Verizon Smart Home Monitoring Product and Service

"Making the smart home a reality is another way Verizon is breaking down barriers between 'home' and 'away' to support a borderless lifestyle," said Eric Bruno, vice president of product management for Verizon. "In addition, we're giving our customers the tools to live greener lives and provide valuable information essential to making decisions about their home-energy usage." (BASKING, 2011)   

Verizon, known as Global Broadband Telecommunication Company, has long provided to the customers one of the most reliable and safe phone and internet services. By leading the telecommunication sector, the company has grown its business and entered in to the quadruple play (Gaudrault, 2011) market by elevating its position at GSM service sector (Verizon News Center, 2009). Having succeeded in quadruple play and getting deal with the iPhone4s, Verizon has seen another market opportunity as Smart Home has turned to be a reality from utopia of back to the future movies. In this market, the company has launched its new product Home Monitoring and Control Kit (Verizon Shop) and put more stress on Energy Efficiency (Marchetti, 2011), which is becoming tangible issue for energy sector, when households’ awareness in energy consumption is increasing.

Being Home Monitoring tool, new application downloadable to one’s phone allows owner to monitor its home by switching on and off the lights, see inside home through network enabled web cameras, adjust thermostat, lock the door, and see how much electricity is being used by any appliance, even at a remote place. As part of convenience, one can switch on the air conditioner when he or she is leading towards home. "These kinds of two-way communication and intelligent management tools can create a dynamic and interactive relationship between energy users and providers, which is essential to creating a smart energy ecosystem," Bruno said. (BASKING, 2011)

The novel feature of this product is mainly being able to control energy consuming devices from a remote location so that owner can monitor and measure energy usage of appliances. At that sense, value proposition of this product is to lower energy consumption when one is in or out of home. This could be done by applying wireless technology and application available on the phone or laptop. However, such a value proposition does not seem in line with what household customers need. First of all, customers need to lower energy cost by using energy star appliances when they actually use at home, meaning they will not use energy when they are outside and thus there is no need to monitor energy at a remote location. This also opens doors to the fact that they just want to get rid of vampire power at all (Connected World, 2011) when they are away. Secondly, they truly want to understand how efficient they use energy for their homes (Dooley, 2011) . Let us ask the question as prima facie way; this product allows me to monitor energy usage of my appliances, yet what are the criteria to compare them? I cannot understand energy efficiency of my home if I am not able to compare it to other households. That is to say, the created value by Verizon does not get the job of energy efficiency done. (Johnson, Christensen, & Kagermann, HBR December 2008). To well position and create strategy, 5 forces analysis should be done, yet rivalry and substitute analyses are crucial for this market (Porter, HBR January2008). For example, when we look at Microsoft’s Hohm (Microsoft Corporation, 2011) based on Power Cost Monitor, (Optimum Energy Products Ltd., 2009) the product not only provides energy monitoring during the usage, but also provides comparison with regard to other households in the vicinity and advices by making use of cloud computing technology. Another product Kill-a-Watt (P3 International, 2010) provides the same remote wireless control in a very simple way. These substitute alternatives provide customers more value and since competition is on dimensions other than price, profitability is less likely to erode. That is, Verizon should create a positioning and value strategy depending on the capabilities of its technology to increase support services and features of the product to ensure profitable customer base (Porter, HBR January 2008). Otherwise, the product will fall short of claims and get bashed. To avoid such a failure, either delay the product, or take immediate steps to prove energy cost decrease. (Schneider & Hall, HBR April 2011)

Here, it seems that the problem arises from poor understanding of how energy efficiency is adopted and which industries are more lucrative and promising. That is, Verizon tries to take advantage of its customer base and thus being myopic in understanding the energy business. The research should be conducted in a backward fashion (Andreasen, HBR May-June 1985)

- First, after collaboration of manager and the researcher, the problem should have been defined as which customer segments are there in the sector, what are their needs and complements with regard to industry structure and which of them would yield more competitive market positioning for Verizon.

- Then, the scenario analysis for each segment should be run and manager should see what the final report would look like to incorporate necessary hardware and software in the product. Through different scenarios, manager can see the profitability analysis.

- More statistical analysis will enable Verizon to understand which customer segments have more desire in adopting energy efficiency, so that efforts can be directed towards certain sub segments.

- After statistical methods are chosen, then the data sought after for clusters of customers as peak load one or low efficient ones that will actually need efficiency or energy cost reduction will be able to be gathered by the research.

- Later steps will include the relevant research steps such as secondary and primary data collection, sampling plan and instrument design, field work, and the report with the intended effect.

If such a process was adopted by Verizon, the mostly likely outcome would be that, intensity of rivalry in household market is increasing and more cost reduction products and services supported by consultancy is required to gain the heart share of the customers. On the other hand, industrial customers segment stays bachelor and will create most value and quickest return on investment for the new entrant, though it requires high installation cost. The latter segment also includes complement as power producing company services in that, the power usage decrease during the peak hours will most benefit such power generators. As Virtuwatt (Constellation Energy Group, Inc., 2011) benefitted Constellation Energy’s industrial customers, Verizon should agree with power generators in order to create dashboard for its industrial customers who will be able to monitor price information and decrease energy usage so as to decrease input cost.

Verizon should be smart about creating value creation in that it is bringing a new communication type with the smart homes (Johnson, Christensen, & Kagermann, HBR December 2008) so that the old business models of subscription fee or one time sales may change. On the other hand, the opportunity to satisfy a real customer who needs a job done (Johnson, Christensen, & Kagermann, HBR December 2008)lies in cost savings by using this product and service. After such a Value Proposition is defined, then it is obvious that the profitability of this product lies in the lowered costs that creates revenue stream for the customer so that the customer can pay back the amount. That is, the created value can be used as a profit formula for the company at the end. At that sense, as it will be self-fulfilling prophecy that the product will prove its competency in energy efficiency, the value proposed to the customer will be delivered through the key resources as the call centers that provide extra advices, the mobile service that creates remoteness for industrial customers, broadband network that will transmit the data and cloud computing by the servers to compare the energy consumption of any household. Yet, as long as Verizon invests in such key processes as data computing, energy consumption pattern analysis, peak hour energy demand and price computation, and future risk estimation of consumption and production gap, it will be able to lock-in its customers and create a long term relationship with them. By doing so, it will create both value for itself and satisfaction for them.

Energy Efficiency is an issue of focus that becomes tangible as companies proves their values for the customers. Yet, household segment has low barrier to entry and thus becoming very competitive. Verizon should make use of its customer base by renewing customer experience again and again by taking full advantage of its organization (Harvard Management, HBR November 2008) which has many end-points with the customers, or it should focus on blue ocean strategy to build on industrial customers segment.

Ford Electric Cars Adopt Hohm to Optimize Energy Consumption

“The company has set a goal of making 10 percent to 25 percent of its fleet "electrified" by 2020, which represents somewhere between 800,000 and 2 million cars,” said NancyGioia at a media event here on Wednesday. Ford announced on Wednesday that Gioia will hold a newly created position of director of global electrification, which covers hybrids, plug-in hybrids, and battery-electric vehicles.

You may be confused about my approach now since I have always talked about how strain on infrastructure affected dynamic pricing and electricity prices. Now you are asking one more lump sum device to plug in? However, I would oppose this argument by telling you what I told every time; if managed properly, your cost/mile usage of car can tremendously decline and become cheaper than gasoline usage. I believe you know what I am going to talk about and would say good guess!

Ford Motor and Microsoft are collaborating on software for consumers to manage how and when to charge electric vehicles. Microsoft Hohm application is going to be integrated to Ford Electric cars and this unique mobile application on your phone or PC lets you monitor and schedule the charging of your Focus Electric from anywhere, to help you maximize your range. It gives you remote charging status updates, so you can check existing charge levels and available range, while keeping track of your charge schedule. It also provides you with the location of your vehicle, where you can find the nearest charging stations and the most efficient route to get there. The application also estimates the amount of CO2 emissions and money you save based on your driving style - to help you manage costs and improve your efficiency.

Technology is developing new vehicles and at the end of the day, you energy consumption patterns change from one energy resource to another; either through electric cars replacing gasoline cars, or renewable energy replacing natural gas. Yet, ICT will enable you easily transform adopt this pattern without losing anything; in contrast, by making use of ICT, you can further reduce you energy consumption, as it is seen in this example.

Better Energy Management in Your Hohm: Cloud Computing for Energy Reduction

"It's analogous to financial applications… now you'd be hard-pressed to find a bank that doesn't export data to Quicken or another common format. We see energy going down the same route" said Troy Batterberry, product unit manager for Hohm.

Software Company Microsoft is rushing to take place in a burgeoning business as “Home Energy Management”. It has developed a web application that is called Hohm in order to guide consumers how to decrease their monthly electricity and natural gas costs. Initially, the application was based on participant based model in that consumers were entering data manually and then would be able to see their comparative analysis of energy usage with other houses in their neighborhood. As home base increases, consumers will receive better feedback from Hohm application. In time, Microsoft agreed with 10 utility companies, such as Puget Sound Energy, Sacramento Municipal Utility District, Seattle City Light, and Xcel Energy, and connected to home electricity monitor called PowerCost Monitor. 

In contrast to traditional Smart Electricity meters energy consumption viewing I have always relied on, this combination of device and software simplifies this viewing process by using a WiFi or home broadband connection to gather data and lets people view home electricity from the Web or from the tabletop electricity monitor. Moreover, Microsoft designed Hohm as a cloud-computing application--built on the Azure online operating system and Bing search engine--so that users can tap into back-end data analytics for more tailored advice. Hohm provides tips based on models licensed from the Department of Energy and Lawrence Berkeley National Laboratory, which were developed with years of data, according to Microsoft.

Another special feature of this application is that it can tell you how much power you load on your grid by switching on each device at your home. Combined with the distinctive feature as mobility of such PowerCost Monitor with regard to Kill-A-Watt that requires each device to be connected, consumers can get better energy efficiency data from Microsoft database. As consumers will continuously monitor their electricity devices at home, people will be prompted to conserve more. Since 2004, Blue Line Innovations has worked with 110 utilities on how PowerCost Monitor affects households and it found that families can save up to 18 percent on electricity.

Consequently, digital living room includes energy monitoring, too. Cloud based electricity reading is creating a new business model that will combine with traditional smart meter based data collecting models. However, Google also developed PowerMeter, which has already agreed with San Diego Gas & Electric, and this web based business model will depend on the power of network externalities. That is to say, as consumer base increases in one of the applications and thus induce other users to adopt it in order to get more relevant data about energy consumption patterns in their neighborhood, utility companies will prefer the owner of that application; in this example, either Microsoft or Google. We will see how this competition will take place and who will take over one part of digital living room.

Energy Saving Tip #2

For those managers who want to save energy in their companies or enterprises by making use of smart phones, read the entry posted by my classmate Mr. Aaron Landgraf in his blog. (Link is embedded)

SmartMeter™ by PG&E induces households to produce renewable energy

Renewable Energy sector has started to become sophisticated; companies formerly were induced by government incentives and subsidies to install solar power systems to make more use of renewable sources, but now they induce households to install renewable energy infrastructure to combat with peak loads and become more of a service provider for such systems. As variety in energy resources increases, Energy companies try to make more use of ICT. One example of this is SmartMeter™ by Pacific Gas and Electricity. As you remember from one of my previous entries, Turkey had overcome energy crisis by digitizing metering devices and applying differing prices for different period. Such a SmartMeter™ brings much more benefits than simply allowing price discrimination and thus making more use of wasted energy production. I would like to mention different features of such a technology and then will dive into an economic theory called “Prospect Theory” in order to show how consumption and production patterns can be affected.

