Why the future of smart meters is data, not hardware

It’s becoming abundantly apparent that, while there is still focus on install rates of physical smart meters, what will matter in the future is how well the data from these smart meters can be secured by utilities and how well utilities can use that data to manage demand response, address outages and balance load. Beyond these initial steps, however, lies the holy grail of smart meter data: the possibility that it can be used to drive changes in customer behavior.

This shift toward a focus on data was apparent last Monday when Europe’s largest electronics and engineering company, Siemens, snapped up San Mateo, Calif.–based software company eMeter. The latter’s software package, from a class called meter data management systems (MDMS), allows utilities to process and access the torrent of data emerging from smart meters. Over the summer Siemens also invested in Tendril, a company that produces a cloud-based home energy management platform for utilities. Tendril is in the process of opening up its API and launching its developer program, which would add another layer of applications that could make use of smart meter data.

But when asked recently what was next for Siemens, Kevin O’ Hara, who runs Siemens’ smart grid services for the U.S. and Canada, made a point of saying, “Strategically, at the moment, we don’t have any plans to be a meter provider.”

His comment says a lot about where the smart grid market currently is and also where it is headed. Siemens has a deep history of engineering, from wind turbines to mobile phones to trains. Yet engineering a smart meter — which would mean getting involved in the hardware game — is of no interest to the company. When it comes to the smart grid, Siemens’ primary interest is in software and services, because the market’s future is in finding ways to monetize big data.

Utilities themselves are undergoing a similar shift toward thinking in terms of IT. In a recent conversation, John Galloway from Ecologic Analytics, another MDMS player that processes over half a billion meter reads each day, told me, “You talk to the folks at [California utility] PG&E, they see themselves as an information business.”

With residential smart meter readings being taken every 15 minutes, you’re dealing with 96 readings a day. Some meters are also sending back voltage and temperature readings. Consider 3 parameters x 96 readings/day x 500,000 utility customers for a mid-sized utility and you start to see how utilities are shifting toward building a business around information technology and managing data. To that end, companies like SAP, known for software that manages business operations and customer relations, are aggressively pursuing utilities as future customers.

In the short term, many of the MDMS companies are focused on ensuring the integrity and security of smart meter readings for the purposes of accurate billing. But the next step is applying behavioral analytics to the data to encourage energy savings. Opower has gone after the low-hanging fruit in behavioral analytics with paper reports, emails and text messages, resulting in a 2 percent reduction in energy use for its customers.

But there’s a greater frontier for software companies and utilities to explore: As utilities gain more access to a person’s home energy use, from their electric vehicle charging habits to their use of air-conditioning, more-focused behavioral changes will be possible.

As a McKinsey Global Institute article on big data pointed out last year, any big data company should be asking, “Who might find this information valuable?” While there are continual arguments over who owns smart meter data, sooner or later the utilities’ significant software investments in structuring that data will cause them to look for other ways to monetize it, and it’s reasonable to expect that anyone from advertisers to home appliance makers to EV manufacturers will be interested. Imagine going online through a utility’s web portal to see a detailed analysis of your electricity bill, only to see an advertisement for a co-branded utility or AC unit and detailed analytics on the impact of the new product on your energy bill. Or an EV ad with figures on the trade-off between charging costs versus gasoline costs. Greater access to information on our electricity use would impact our buying decisions.

The reality is that driving changes in consumer behavior is very difficult, but smart meter penetration is around 15 percent and due to hit 50 percent by 2016. The hardware infrastructure will be in place. It’s now time for the software companies to figure out just how the tsunami of data can be used to make the greatest impact.

Question of the week

What are the most important uses for smart meter data?