A two-part series exploring the structure and economics of BYOT programs
Part 1: Introduction to BYOT™
By Sadia Raveendran
Bring Your Own Things (BYOT™), also known as Bring Your Own Device, is an increasingly important strategy for utilities seeking to manage energy demand from within their customer base. BYOT programs historically have focused on thermostats. While thermostats are coincidentally the focus of this blogpost, BYOT now includes a broader range of IoT devices that allow more energy consumer choice while offering more utility flexibility to integrate devices into their systems. In Part 1 of this series, we cover current BYOT market trends and the structure of successful BYOT programs.
What is BYOT™?
Two trends are creating an economic opportunity for utilities and end-consumers of electricity:
- The increasing adoption of smart IoT devices by consumers
- The need for energy flexibility management by utilities
The smart thermostat market was valued at $1.1 billion in 2017 and is expected to grow to $3.4 billion by 2023. While the desire to remotely control heating and air conditioning has driven adoption of smart thermostats by end-consumers, the growth of smart home voice assistants is further increasing sales of these devices. For utilities, trends such as the addition of renewable assets at both sides of the meter and rising electrification of heating and transportation units have created the need for energy flexibility management.
A BYOT program lies firmly at the intersection of these two trends. Existing and new users of different smart devices can adjust their energy usage automatically when utilities call a demand response (DR) event in anticipation of grid instability or high peak demand. In this white paper, we outline how a successful BYOT program delivers value to all key stakeholders in the value chain: 1) utilities, 2) smart thermostat OEMs, 3) energy services providers, and 4) end-consumers, by aligning their needs in the short term (Fig. 1) and creating a pathway for stronger engagement over the long term. A software solutions provider delivers a platform for all these stakeholders to participate in the program and engage with one another.
Standard thermostat programs are costly to administer and offer limited choice to consumers. A successful BYOT program, however, enables hassle-free participation and engagement for all key stakeholders, and leverages their individual strengths. For example, marketing and acquisition of end-consumers is done by stakeholders closest to them, be they the device OEMs or service providers. A well-executed BYOT program also delivers economic value to each of the key stakeholders in the value chain:
- Dispatchable kWs from smart thermostats are delivered to utilities at the lowest cost
- Lower cost of ownership is provided to end-consumers
- Higher device adoption is achieved by device OEMs
- Increase in services and customer acquisition revenue is earned by field services providers
Figure 1: Value accruing to all stakeholders along the chain
How does a utility execute a BYOT™ program?
A successful BYOT program requires four building blocks, known as the four Ms: Market, Materialize, Measure, and Manage (Fig. 2). What each of these blocks are and who builds these in a successful BYOT program are detailed below.
Figure 2: The building blocks of a BYOT Program
Market – To market a BYOT program effectively, end-consumers need to clearly understand what the exchange of value is — what they deliver (kW load shed) to the grid and how (defined by program, participant, and demand response (DR) event constraints), and what they receive in return (incentives). This exchange of value is a critical element of the program design. Once program design is complete, it is important to know which end-consumers to target for the program. The bring-your-own nature of the program ensures a wide range in both the type of end-consumers that can participate, and in the choice available to consumers. With analytics-driven segmentation and multichannel marketing (through utility portals, e-commerce websites, etc.), a successful marketing campaign can find and recruit end-consumers most likely to participate in the program. The last piece of this building block is the enrollment journey of the consumer. Enrollment rates are regulated by the quantum of incentives and ease of enrollment.
Materialize – Two things are necessary to ensure that enrolled devices are reliable, dispatchable assets when a utility calls a DR event: a software platform that can connect and control smart thermostats enrolled into a BYOT program, and dependable field services to facilitate consumer interaction. When these two conditions are met, smart devices materialize into dispatchable assets. The software needs to operate at the grid edge, integrating distributed assets with utility systems and reconciling smart thermostat data with meter data to measure behavior before, during, and after a DR event. The software platform must be original-equipment-manufacturer (OEM) agnostic to avoid OEM lock-in and technology obsolescence. A strong field services program entails a one-stop-shop solution for consumer needs such as enrollment or installation issues (routed through the OEM) or billing and incentives questions (routed through the utility). It is imperative that the consumer have a seamless experience even if different stakeholders are responsible for different actions. These aspects of the program will also affect the rate of enrollment.
Measure – With technological trends driving more on-time delivery of services, any delays in actionable information delivered to end-consumers may make it challenging to retain them. Consequently, soon after a DR event is called, consumers participating in a BYOT program may want to know how much energy they saved and/or how much money they earned. How quickly and effectively this information is delivered will likely influence future engagement. Engagement is determined by doing a baseline calculation and then measuring the impact of changing consumer behavior against that baseline. If done manually, these calculations can be highly error-prone. In order to reduce errors, a proper software solution must include a robust method of measurement & verification (M&V) both at the individual consumer level and at an aggregated level for the utility. This information may then be used by utilities to deliver event incentives to consumers in the form of savings on their utility bills.
Manage – As outlined above, there are four stakeholders involved in any BYOT program: 1) the end consumer, 2) the smart thermostat OEM, 3) the energy service provider, and (4) the utility, with the software solutions provider delivering the platform for the program. Managing the contractual and working relationships between these stakeholders becomes the foundational block in a successful BYOT program. Typically, the utility may use one of two models of program management: 1) a turnkey BYOT program model wherein one entity, typically the energy services provider, is the prime contractor and delivers the platform and connected smart thermostats ready for dispatching, or 2) a build-own-operate model wherein the utility manages each of the contracts with the other stakeholders. The choice may be determined by the utility’s prior experience with DR programs, overhead for program management, risk appetite, and capabilities of other stakeholders.
What is the value created by a BYOT™ program?
Having dispatchable and reliable kW through DR programs is valuable to utilities because they can use this capacity as a way to manage changes in demand and supply of electricity in the grid. The economic benefit that utilities realize is in the form of avoided costs. Without the ability to flex demand by dispatching these smart thermostats, utilities may have to turn up reserve generation capacity and incur incremental capacity and energy charges. Additional charges may include cost for ancillary services (e.g., to meet frequency regulation requirements) and costs of using transmission and distribution infrastructure. The value of these savings is then distributed across the chain to other stakeholders in the chain. In Part 2 of this blog series, we will look at the value to the grid that utilities are realizing through a successful BYOT program, how it is distributed across other key stakeholders, and how a robust, scalable, and flexible software platform can enhance the net value to utilities.
Stay tuned for Part 2 of this BYOT blog series. Please contact firstname.lastname@example.org for any questions about this blog.