First of all, as mentioned before, SmartMeter™ (Figure 1) uses dynamic pricing model in order to charge customers. In my previous entry, I had mentioned that digital devices in Turkey were charging customers depending on electricity usage in 3 different periods; however, SmartMeter™, by continuously receiving power load data from utility company, adjusts the price on every minute of day and then charge the customer. That is to say, using bi-directional metering technology, SmartMeter™ devices combine factors of price data from utility company and amount used by appliances in the house to charge the household. With regard to simple digital technologies, SmartMeter™ leads to more price discrimination and allows customers more to see their energy consumption data and hourly price so that they can manage their energy consumption. In that sense, this novel device can also be applied to natural gas consumption measurement, which will enable households monitor gas usage at home and limit their usage.  

One innovative feature of SmartMeter™ by PG&E is RF technology (Figure 2); 1 watt radio is installed in these devices to send data through radio waves to the base station which combines data from all households in a neighborhood. By making use of wireless information transmitters, SmartMeter™ technology decreases the possible risk of breakdowns in the infrastructure of wire network and decreases cost of such an infrastructure. However, some health concerns are raised by the media and community that people are afraid of emissions from these radio enabled transmitters. Yet, researches show that there is no risk from these devices.

One more future of SmartMeter™ is that, you can monitor your energy usage from your computer. In one previous entry, I mentioned that VirtuWatt enables industrial energy users to monitor their energy usage; in this case, SmartMeter™ enables household to manage their energy account from their PCs by comparing monthly usage data inside home and with neighboring houses.

Last and the most important feature of SmartMeter™ is that it enables a better monitored "Net Metering". Net metering is simply an electricity policy that enables customers to produce energy from renewable sources and sell it to the utility company. Amount of energy sold back will be deducted from amount of energy bought from utility company and household will be charged net amount. SmartMeter™ device makes use of its innovative information technology feature to discriminate price and incentives. That is, we already know price charged is high at peak hours but on household side, energy produced from different household has also an amount and utility company will create financial incentives to induce households to supply more renewable energy when energy shortage exists. Therefore, those households who installed renewable energy systems in their houses will divert from energy consumption to energy production to help utility company meet gap in energy demand and supply. What household will gain is financial incentive and what utility company gains is the immediate commission through buying from household at a lower price and selling to the industrial users at a higher price. In that sense, utility company is like a broker who buys and sells energy on its already established network. In time, as more households install these systems, utility companies will move from being energy producer position to energy distributor position; being monopsony and monopoly at the same time. 

Now it is time to move to how utility companies should use SmartMeter™ in order to make use of Prospect Theory, which was first published in econometry journal called ECONOMETRICA in March 1979, Vol. 47 and No. 2. For those who do not know this theory, prospect theory shows how we make choices depending on the value of gain or losses with regard to a reference wealth point, with attributed probabilities as their weights to these values. Main takeaway from prospect theory is that, utility gained from $1 gained is smaller than disutility from $1 lost. Likewise, utility gained from second dollar will be less than that gained from first dollar. Simply, you will be happier if I give you $1 today and $1 tomorrow than if I give you $2 today; basically divide gains and combine losses to the customers (As you can see in figure 3, receiving $500 twice has utility value of 120 and is greater than utility value of 100 that is gained from receiving $1000 once). This raises a very mind-opening incentive program for utility companies:

 In order to induce households for more energy production, financial incentives from such an energy production should be sent to households in partial terms, namely in weekly schedules instead of under monthly bills. By dividing gains from energy production into weekly schedule, households will be happier with their renewable energy infrastructure, and by sharing their satisfaction on social networks, they will create word of mouth effect among other households as an incentive to install such infrastructures.  Besides, households will be more cautious about their energy consumption and production patterns by shifting to low hours usage and peak hours production. Otherwise, if company combines all gains in monthly utility bill, not that much utility will be gained by households.

However, one critical factor here is reference point. To clarify it, let us take an example. If an insurance policy premium is $20 and possible loss is $500 with 1% probability, you will be more induced to buy such a policy if your wealth point is -$1000 as opposed to $0. Therefore, in our case, in order to maximize the utility gains from such weekly energy credits, one should be pushed to negative side. That is to say, “net metering” should be shown in the monthly bills. This sentence in fact has 2 components: a) net metering should be charged to the customers since it is the net of energy bought from and sold to company and is a negative reference point; b) net amount charged to customers should be combined in monthly bill so that disutility households will gain from bills will be minimized – otherwise, if utility charges households weekly, they will be more unhappy.

All in all, by making use of SmartMeter™ technology, divide monthly gains from renewable energy production to weekly terms with a negative reference point and combined losses on their monthly bill. Such an idea should be researched under the topic "effect of prospect theory on households' energy production patterns.

Combining Sun with ICT to increase solar utilization

 

In Go Green Case Competition, as already mentioned, I and my classmate Annie Chansavang have qualified to the semifinals. Simply said, our idea was to install Solar Water Heater Systems (SWHS) in Baltimore so that a lump-sum energy cost burden as high as 11% of household utility bill would be reduced. In this entry, I would like to elaborate on that and demonstrate how we are going to synthesize ICT with simple solar equipment in order to make more use of solar power.

SWHS simply consists of solar collectors and storage tank. System properties vary depending on whether it is flat plate vs. vacuum tube, active (pressurized) vs. passive (thermosyphon), or open vs. closed loop system. Any system includes one feature from each of the three classifications depending on seasonal characteristics of the place where it is installed. For example, since Baltimore has freezing problem in the Winter and lower solar radiation throughout the year with regard to souther regions, a combination of vacuum tube – active – closed loop systems should be installed for households.

When we look at evolution of these systems, we see that original ones were passive systems that have storage tanks at the top of the collectors in order to create gravitational pressure on water all the way to the taps and at which water is heated through natural thermosyphon from collectors up to the storage tank. Though it is simple system, it enabled people save huge amounts of energy by making use of solar power. Yet, the problem was that you could make use of solar power at peak hours of solar radiation, namely from noon till evening. Since storage tanks were outside, heat isolation was very low. To overcome this problem, it needed storage tanks be installed in the houses and pump be added to the system to circulate the water. However, to make the system work, an  ICT device was needed, which would be digital controller as it is shown in Figure 1. Such a controller has sensors in the storage tank and collectors separately, and starts the pump if temperature in the tank is lower than that of collector. That is to say, it gathers data continuously from these sensors and starts or stops the pump equalize temperature difference. These devices lead to more energy efficient solutions for the customers by better insulation of water and increased storage solar radiation.

In the case competition, our innovation for such a system was to connect the controller to utility companies and laundries in the house. Such an innovation will have positive impacts on energy consumption and production patterns in 2 ways with respect to its connection points:

1 - Laundries: Normally, one cannot fill the laundries with hot water since the laundry itself heats the water until a certain temperature through measuring its thermostats. For example, if laundry needs 45° Celcius in to the sink, you cannot deliver solar heated water in it, since temperature of water in SWHS peaks 97° Celcius in the summer and 58° Celcius in the winter times. You will definitely lead to a breakdown in the laundry and even your clothes will be trash. Therefore, by connecting the laundry and controller, we create data exchange opportunity so that digital controller will measure the temperature of cold and heated water and thus deliver the right temperature mixture to the laundry. Eventually, households will make more use of SWHS. Yet, consumption of solar heated water will be changed since there is another system to feed with the hot water. That is to say, customers will make most use of SWHS when they spread their laundry loads during the week, instead of washing all clothes in one day.

