Demand for electricity from the residential sector rose during the first several months of the global coronavirus pandemic, as workers stayed home and students studied remotely. Researchers, using data from the U.S. Energy Information Administration (EIA), said the second quarter of 2020 saw a 10% rise in residential electricity usage compared to the same months over the previous four years.
The increase leveled off as the pandemic continued, particularly in the U.S., in part due to warmer weather that lessened the need for space heating, according to the EIA.
Energy industry analysts, though, expect residential sector power demand will steadily rise over time. A growing interest in electricity generation in the home, from things such as rooftop solar, and a continued move to remote work environments will put the residential sector at the center of discussions when it comes to the future of power.
A team led by Greg Guthridge, EY’s Global Energy & Resources Customer Experience Transformation Leader, recently published the results of a multiyear, proprietary research program designed to understand consumer perspectives on the energy transition as well as macro trends. Guthridge has spent 30 years in energy, focused on providing businesses with innovative strategies to help them navigate the energy transition.
The EY (formerly known as Ernst & Young) team looked at the rising demand for generating electricity at home, particularly from the younger generation. Their work studied the contrasting energy consumption preferences from the “baby boom” generation, Millennials, and Gen-Z. The group also looked at how remote work has impacted energy consumption.
Guthridge discussed the findings of his team’s research in a recent question-and-answer session with POWER.
POWER: Does the rising demand for electricity in residential settings present a business opportunity for distributed generation providers (solar, storage, etc.)?
Guthridge: Rising demand and shifting consumer preferences offer a significant opportunity for a range of providers offering distributed generation solutions. What we’re seeing is with rising electricity demand and increasing energy bills, consumers are becoming more engaged and aware of their options. In our research, 86% of consumers said they are interested in generating their own electricity at home. Furthermore, when thinking about the new energy products and services they would invest in over the next three years, 26% say they plan to invest in solar and 13% in battery storage. In terms of which providers have the greatest opportunity, when we asked consumers who they would consider purchasing these solutions from—energy providers/utilities (50%), solar companies (45%), and home improvement stores (42%) rise to the top.
The work-from-home residential segment is also emerging as a key group that providers can target. This group has increased their energy usage and is more energy engaged and sensitive. We found that they are more likely to monitor their energy usage and are more interested in energy efficiency solutions. Power reliability is critical to their livelihood and that creates a powerful value case for them to invest in distributed generation and back-up power capabilities.
POWER: How much impact has the pandemic and remote work had on electricity demand from the residential sector, and has there been a corresponding decline in demand from the commercial and industrial sector?
Guthridge: The impact of the pandemic on electricity demand has varied greatly by region, customer segment, and business type. In general, commercial and industrial demand fell and residential demand rose. In most regions, the end of lockdowns and economic recovery led to a recovery of industrial and most commercial demand, but a larger shift is underway. We found in the summer that globally 20% of consumers said they were working from home and recent estimates suggest that up to 25% of people in the U.S. for example will be working from home at least part of the time going forward. This will increase residential demand and transform usage patterns.
Power generators and utilities overall are just starting to look at the changes this may bring. Underlying assumptions used to forecast things like residential demand, commercial demand and EV (electric vehicle) charging patterns are thrown into question and the impacts are not uniform. Certain geographic areas with concentrations of remote workers or offices are more impacted. In the longer term, some unused office space will likely be converted to residential use. Reassessing demand forecasts, proactively engaging in redevelopment planning, and establishing more advanced predictive modeling will be key for utilities to manage the demand-related impacts of more people working from home—especially if they are also adopting distributed generation.
POWER: Should utilities be more proactive in reaching out to their customers regarding electricity options not associated with the traditional grid (offering generators, partnering with solar installation companies, creating their own distributed energy products and services, etc.)?
Guthridge: Our research shows that there is an opportunity for utilities to be more proactive in engaging and educating customers around energy solutions, sources, and some of the fundamentals of the energy transition. We found that 65% of consumers say it is important for their energy provider to be sustainable and when asked what providers need to do to demonstrate a commitment to sustainability, consumers say they want their utility to provide new energy products and services, support energy efficiency programs, and offer green energy tariffs/solutions. And today, only about half of consumers are satisfied with the sustainable products and services offered by their utility.
But we also see a gap between the desire for new energy solutions and consumer knowledge. For example, only 53% of consumers say they have a good understanding of the term “sustainability,” and only about one-third for terms like “net zero” and “carbon neutral.”
So there seems to be an opportunity for utilities to more proactively engage consumers to help raise awareness of options, educate on products and services, and potentially offer new solutions—either themselves or through partnerships.
POWER: What does EY think about the differences in electricity consumption preferences between Boomers, Millennials, and Gen-Z customers, and what does that mean for utilities moving forward?
Guthridge: In 2020 we crossed a major tipping point where Millennials and Gen-Z became the largest demographic in the world and our research shows that this group has some fundamentally different energy preferences.The younger generations have higher interest in distributed energy and willingness to pay for sustainable solutions. Over 90% of Millennials and Gen-Z are interested in generating their own electricity and nearly half of them are willing to pay more for sustainable energy products and services. They also seem to be more engaged and aware of their energy consumption, with about one-third saying they monitor it on a weekly basis. We also found a fundamental difference in how Millennials and Gen-Z want to consume and pay for energy. Nearly half of Millennials and Gen-Z say that if given the option, they would prefer pay-in-advance/pay-as-you-go energy plans.
For utilities this means there is a need to address the younger generation’s desire for different types of energy solutions like distributed generation and pay-as-you-go plans. It also highlights the significant opportunities for renewable energy to be a platform for consumer engagement and growth.
POWER: What should utilities be doing to protect their current business models, and perhaps expand their offerings as power generation becomes more decentralized?
Guthridge: We are in the midst of a decade of disruption across the industry, but it is also a golden era for utilities. The expansion of renewables and increasing interest and adoption of a broader range of new energy products and services—including distributed generation, EVs and battery storage—will change utilities’ business models and consumers’ historical relationship with their energy providers. We believe that passive energy users will give way to a new more active and engaged “omnisumer”—a person or business that participates in a dynamic connected energy ecosystem across multiple places, solutions and providers.
Utilities can be at the center of this offering new energy solutions, orchestrating energy interactions, and creating seamless experiences. In this ecosystem, current capabilities could be extended to create new B2B services in core areas like engineering or system operations. New energy-as-a-service business models are also an area of opportunity where utilities can bring together integrated energy solutions for business and residential customers and remove some of the challenges around financial investment and the complexity of managing and optimizing energy assets. There is a significant amount of opportunity, but it will require new partnerships, enhanced technology, new skills, and a step-change in operational agility.
—Darrell Proctor is a senior associate editor for POWER (@POWERmagazine).