US Utilities Adapt to Sell More Than Just Electricity

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The business model of utility companies is changing – altering a model that has gone almost completely unchanged for the better part of a hundred years. The model of running appliances and leaving the lights on, then recieving a bill is beginning to falter, from technological advances, changes in public opinion and environmental legislation that is slowly gaining steam on the world stage.

Customers are now being encouraged to use less electricity, and governments are actively pressing utility companies to help them do so, for the good of the environment. As electricity is the very product those companies are selling, it’s not hard to see how this is a difficult situation for the utilities to be in. On top of all this, the self-sufficient ideal of creating and storing one’s own electricity is taking off as solar power, geothermal power and biogas becomes a more feasible possibility for homeowners.

“These changes are driving utilities to reconsider their business model,” says Alex Laskey, speaking from his position as President of Opower, a software company providing solutions for utility companies seeking to help consumers cut down on consumption. “They have decided not to simply be a commodity provider. They now want to provide energy services.

What this actually means is different for each utility. In the US, utilities in sunny states where residential, private solar power is feasible have begun to sell and market their own solar panels, or contract with local solar providers to buy and sell their electricity, while others now sell products and services designed to promote energy efficiency as well as their usual products. The use of LED lights, for example, is recommended by several (particularly those who sell LED lights).

As eloquently stated by Swapnil Shah, the CEO of Firstfuel: “people are buying solar panels and moving towards energy efficiency whether the utilities get in on it or not. The only question is whether the companies will begin to cater to them and make money, or whether they’ll miss the opportunity and see their cashflow dry up completely.”

While it might seem odd for a utility company to sell energy efficiency services, it’s important to remember how tightly regulated these power companies are. Those utilities that decide to sell energy-efficiency solutions do so with government help and monetary incentives that are usually untaxable, making them a very attractive option. Other governmental incentives programmes exist across Europe and in the US with varying standards and rewards.

The rise of cleaner energy and the need for information on efficiency and usage has led to the rise of informatics companies like Opower and FirstFuel, metadata companies whose success lies in their ability to take huge amounts of data from utility companies, and run it alongside third-party consumption and behaviour data through complex algorithms to evaluate patterns of energy use, and work out how it is likely to change in the future.

There are some concerns that the utility companies may be able to use their governmental incentives and protections to take aggressive risks in their other business ventures, however, which would give them a powerful competitive edge over normal providers of those services. An incentivised utility company tackling the solar panel market could therefore outcompete independent solar panel providers relatively easily, costing the economy in the long run.

The change from simply providing power to selling a variety of products and services presents an enormous shift in business strategy for the utilities that are pursuing it. Usually, the companies are under the consumer’s radar, and they rarely interact. Now, however, the usual relationship is shifting as the utilities send information on usage, pricing and comparisons to them on a much more frequent basis.

David Jacot, of the LA Department of Water and Power, says “It’s now no longer about customer service. What we’re cultivating is ongoing concern and a mutually supportive relationship between power company and customer.”

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