2 - Utility Companies: In our business model, utility companies either sell or lease these systems to the customers. Therefore, they will assume after-sale services. If utility company gains access to the data to be sent from these digital controllers, it will be able to monitor whether there is any defect that causes inefficiency in the system. To accomplish data management, utility company should make use of internet network in order to connect SWHS collectors with company's server that will create a database created from hot water temperature and usage data. Since the main server will monitor all the controller devices, any abnormal temperature decrease will mean to the server software that there is a breakdown in the system so that technicians will step in before there occurs any serious damage to the system - doing so will lead to more customer satisfaction and trust to utility company.Another benefit of receiving data from households will be to determine company's energy production schedule. Besides, by measuring each household's average hot water usage, utility company will both see when it will need to feed-in traditional energy sources to heat water through conventional heater systems as a back up and whether there is any incentive for some households to shift their loads. Other than these, there may exist other opportunities for utility companies, by receiving hot water usage data.

PS: As a last word, I would be more than happy if you pray for us to qualify to the finals in the case competition.

Energy Saving Tip #1

In the average home, 75% of the electricity used to power home electronics is consumed while the products are turned off. By using a power strip and switching off when not in use, you lessen CO2 emissions and reduce your energy bill. Turn off your ICT devices when they are "off".

VirtuWatt: Manage your energy consumption from your phone and computer

"For the first time, customers are truly in the driver's seat when it comes to optimizing their energy consumption. VirtuWatt makes the smart grid a click away, merging megawatts with megabytes and delivering the benefits of load response programs directly to the customer in a way that is easy for them to manage." said Peter Kelly-Detwiler, Constellation NewEnergy senior vice president of energy technology, on May 3 2010.

 Previously, I had mentioned how digital devices in Turkey connected citizens with Energy Corporation so that data sent from the company would enable people adopt appropriate consumption patterns with regard to their wealth. Now, I would like to focus on USA market and how ICT has been useful for US citizens to adopt certain consumption patterns in order to avoid peak price hours.

In US market, demand for electricity energy is similar to that is shown in the figure:

Some of the factors affecting such a pattern can be classified as; using HVAC (air conditioners) during noon period in the summer, opening heater after coming back home from work, and taking shower in the morning. The black line shows continuous usage of electricity consistently and is about 65% of all generated electrical power. Such demand load at peak hours during different seasons cause troubles both for consumers and power generating companies. In the US, price of electricity is determined by demand, that is to say price increases when demand increases and declines when demand declines during the day. Since customers will not have access to information about other users, their cash can flow to air in an hour unconsciously. On the production side, power generator company will have trouble caused by increased risk. Normally, enterprises consumes coal to produce electricity. However, during the peak hours, they switch to Natural Gas, which is costly, to meet the demand. Furthermore, enterprises buy Natural Gas from future markets. The risk here is, even if they estimate demand for the summer depending on statistics, if demand is less than expected, then they will have to keep it as inventory. On the other hand, if demand peaks more than expected, then they will turn to spot markets and will rush for cash. Both factors will lead to risk and the industry becomes more a risk management  business such as insurance sector.

Constellation Energy Co. is also one of those companies that has problem with peak demand hours and what all they want, as other power generating companies, is to flatten the demand curve so that they will be able to stable their power generation. To accomplish such a difficult task, Peter Kelly-Detwiler came up with a solution that will make customers willingly change their energy consumption patterns. The solution was pretty simple; create a digital platform that customers can see the pricing information for electricity and their own consumption levels. As VirtuWatt directly connects your electricity metering device with ISO (Independent Service Provider), you can bid energy 1 week ahead and thus create your energy reduction strategy by automating your load control. The following figure shows how such a platform works on your i-Phone or computer:

By having access to data about financial incentives by Constellation Energy Co., enterprises can even make money by shedding power load.







