IBM Predicts Consumers Will Actively Plug In to the Energy Business

ROME and ARMONK, NY.- At the World Energy Congress in Rome today, IBM Global Business Services unveiled its new report, “Plugging in the Consumer: Innovating utility business models for the future,” forecasting how the change in energy customers’ expectations will impact the utility industry’s business model in the next five to ten years. Based on insights from a consumer survey, interviews with utility executives, as well as IBM’s own industry experience, the report predicts a steady progression toward a Participatory Network where consumers actively “plug in” to the energy business to a degree not seen before: they will proactively manage their energy usage, and even sell back surplus power they generate. This further supports the industry’s movement towards an Intelligent Utility Network, or “Smart Grid.”

To examine the factors influencing utilities and explore future scenarios, IBM surveyed 1,900 consumers from six countries -- Australia, Germany, Japan, the Netherlands, the United Kingdom and the United States. IBM also interviewed nearly 100 industry executives in 26 different countries across Europe, North America, and Asia Pacific. The IBM report demonstrates an industry that is fast approaching a tipping point, where increasing consumer involvement, climate change concerns, and technology advances are converging to create a very different way for energy to be generated, distributed and managed. Each of these is fueling the others, and the entire combination is catalytic.

“The next five years will be pivotal for the utility industry. Consumer needs and roles are expanding, and many are no longer content to be passive recipients of services. They want more choices about the type of energy they buy, and they want to more actively manage their usage to reduce costs and environmental impact,” said Michael Valocchi, Global Energy & Utilities Industry Leader, IBM Global Business Services. “Utility companies need to revisit long-held beliefs about how best to serve customers and make fundamental changes to their strategies and operations in preparation for a more participatory environment.”

Three converging trends are overturning traditional assumptions about energy consumers and the fundamental value proposition of the industry itself: consumer involvement, the emergence of climate change as a broad public concern, and technology advances.

Consumer Involvement
When energy providers are not willing or able to satisfy their needs, consumers will have an increasingly viable alternative -- the means to generate their own electricity. According to the IBM consumer survey, one half or more of the consumers were interested in self-generation if they could save 50% on energy costs, have 100% reliability at no additional cost, or sell power back to the utility. Among the utility industry executives surveyed, more than half believe that the availability of new technologies could move a significant percentage of residential and small commercial customers to self-generation within the next decade.

Climate Change Concerns
Utilities are making major investments and operational changes to respond to climate change concerns and policies, the report observes. According to the IBM Institute for Business Value / Economist Intelligence Unit 2007 Utility Industry Executive Survey, within five years, the percentage of the world’s electric utilities that will be generating at least 10 percent of their power from renewable sources will have doubled. The IBM consumer survey found that, outside of the United States, one out of every four survey respondents had computed the climate change impact of their energy usage. Among those who currently do not have the option of choosing renewable power sources, more than 60 percent expressed an interest in doing so.

Other key findings from the IBM report:
-- Within five years, sufficient energy supplier choice will allow consumers in most major competitive markets to easily switch energy providers - an option which is not widely available in most of the world.

-- Within ten years, utility demand management initiatives will expand dramatically.

Technologies Driving the Most Industry Change
IBM’s paper contends that, from a technology perspective, smart meters, network automation and analytics, and distributed generation will drive the most industry change in the near term. Smart meters can provide motivated consumers with the actionable information they need to better manage consumption and energy costs. The movement toward an Intelligent Utility Network that leverages network automation and analytics in conjunction with smart meters provides further benefits to both utilities and consumers, including fewer outages, faster restoration of service and lower greenhouse gas emissions.

IBM expects that the three converging trends -- increasing consumer involvement, climate change concerns, and technology advances -- will have far-reaching consequences for the utility industry. Companies will be forced to look at their residential and small commercial customer population in discrete segments instead of as a largely uniform block of ratepayers. Engaged consumers using advanced technology will pull the industry toward a Participatory Network model in which information flows will multiply. This, in turn, will create a host of opportunities for achieving greater efficiency, providing additional products and services, and pursuing new business models.

The complete report with detailed recommendations for energy companies on how they can best prepare for a Participatory Network where consumers actively ’plug in’ can be found at: www.ibm.com/services/us/index.wss/ibvstudy/gbs/a1029014