Power and utilities companies across the globe are undergoing massive Smart Grid installations and investing billions in new programs because they offer numerous benefits, including cost reductions, increased consumer choice and control, sustainability and improved service. Many utilities are approaching the Smart Grid implementation as a pure infrastructure and technological advancement, and not as a business opportunity or source of potential innovation. Regardless of each utility’s approach, the strategy must involve extracting the maximum return from the enormous fixed capital investment. With increased customer choice and control, maximizing returns can only be achieved with a positive consumer partnership and knowledge of customer needs. This is problematic because power companies are unaccustomed to dealing with customers who are empowered by the ability to say “no” to an industry that is accustomed to complete control. Utilities and regulators need to increase public awareness and support in order for the Smart Grid to be successful and reach a critical mass (Edelmann 2011).
Smart Grid Consumer Awareness and Sentiment Facts
- “Over 80% of consumers are interested in learning how to cut their energy costs, but less than one-half want to learn more about the Smart Grid (Grant 2012).”
- “Only 15-20% of consumers are likely to sign up for time-of-use or demand-response programs; 35% do not want utilities to control systems in their home regardless of the savings potential (Grant, 2012).”
- 79% of American consumers are unfamiliar with the term “Smart Grid”. (General Electric 2012)
- 4% of US consumers have heard of the Smart Grid or have an understanding of how it affects them. (General Electric 2012)
- 45% of informed Americans have expressed concerns about the potential challenges to Smart Grid projects and implementation. (General Electric 2012)
Source: Ernst & Young
Established technologies and implementation strategies have been developed and are ready for application in Smart Grid deployment. However, the most formidable barrier to adoption is consumer awareness. Before consumers will adopt a new, revolutionary technology they need to be informed and presented with business models so that they can recognize how they will benefit from the deployment of the Smart Grid. The Smart Grid is a fundamentally complex set of technology and infrastructure that consumers will fail to grasp and embrace until they gain a fundamental comprehension of the transition, new choices, new features, benefits, cost structures and value proposition. While deployment attempts are increasing Smart Grid awareness, ARRA funds are not able to cover the entire cost of deployment. Thus, utilities have begun to raise rates to recover their sunk costs. This has led the misconception that the Smart Grid will result in increased rates, which in the mind of the consumer, offsets the long-term benefits of the technology.
Another source of consumer resistance is the vague value proposition and uncertainty in financing installations. Many utilities have been passing a portion of the investment and installation costs on to the consumer which has given them the initial appearance that the Smart Grid produces higher rates. While consumers dislike the idea of having to shoulder the burden of partially financing the technological modernization, it is an unavoidable feature that switching to a smart meter will require the purchase of the meter in addition to an installation and setup fee. The Smart Grid players must address the differing ROI models of consumers, who amortize their investments over two to three years, and utilities, who amortize their power plant investments over two to three decades. However, with the appropriate communications, consumers can view these costs as an investment rather than a superfluous fee. These costs will also more likely be embraced if utilities can become more transparent and verify the necessity of these costs.
Like lack of consumer awareness, poor relations with power companies and utilities is a substantial barrier that spawns the entire range of global Smart Grid issues. An Ernst & Young report on smart technology found this to be highly problematic across all 13 countries investigated, as not a single country had a “positive reaction” to the category “relationship with [power] suppliers”. Many consumers described their relationships with utility companies as “transactional, cold and distant” at best and “at worst…hostile” (Edelmann 2011). Consumers displayed overwhelming irritation regarding issues such as customer service, limited contact with the provider, competitive inertia, and a lack of comprehensive and clear billing and tariff information. Furthermore, this irritation is fueled by comparisons to other industries with dynamic pricing, including mobile phones and broadband, whereby consumers feel as though utilities are not being empathetic. Consumers’ lack of trust in their providers leads to skepticism in the Smart Grid value propositions, resulting in questions about who actually benefits from the meters, whether their privacy would be invaded, the usability of the meters and clarity of the “smart” bills. Furthermore, lack of credibility, perceived proactvitiy and limited confidence in utilities means that consumers would likely be unwilling to buy a broader range of smart services from power companies unless they partnered with another credible firm. Until utilities form partnerships or can improve customer perception, they will be limited to being energy suppliers and not energy service companies.
Source: Deloitte
Customers are also concerned about not being protected under the Smart Grid system. Concerns include insufficient notice before being disconnected, the inability to dispute bills, health and safety repercussions of being remotely disconnected and affordability to low-income households and more vulnerable customers. The self-healing Smart Grid mechanism would allow utilities to remotely disconnect any household, which could produce health or safety problems for certain customers who have young children, are elderly, or have medical conditions. The time-of-use (TOU) dynamic pricing makes bills more difficult to dispute by customers. Thus, regulators need to reevaluate the current customer protections to ensure that switching to the Smart Grid will not result in a decrease in consumer protections due to remote disconnections, cyber security lapses, billing and bill dispute rules, data privacy and ownership concerns. This source of resistance can be avoided by guaranteeing that the legislation has the necessary and desired influence on fairness, due process, costs and privacy. (White House 47)
The deployment of smart meters has created large amounts of new consumption data which has produced privacy and security concerns with smart consumers. This new data will allow for additional analysis about the consumer, their behavior and usage activities. The ability of regulators and companies to control and secure this new data will have a large influence on how willing consumers are to transition to the new system. However, it is important to note that consumers are not only concerned with confidentiality, but also with data sharing and retention. These concerns extend beyond personal information (i.e. address, credit cards, bank accounts) into concerns about the privacy of personal communications and behaviors by recording info about what people do and where and when they do it. Consumers are concerned about their data being released to third-party marketers but also fear that governments and insurance agencies may use their data to adjust taxes and insurance premiums. (Herold 2011)
Currently, there are no sector-specific Federal regulations or privacy statutes pertaining to the usage, sharing, and collection of energy usage data. Therefore, consumers are skeptical that the utilities companies will refrain from selling their personal energy data to third parties and fear that smart meters will become a new sales and marketing venue. New legislation will need to address: “customer data ownership, access to and use of these data, privacy and security of customer data, and sale or transfer of customer data. (Heffner 2011)” While the Fair Information Practice Principles (FIPPs) don’t apply to the Smart Grid, their overarching framework can serve as a guideline for regulators to ensure consumer privacy and the protection of consumer energy data going forth. However, this will require regulators, industry and consumer representatives to develop codes of conduct for the various Smart Grid situations.