By creating such a digital marketplace of electricity, where customers are remote and asynchronous, Constellation Energy has been able to give its commercial customers the opportunity to bid auctions depending on their valuation of electricity. That is to say, Constellation Energy also makes use of Price Discrimination tool by applying dynamic pricing model and revealing the information to the buyers. When load is low, customers with low assessment of electricity will buy; on the other hand, when prices peak, customers that values energy highly will stay in. In terms of assessing with regard to group buying behavior that we see at many online auction markets such as auction for Compaq iPaq 3650 that Compaq announces discounts for increased demand to entice buyers, price of electricity increases as customer base increases in electricity market.

This marketplace also serves like an auction market; when price is low, it is similar to English type Ascending-Open bidding auction that, there is a base of customers already owning the product and paying through usage. Some customers will enter the market by bidding higher than the current customers to take share in the market. As new customers enter, price increases and those who are willing to pay low will be out and those who pay more will be winner of the auction through peak hours. After peak is reached, it will turn to Dutch type Descending-Open bidding auction; as some customers have satisfied their energy usage, they will step out and as customer base declines, new period's electricity price will start to decline. As price declines, other customers decides when to step in. Again, such an electronic auction will serve as price discrimination for Constellation Energy Co.

Eventually, what Constellation aims is to separate customers with regard to their valuation of energy and spread them throughout the daytime.This enables Constellation to flatten the demand curve so that stress on infrastructure decreases, money will be made by selling abundant supply of energy at low hours to customers, and customers will better manage their energy bills by shifting their energy consumption. One more benefit is that, Constellation Energy Co. will better manage its Energy production pattern by decreasing its demand in Natural Gas future and spot markets, and stabling the production processes.

Digitizing Electricity Metering Devices

In the beginning of the 21st Century, Turkey had countered Energy challenge due to a lack of infrastructure. As industries and population grew over the years and investment in energy projects could not be accomplished, that is to say the biggest lump sum energy project, called GAP, in the southeast Anatolia region of Turkey had not yet been accomplished since its start in the1970s, an energy crisis was encountered by the country. The government's solution to such a lack of energy was to cut the electricity of the whole country at peak hours to reduce consumption. Are you giggling at such a brilliant solution? Then, you are right; if the government cannot see the whole picture and understand the need for energy on the market side, and if it does not know how to make use of evolving technology, then officers (will eventually be forced to extreme measures like cutting) can even cut the cables to reduce consumption. Yet, we were lucky that the government changed in 2002 and all institutions, including TEDAŞ

(Electricity Distribution Corporation of Turkey), were revised by the new government. The energy company’s new administration focused on the market side of the energy consumption to manage the crisis. They realized that, first of all you cannot reduce energy consumption by command-and-control measures, and secondly such reductions will lead to more energy stress after you release electricity. In other words, such command-and-control measures in fact lead to shifting the stress from previous peak hours to new peak hours.

Figure 1 shows how the former electricity cut between 17.00 and 22.00 lead to a shift of peak hours during the day. I even remember my relatives used to do house chores when electricity was available after 22.00. Under second condition, there is even more trouble, since people will start to load electricity at the same time, and servers will get stuck with 100% utilization rate.

The new administration of TEDAŞ analyzed the market and technology, and came up with the data similar to what Figure 1 shows; electricity usage of citizens is at normal levels between 6:00 and 17:00, sharply increases between 17:00 and 22:00 and below average between 22:00 and 6:00. On the production side, the company was charging a flat rate and the electricity metering devices were analog. Also, electricity that was not consumed between 22:00 and 6:00 could not be stored or transferred to other periods of the day. With such data, in order to shift the peak load, they came up with  a marketing tool that a smart MBA student would commonly apply as "Price Discrimination" through usage of smart electricity metering devices. For those who do not know such a term, Price Discrimination is selling almost the same products or services to different buyers at different prices. That is to say, TEDAŞ charged the normal price for energy between the hours 6:00 and 17:00 and, by and large, 2 times and half the normal price between 17:00 - 22:00 and 22:00 - 6:00, respectively. The system was made feasible with the introduction of digital metering system based devices, since analog devices would show just how much total electricity was consumed. These digital devices, once installed, would show the monthly price that company charges for these different periods and relative electricity usage for these periods. The hour usage of electricity during these 3 different periods were compiled separately and charged depending on its relative price factor, and at the end, households were charged the total amount. By looking at the data, citizens were careful not to use heavy energy consuming devices during high price hours.

