ROLAND BERGER SRL

  |  27.06.2013

Energy and the city 2030

The power industry is undergoing a transformation process, with growing importance of technology, supported by regulatory changes. While in recent years we have been increasingly aware of the new generation paradigm, mainly centered around new power generation technologies.

Few of us have actually become aware of the new consumption paradigm, or how technological advancements like electric vehicles or smart appliances / gadgets will shift consumption patterns, bringing up topics like energy efficiency, social inclusion and new patterns of energy use, the impact of urban transformation on energy consumption, as well as technology convergence in utilities (electric, gas, water, etc..) and telecom, for example.

 

Under these circumstances, Roland Berger Strategy Consultants embraced a "visioning" exercise for 2030, and started by looking at how the consumer is expected to behave in the future, with direct impact on energy consumption patterns in homes and cities of the future.

 

Drivers for a new energy consumption paradigm

 

As part of a global effort, Roland Berger Strategy Consultants identified 7 megatrends affecting global society by 2030: changing demographics, globalization & future markets, scarcity of resources, climate change, dynamic technology & innovation, global knowledge society and sharing global responsibility.  All of these, and in particular dynamic technology, will also lead to the transformation of energy consumption paradigms, clearly defined by the following key drivers:

           

            • Greater search for energy efficiency

            • Greater relevance of electricity

            • Increase of environmental awareness

            • Increasing interaction between consumer, market and government

 

The drivers are intertwining: the switch to the model of smart cities will foster the development of new technologies (for instance for the management of energy consumption), while the evolution to smart homes triggered by the introduction of new technologies will bring about greater energy efficiency, as well as an increase of the relevance of electricity for consumers.

 

Thus, in order to better understand the drivers of change in the consumption paradigm, we developed a simple framework, defining 4 key patterns of energy consumption. The first one refers to the consciousness of the environmental impact caused by energy. This translates into an increased demand for clean sources, use of resources, green technologies, etc. The second one is represented by an amplified relevance of electricity in life / industrial production, which sets the optimum level of electricity dependence by taking into account people and companies' new consumption patterns. Thirdly, the interaction between consumer and government / sector agents leads to a series of pro-active actions in the market – e.g. consumption management – as well as to a certain level of interaction with agents from the energy sector e.g. companies, regulator, government and others. Finally, shifts in production and consumption will lead to an optimization of the level of energy efficiency, in its turn a result of the technology evolution and the behavior of consumers or different public policies.

 

Towards smart cities…

 

Today's cities, especially in emerging markets like Romania, face 3 main challenges. The first one entails an urgent need for greater connectivity and joint management of public services. The second one is represented by the fast adaptation to new forms of consumption and generation, while the third one refers to the need for an effective urban planning which guarantees greater consumption efficiency.

 

In order to approach these challenges, distinct approaches can be embraced, depending on local realities. Hence for new cities, like the ones being built from scratch in order to test new technologies (mainly in Asia and Middle East), the approach should embrace a whole different path as compared to cities in transformation, like the ones in Central and Eastern Europe (including Romania). For example in the case of the latter, projects could mainly be focused on a neighborhood or specific area of town, rendering pilot projects more applicable, in order to test and replicate new technologies. In fact, technology will become a "must" in the smart city of the future, if we are to improve quality of life in a sustainable way. To this purpose, initiatives will most likely be taken along 8 dimensions:

…and the smart home revolution!

 

Home automation is one of the building blocks of the envisaged “smart” (r)evolution. Houses will be increasingly endowed with advanced automated systems, e.g.: lightning, temperature, health care and other functions. New technologies will provide greater availability of information, centralized/remote control and more efficiency in resources consumption. This evolution of homes will be lead by five key industries (NB: not only energy!):

1. Utilities – will lead the process of smart homes due to the implementation of smart meters/grids.

2. Home security – will bring solutions interacted with remote control, strongly connected to Telco.

3. Mobile Health – investment in mobile services and smart monitoring in order to serve the aging population.

4. Entertainment & Home appliances – development of products which work as a hub to different services and equipments.

5. Telco – work in transversal logics as enablers for developing new business models.

 

In order to envision how all this is going to work out in the future, one current success story is that of Nest. Nest has recast the old-fashioned thermostat with advanced optimization, connectivity and sleek design. In only two years, it became a US hit with USD 11 m annual sales. Its main functionalities include learning intelligence (proposes temperatures based on your usual preferences), monitoring by smartphone / computer (changes the temperature from anywhere via Wi-Fi), recording heating or cooling system usage history, motion detection (heating decrease after 2 hours without motion), estimation of time needed to reach the selected temperature, as well as an LCD screen-mirror adaptable to room colors. All this is rounded off by its  "geek design" legitimacy granted by its CEO, Tony Fadell, designer of the iPod, and by the buzz built around many innovation awards and various press articles (New York Times, Fast Company, Wired, etc.). However, its true marketing promise is focused on increased comfort and energy savings of ~20% of household energy consumption. Without this last advantage, it would have otherwise had a tough time convincing mass-market customers to pay USD 259 for the thermostat, along with USD 119 installation costs for the first unit and USD 25 for each additional unit.

 

Even more concretely, how does the concept of smart homes translate into a solid impact and opportunities for the energy and more specifically power industry? Interestingly enough, changes in the utilities sector stand both as cause / catalyst and as effect / consequence of the "smart" revolution. Specifically, utilities is the main sector that leads the process with its large client base that makes the implementation of new technologies accessible to the "mass market". At the other end, however, introduction of new technology will certainly impact matters such as energy efficiency, consumption management and utilities integration!

 

Looking ahead

 

The smart home market and implicitly the new energy consumption paradigm still need to overcome a number of barriers in order to take-off. Few breakthrough "killer applications", high price of equipments, resistance to change by some stakeholders, complexity of technologies and too large technical choice, non-compatibility of equipments (no unified inter-equipment protocol) or long-life cycle of dwelling equipments/ renovations are just few of them. To overcome them, innovative solutions are needed. But the time is ripe! The energy transition, encompassing increases in energy prices, decentralization of electricity production, increased customer differentiation / segmentation, regulatory push for energy efficiency providing funding / tax incentives for home refurbishments and regulatory requirements commanding smart electricity meters (minimum 80% of consumers by 2020)1 coupled with the high level of digital equipment will strongly support smart home market growth! Thus, by 2030, energy and the city will have surely taken on a whole new dimension!

 

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