“Home Energy Management: Beyond the Numbers” is a market report released by Aricent and available for download.
A Look at the Market
$3 Billion Global Revenues in 2014
“Forecasts for HEM systems and devices seem to paint a rosy picture about how quickly they will get adapted and the size of the opportunities ahead for system manufacturers, installers, and utilities. But this is only one side of the story. It’s easy to get mesmerized by the big numbers thrown around, and fail to perceive the underlying issues and constraints that trouble manufacturers and providers later in the development lifecycle.
Our research indicates that some of these predictions may be overly optimistic. There are a few revenue paths to hit the $3 billion figure, and some significant hurdles to growth.
What are the Implications?
Given that HEM technology is getting embedded into familiar—and often low-cost—devices, there are two primary paths to revenue for HEM systems—fees from network connectivity services, and fees from installation and ongoing support.
Even if we assume that consumers won’t run their HEM systems through their existing home broadband and Internet, and will use a HEM system-dedicated network connection, the revenue from this is miniscule compared to the larger market.
Revenue from deployment (installation and support) is significantly higher, although steep up-front costs and the possible need to hire professional help are inhibitors for many consumers. Without a clear value proposition, if installation services are not bundled for free (as they are for cable television or home phone installation, for example), and if installation of HEM systems is beyond the do-it-yourself capabilities of most consumers, then adoption will be severely impeded.
It’s also important to understand the deployment hurdles and stakeholders. In many urban areas, rentals in multi-unit buildings is the predominant model for housing, and there is less incentive for a rental household to take on the cost and effort of installing the necessary smart home infrastructure to support home energy management. Therefore, getting the property owners and apartment-owner associations on-board is key so that they can offer HEM systems as a selling point to prospective tenants (“we’ve done the investment so you can achieve lower utility bills”). This can be done with ecosystem approaches involving utility companies, telcos, local councils, and potentially banks, to offer turn-key and cost-effective deployment, as well as attractive financing to apartment owners.
28M Households in 2015
A report from Pike Research forecasts that there will be over 28 million users of HEM systems worldwide by 2015. But this does not necessarily mean that an equivalent number of home area networks and gateways will be installed. While a HEM system can be used in conjunction with a smart meter lacking a HAN gateway, the full benefits of HEM systems don’t come into play. The gateway allows connectivity with the wider world, taking advantage of utility integration and cloud-based capabilities. As we shall see below, connectivity to outside the home is also essential for behavior changes that truly move the needle on reducing energy consumption. It, therefore, makes sense to add HAN gateways when installing smart meters, and in fact almost half of the 100 million smart meters planned worldwide in the next five years will have HAN gateways.
However, our research indicates that only approximately 6 million US households will have HEM systems by 2013, even though tens of millions of new smart meters are planned to be installed in the next five years in the US. So a considerable capability at the meter will go unused since there will be no HEM system to connect it to.
What are the Implications?
We believe that the future of the (smart) home should not be overly dependent upon the smart meter market. Many utilities are wary of getting too close to the consumer and are slow at innovating their existing products and services. More opportunities for autonomous growth will be possible when working in parallel with smart meter installation.
If you are independent of the utility and smart metering market, then focus your attention on providing benefits to consumers, and look at benefits that go beyond simple energy conservation. However, if you are going after the smart metering market, then you need to focus your benefits on the utilities themselves, as they will govern rollout rates.
3.7% of Average US Household Income Spent on Energy
The ideal market for HEM systems is where large amounts in absolute spend and percentage of income are devoted to energy. An added driver exists in markets that have moved static power pricing to real time pricing, allowing prominent display of current pricing and consumption information to home occupants.
What are the Implications?
As is evident from the graph, Europe and North America are currently the most attractive markets for HEM systems and products. Given the large public spending being earmarked for smart grid and smart home initiatives in these regions, the market for HEM systems will continue to remain largely Europe- and North America-centric (despite the fact that the US largely uses fixed-pricing). While India and China may represent burgeoning energy markets, energy is so heavily subsidized in these countries that there is little consumer incentive to invest in expensive technology to marginally reduce power consumption.
It is becoming increasingly evident that a “One-size-fits-all” approach will not work for the Europe- and North-American markets. Especially in the current economy, customers are wary of investing money today for uncertain benefits tomorrow, so manufacturers and providers will need to address basic needs first, followed by advanced systems that are fully integrated into the home environment.”