Yet, some consumers have low or high price elasticity depending on their wealth; in other words, some people will ignore price differences and use these devices during high hours. Some poorer people will prefer low hours, by sacrificing the time of delivery of the product, which is electricity. Yet, digitizing these metering devices had enormous benefits by changing consumption patterns of households:

1. Previously, under the flat rate, all households demanded electricity during peak hours and this lead to short of supply for TEDAŞ. On the other hand, after the peak hour period ended, the electricity production capacity of TEDAŞ was almost entirely wasted, i.e., there was an abundance of supply. After the digital metering system was introduced, the curve flattened as it is shown in figure 3. Eventually, since demand was distributed to other periods of the day away from peak usage hours, shortage of supply problems disappeared and simultaneously the company started to make money from previously wasted electricity.
2. Poor people were able to make use of these devices by shifting to low hours and thus saving money.
3. Lifetime of power generators and hardware within the infrastructure of the company lengthened. Previously, the company had to make additional investments in order to meet the demand of peak hours; however, after households shifted their consumption patterns, since supply was in abundance, the company did not have to increase energy production by investing in power generators.
4. Since TEDAŞ was owned by the state and value for poor people was created through price discrimination, the state was able to perform its social responsibility.
5. The company was able to make more money from wealthy people since they had inelastic demand; and to sell its abundant off-peak supply to poor people to make money out of thin air.

Consequently, by introducing a digital metering system that provides price data for 3 different periods, customers were able to make use of such IT to change their consumption patterns. At the same time, by saving electricity and reducing energy stress during peak hours, Turkey could overcome its energy crisis, and today different segments still adopt different schedules for consuming electricity in order to save money.

Synthesizing Energy and ICT

Dear All,

I would like to cordially welcome you all who are interested in Energy field and would like to learn about how ICT developments create impact on energy industry and market. I decided to create this blog on the ground of the fact that the globe is very close to an energy crisis due to non-stop wars, waste of energy, unregulated markets, and overuse of energy that causes global warming. My blog in this chaos will serve as a means to analyze the effects of ICT in Energy consumption and production patterns, and what kind of opportunities exist in ICT field so that we can utilize such technology developments to improve energy conservancy and efficiency.

To give a little background about me in relation with energy field, as a candidate of Global MBA program at Johns Hopkins University Carey Business School, I am currently VP of internal education at Energy and Environmental Club and giving presentations in Natural Gas industry. As a team, within the scope of Innovation for Humanity Project, we have developed a Marketing Plan for a Solar Energy Company in Rwanda and improved their business operations. Also, we looked for other energy conservancy issues that can be feasible for Rwandese people. Today, within the scope of Discovery to Market project, we are looking for feasibility of producing Hydrogen through electrolysis process. Also, as a committed energy market analyst, I am interested in Natural Gas Pricing and trying to settle a project with one of our faculty at Carey Business School. Recently, I and my classmate have qualified at a case competition called as "Go Green in the City" arranged by Schneider Electric, at which competition we have developed idea to reduce energy consumption of electricity from utility companies. In this blog, I will also touch on different points of energy conservancy issues that may or may not be relevant with ICT.

All being said, I would like to make sure that you all will enjoy this blog and learn at the same time. Therefore, I would greatly appreciate you feedback comments on my entries so that I will have the opportunity to learn from your perspectives on energy field to develop my understanding and contribute more to the society.

Best for all,

Selim Çelikten
JHU Global MBA '12