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Connected Homes April 2016 Viewpoints

Technology Analyst: Kyle M. Whitman

New Approaches to Electricity-Demand Response

By David Strachan-Olson
Strachan-Olson is a research analyst with Strategic Business Insights.

Why is this topic significant?

Innovative companies are leveraging connected-home technologies to incentivize thousands of households to reduce electricity demand.

Description

In some markets, utilities and their regulators have begun incentivizing third-party companies to develop, market, and manage demand-response (DR) programs to grid users. Utilities have historically offered DR programs themselves, using various methods to induce grid users to reduce their electricity consumption during times of high demand. Methods have included offering monetary incentives for use reduction, using variable electricity pricing, and employing direct load control, the last of which involves utility companies' turning off end users' equipment remotely when electricity demand spikes. But despite the widespread availability of various technical means to implement DR programs, DR has not become mainstream. By creating incentives for third parties to offer DR services, utilities and regulators hope to stimulate innovation in the user-facing side of DR, which will ideally result in DR becoming much more widespread.

One major example of the practice of third-party DR services is in California, where the state's energy regulator created a pilot program that allows third-party companies to sell DR services to grid operators. Accompanying regulations incrementally require utilities to purchase DR resources from third parties, with at least 20% of the resources originating in the residential sector. Thus far, the California program has indeed spawned third-party DR market activity. For example, OhmConnect tracks and aggregates small reductions made by its thousands of household subscribers, whom it compensates directly out of DR sale proceeds.

Implications

As use of intermittent renewable energy continues to grow, new DR programs might help smooth transitions among different forms of generation. If third-party residential DR aggregators can reliably provide demand reduction when required, they could reduce need for peaker generators, which operate only when demand slightly exceeds supply. And if California's plan succeeds, other regions might rethink conventional approaches to demand response and outsource demand-reduction services to third-party businesses.

For various third parties in California, reductions in demand for grid power now depend on outfitting homes with smart thermostats, Wi-Fi power switches, storage batteries, electric-vehicle charging stations that shift electric-vehicle charging times, and home hubs that allow homeowners to automate their participation in residential DR programs. Stakeholders have reason to monitor whether households see financial incentives as sufficient to motivate sign-up and compliance, to gauge people's willingness to pay for any needed hardware, and to measure consumers' ability to change energy-use habits in practice.

Impacts/Disruptions

Two companies (Green Charge Networks and Stem) that are providing third-party DR services in California plan to reduce grid demands by controlling storage batteries in commercial settings. In the future, households might use similar batteries and relinquish control of them for DR purposes from time to time.

Start-up eMotorWerks is developing a residential DR program enabled by internet-connected electric-vehicle chargers. Imaginably, future DR programs might serve as a mechanism to credit EV owners for operating their batteries in reverse, contributing power to the grid during periods of peak demand.

Scale of Impact

  • Low
  • Medium
  • High
The scale of impact for this topic is: Medium

Time of Impact

  • Now
  • 5 Years
  • 10 Years
  • 15 Years
The time of impact for this topic is: 10 Years

Opportunities in the following industry areas:

Demand response, utilities, smart grids, smart appliances, energy storage, energy management

Relevant to the following Explorer Technology Areas:

Content-Delivery Networks

By Michael Gold
Gold is a senior research engineer specializing in innovations in digital technologies and their impacts on businesses, governments, and individuals.

Why is this topic significant?

Further increases in use of streaming media might motivate aggressive competitors to disrupt markets for content distribution.

Description

A 2015 report from Cisco Systems indicates that content-delivery networks (CDNs) carry on the order of 40% of the traffic on the world's public data-communications networks, and forecasts that figure will rise to some 62% by 2019. CDNs maintain many points of presence in population centers; servers that are near to users maintain smooth streams. For example, Akamai, a large commercial CDN, operates more than 200,000 servers at more than 1,000 separate locations in more than 100 nations.

Some CDNs are internal assets to companies: in particular Netflix, which reportedly transmits as much as 37% of downstream data traffic in North America during peak hours. Apple, Facebook, and Microsoft are also among the companies that operate their own CDNs. Other CDNs operate as B2B services, distributing content for entertainment providers, news aggregators, and other copyright holders, as well as operating websites for retailers, online stockbrokers, military organizations, and any other entity that needs fast, reliable connections to end users. Because CDNs' goals are to ensure uptime and high performance, B2B CDNs have also become specialists in cybersecurity.

In the aggregate, B2B CDN services collected on the order of $4 billion in revenue during 2015. During 2015, analyst Dan Rayburn indicated that two leaders, Amazon and Akamai, dominate the B2B CDN business, respectively enjoying market shares of about 45% and 18%. Only two of the top five B2B CDNs owned their networks—namely, Level3, a backbone service, and Edgecast, a subsidiary of Verizon (which acquired the CDN in 2013). However, Comcast began offering a B2B CDN during 2015. The network reportedly now has a solid foothold in the market, distributing sports matches hosted by teams in the National Hockey League and a conference of 12 colleges in the western United States.

Implications

Separately, recent reports from MarketsandMarkets and Stratistics Market Research Consulting forecast that B2B CDN revenues will roughly triple in five years. But the actual growth rate, and who will win or lose, is most unpredictable. Analysts see little transparency in pricing and industry practices. Secret peering agreements govern the exchange of traffic among networks. For example, in 2014, Netflix revealed that it pays Verizon and Comcast to connect to end users, but the parties have not disclosed how much Netflix pays. Imaginably, Amazon, Apple, Facebook, Microsoft, and others that operate captive CDNs also pay for peering.

Impacts/Disruptions

Broadband network brands may see opportunities to demand more compensation from content brands for the privilege of reaching users reliably, and they may leverage those demands to grow their own B2B CDNs. In that event, B2B CDN growth will accrue to cable and telephone companies, not to independent CDNs such as Akamai and Amazon.

Imaginably, copyright owners and their distributors may also harness their own market power by impairing traffic to a certain cable or telephone company that makes reasonable or unreasonable demands for payment. Popular opinion may sway outcomes. Audiences are likely to express disfavor toward cable and telephone companies and their branded network services, and to express favor toward content brands such as Disney and Netflix. Investors might be unable to judge which of the disputing parties' arguments have merit.

Scale of Impact

  • Low
  • Medium
  • High
The scale of impact for this topic is: Medium

Time of Impact

  • Now
  • 5 Years
  • 10 Years
  • 15 Years
The time of impact for this topic is: 5 Years

Opportunities in the following industry areas:

Content production, content management

Relevant to the following Explorer Technology Areas: