in different databases and in different formats, creating a need for data interoperability across the ecosystem.

To meet these challenges, responsible data sharing requires a trusted third party that enables collaboration and applications around the data in a secure way.

An example of this is being implemented in Germany. After determining that the lack of easy and quick access to grid information was slowing the siting and construction of new electric vehicle (EV) charging stations, DigiKoo, a subsidiary of the major European utility company innogy, will serve as a trusted partner for data rights management to support these efforts. DigiKoo created an automated grid information access service that gives distribution system operators (DSOs) the ability to easily support third-party information requests via visually focused applications.

DSOs need to query a number of disparate databases for such information as location of assets, including electrical circuits and transformers, and current loads on these assets. These issues may be familiar to U.S. utilities as they also try to support increasing requests for public EV charging stations.

DigiKoo also securely governs access to distributed utility datasets and ensures that data is only accessible by people with appropriate permissions and following applicable regulations. Since under EU law worker data is considered private, this includes the GDPR. 

This approach can help address challenges around residential solar feasibility analyses and grid development planning, but also seemingly intangible yet critical issues such as improving documentation quality.

These use cases provide a pathway to solve existing gaps between DSOs, municipalities and service providers, helping utilities drive demand for new digital services for retail customers.

Even though iTunes can provide a blueprint for the future of utilities, no two utilities are alike and they will need to find their own models that work in their geographies.

One thing is clear — the relationship between retail customers and utilities is changing. For power companies to remain strong 10-15 years from now, they need to define a smart strategy today to stay on top of the value chain.