Related to the issue of data privacy is the concern of the cyber security of the grid. While the two-way consumer-utility communication and internet-transferred data will allow the grid to thrive and consumer to be responsive, it also makes the grid vulnerable to external attack. These attacks could range from minor issues like remotely disconnecting customers or changing your bill to hacking a network to adjust load conditions, which could ultimately result in destabilization. The challenge of securing the grid is a difficult one, as it requires protecting a variety of devices that connect to or enable the grid and rely on wireless technologies. (Grant 2010)
The last major impediment to social acceptance of the Smart Grid is meeting consumer demands: compatible, usable devices that allow for more control through increased access to pricing data. Consumers have hesitated to embrace the Smart Grid because they have yet to be offered smart services and meters that are compatible with popular technologies, such as Smartphone applications. In addition, consumers demand a system that has a simple design and is easy to use because they will only benefit if they are able to react upon the feedback and data it provides them. Consumers must be able to access and control timely standardized machine-readable energy consumption data that will allow them to adjust their energy usage. However, there is also a balance that must be achieved between simplicity and control. Consumers may not want a specific simplification if it removes their component of personal choice. This has been the case with certain automated smart meter features. (Edelmann 2011, White House 2011)
To the extent that consumers can be educated about the smart grid and their benefits while being provided with simple, compatible smart devices and services that will increase their control while protecting their privacy, consumers will likely grow to accept the new Smart Grid technology. Specific solutions for how to do this are described in the “Josiah Wedgwood Solutions” section.
-ME
Sources
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Edelmann, Helmut. The Rise of Smart Consumers. Ernst & Young, 2011. Web. 17 Apr. 2012. <http://www.ey.com/Publication/vwLUAssets/The_rise_of_the_smart_customers_What_consumers_think/$FILE/The_rise_of_the_smart_customers_What_consumers_think.pdf>
Evans, Jeff. “The Opt-Out Challenge.” Electric Light & Power. Black & Veatch, Mar.-Apr. 2012. Web. 21 Apr. 2012. <http://bv.com/docs/articles/the-opt-out-challenge.pdf>.
Faruqui, A., R. Hledick, and S. Sergici (2010), Rethinking Prices: The changing architecture of demand response in America, Public Utilities Fortnightly, January, <http://www.fortnightly.com/uploads/01012010_RethinkingPrices.pdf.>
General Electric. Energy. National Survey: Americans Feel a Smart Grid Will Help Reduce Power Outages, Personal Energy Usage. GE News Center. GE, 23 Mar. 2012. Web. 20 Apr. 2012. <http://www.genewscenter.com/Press-Releases/National-Survey-Americans-Feel-a-Smart-Grid-Will-Help-Reduce-Power-Outages-Personal-Energy-Usage-26c9.aspx>.
Grant, Rebecca L. Smart Grid Implementation: Strategies for Success. Lexington Institute, May 2010. Web. 12 Apr. 2012. <http://www.lexingtoninstitute.org/library/resources/documents/Energy/Smart_Grid_Implementation.pdf>.
Heffner, Grayson. Smart Grid – Smart Customer Policy Needs. OECD/IEA, 2011. Web. 21 Apr. 2012. <http://www.iea.org/papers/2011/sg_cust_pol.pdf>.
Herold, Rebecca. “Ensuring Smart Grid Social Acceptance by Securing Data Privacy.” GridTalk. Alcatel-Lucent, 14 July 2011. Web. 19 Apr. 2012. <http://www2.alcatel-lucent.com/blogs/gridtalk/issue-1/ensuring-smart-grid-social-acceptance-by-securing-data-privacy/>.
Koehn, Nancy, “Josiah Wedgwood and the First Industrial Revolution,” Chapter 2 in Thomas McCraw, ed., Creating Modern Capitalism, Harvard University Press, 1995.
Price, Michael, and Stephen Wilesmith. “People Power the smart grid: Deloitte’s approach to helping utilities capture the value of investing the sustainable business.” Sustainable and Climate Change. Deloitte Consulting, n.d. Web. 15 Apr. 2012. <http://www.deloitte.com/assets/Dcom-Global/Local%20Assets/Documents/Sustainability%20and%20Climate%20Change/peoplepowerthesmartgrid_external_08242011.pdf>
White House. A POLICY FRAMEWORK OF THE 21ST CENTURY GRID: Enabling Our Secure Energy Future. June 2011. Web. Apr. 12. <http://www.whitehouse.gov/sites/default/files/microsites/ostp/nstc-smart-grid-june2011.pdf>
Smart Grid Technology 