It’s time to modernize DSM.
Demand-side management hasn’t historically been data-driven or customer-focused. And utilities have long considered it separate from their core business of delivering electrons.
“[These programs] typically have not been treated as a real part of the utility business, either from an earnings perspective or from an operational perspective,” said Jess Melanson, the vice president of products and solutions marketing at Tendril.
“But if you link them together, not only is there tremendous business opportunity and system value for the utility, but it also becomes a new part of the business. And utilities really need new sources of earnings, because the traditional business has challenges.”
Before joining Boulder, Colorado-based Tendril, a software company that combines behavioral science and physics-based modeling to help utilities improve demand side management programs and the customer experience, Melanson ran a portfolio of energy efficiency and demand response programs for the New Jersey utility PSE&G.
A major obstacle to success, found Melanson, was lack of integration among utility programs that all fell under the umbrella of demand-side management.
“The example of that would be: I have a demand response program that has nothing to do with my home energy report program, that has nothing to do with my home energy audit program,” said Melanson.
“That means I don’t share data between those programs and I don’t think about approaching customers with those three programs in a logical sequence.”
But changes are afoot.
The right tools for demand-side management 2.0
Although many utilities have not fully grasped the potential of demand-side management, they can’t take all the blame. There simply haven’t been good regulatory incentives for utilities to seriously consider non-wires alternatives and incorporate demand-side management into how they plan their systems. That is finally starting to change, particularly in states like New York and California.
Even with that coming regulatory change, the tools and technologies that allow for a data-driven approach to fulfilling customer needs and ensuring satisfaction have not been available until very recently. By embracing a more modern approach to demand-side management, Melanson argues that utilities can help themselves today and over the long term.
“If I invest in a DSM analytics platform, I’m going to make my programs better today,” he said. “And from a strategic standpoint, I set myself up to proactively evolve my business in a way that is better for customers, regulators and my bottom line. It’s a no-lose proposition.”
The customer journey
So what does a modernized demand-side management program actually look like?
At Tendril, it’s all about helping utilities focus on three steps of the customer journey: engagement, activation and orchestration.
“Engagement” isn’t just about giving customers a bill they can understand. Instead, it’s about delivering valuable and actionable information to all a utility’s customers. “There needs to be a paradigm shift around engagement. Utilities have the unique privilege and obligation to serve all customers, so engagement can’t be something that 20 percent or 30 percent of customers benefit from.”
Tendril’s core engagement tool is a home energy report, which provides information customers can use to save both energy and money, including high-bill alerts. This has obvious benefits for customers, but it also helps the utility because fewer people are confused by their bills and need to call customer service.
But engagement is just a starting point. “The real strategic value is opening communications channels. If done right, this is how I start to activate the customer to help them do more than just lower their thermostat,” said Melanson.
An activated customer
The “activation” step in the customer journey is designed to get people thinking differently.
“Our goal is to take the 8 or 9 minutes that people think about energy each year, and turn it from a time of confusion and frustration to adding value by helping you save money, [improve] the environment or adopt new technologies,” said Melanson.
That requires taking the large amounts of customer data used by companies in a wide range of industries every day -- data about interests and consumer habits, as well as their home and energy usage -- to deliver valuable customized offers, like a rebate for a new air-conditioning unit when a homeowner’s unit is old and in need of replacement. Ideally, activation offers are paired with the ability for people to quickly take advantage of what’s available.
The final stage of the customer journey is “orchestration,” where demand-side management is used for the broader good of the system.
For example, demand-side management allows a utility to adjust a homeowner’s thermostat continuously throughout the day. It does so to save the customer money, but it also can do it with confidence because data tells the utility what it needs to know about its customer’s temperature comfort ranges and schedule.
At the same time, orchestration provides utilities with the opportunity to tap the many devices that go into a smart home to become reliable, dispatchable and predictable grid resources.
In rollouts this past summer, Tendril found that its approach allowed it to double energy efficiency and dramatically reduce peak HVAC demand while improving customer satisfaction. “From a customer-journey standpoint, that is where you want to go,” said Melanson. “Customers are happier and cheaper to serve.”
Lower prices and improved technology make it possible for many more customers to install smart thermostats that deliver data that can be analyzed in the cloud. This is an important step forward in enabling a more sophisticated approach to demand-side management.
Partnerships are also a critical step forward. For instance, Tendril recently announced a partnership with smart thermostat maker Nest (in addition to the ones it has with ecobee and Honeywell). “When you get to the 'orchestrate' step of the customer journey, you really need partnerships. The smart devices are going to be made by the companies that are great at that, and smart homes will be run by big names we all know,” said Melanson.
“But there’s a role to be played as the connective tissue between those smart customer offers and the electric grid and this partnership with Nest recognizes the value of an orchestrated energy approach,” he said.
The evolution of demand-side management brings a lot of change with it. But it’s change that makes utilities more central to the system -- and opens lots of opportunities for new customer interactions and revenue.
“If distributed energy is the future -- and it’s going to come faster than we think -- then utilities should be investing in a demand-side management platform now. It can make today’s programs better and build a foundation for this world where orchestrating is something every utility has to do,” said Melanson.