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UTILITY Week 6th November 2015

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UTILITY WEEK | 6TH - 12TH NOVEMBER 2015 | 17 UTILITY WEEK | 6TH - 12TH NOVEMBER 2015 | 17 Finance & Investment Analysis A s the smart meter rollout draws ever closer, energy suppliers are increas- ingly looking towards a new world order where data and technological inno- vation are set to be just as important to business as the traditional commodities, tur- bines, pipes and cables. As a result, the big six are no longer tasked simply with defending market share against the rise of non-integrated challenger brands. They are also preparing for battle against non-traditional players from outside the energy sector. But the challenges of the future are as much about opportunity as threat, with the UK's largest utilities already taking bold steps towards their reincarnation as home service providers. RWE is thinking big. Last month, the Npower parent company launched a commu- nications protocol for the Internet of Things (IoT), in which the connected homes market will exist. This protocol, called Lemonbeat, provides a "common language" between devices on the IoT and "could interconnect practically any everyday object with another device", RWE says. "It shows how our strategy of exploring and developing solutions which are addi- tive to our core energy offerings is starting to create exciting market opportunities for us," Will Siddall, RWE Npower's head of innova- tion, data and analytics, tells Utility Week. The launch comes a few months aer RWE confirmed it was making inroads in Silicon Valley to drive forward a change in its business model across European markets. At the time, Npower's director of innova- tion, Neil Pennington, told Utility Week that a "small, hand-picked" team had moved to Silicon Valley for an initial six-month period, but the company might decide to establish a permanent presence there. Their mission? To identify new partners, technologies and solutions so that RWE can come up with an initial business model for its markets in Europe, Pennington said, adding that the primary focus is on prod- ucts and services for decentralised energy management. RWE is "spending hundreds of millions of euros in this area" Siddall told delegates at the Utility Week Congress in October. RWE also has a growing smart homes busi- ness, built on its partnership with thermostat manufacturer, Nest, and has set up a device- to-device telecoms company and invested in a home automation business. Siddall is looking beyond the "incremen- tal innovation" in the connected homes mar- ket to how to "down-sell our product". "The bit that is really interesting and where we spend most of our time is the potential for retail market disruption. The idea that in 5-20 years this concept of need- ing an energy retailer might disappear – that's quite alarming if you're an energy retailer. So how do we turn from Blockbuster into Netflix? How do we work out what's coming along to destroy our world and make sure we are a part of it?" Lemonbeat looks beyond the connected homes market to the wider IoT, solving a problem that has so far "hampered" the development of the IoT. By proving the answer to the "lack of uniform, secure com- munication standards", Lemonbeat could form an important building block in the IoT's ongoing development. "In the context of a global standardisa- tion of the IoT, we can play a key role," says Dietrich Gemmel, chief executive at RWE Effizienz GmbH, the arm of RWE responsible for developing the technology. Lemonbeat will potentially open up partnerships for RWE with any IoT device creator, and with other companies creat- ing the very fabric of the IoT. "The response to our communications protocol has been extremely positive. Lemonbeat's wide perfor- mance range is being met with enthusiasm," Gemmel says. Although RWE has blazed a trail in the IoT direction, it is unlikely to remain an innova- tion outlier for long. The focus on customer- facing technology innovation is emerging as a key trend as profits from traditional genera- tion assets have come under pressure. German energy rival Eon announced plans last year to spin off its centralised energy business in favour of supply and net- work innovation. This summer, Centrica ech- oed the move, announcing a billion-pound strategy swing away from centralised power generation and its long-standing interests in oil and gas exploration and production, to focus on British Gas and its connected home offerings. Neither have wasted any time. British Gas has already begun to build on its con- nected homes business, leveraging the exist- ing success of its thermostat, Hive. Eon last month launched the Eon Touch smartphone app product, building on its existing Energy Savings Toolkit for neighbourhood energy comparison. These new market opportunities, not just in the energy market but in the wider emerg- ing technological world, could be the answer to what role energy suppliers will play in the future. If the rest of the big six don't want to be le behind, they will need to think about innovation on a similar scale. Think big or get left behind Energy suppliers need to think outside the traditional boundaries of their sector if they are to succeed in an increasingly technological and always-connected future, says Lucinda Dann. Key points The big six energy suppliers face competition from outside the sector as the focus on data management and technological innovation increases. RWE has launched Lemonbeat, a com- munications protocol that provides a com- mon language for the Internet of Things. Centrica has announced a shi in strategy away from centralised power generation to focus on British Gas and its connected home products. Eon has developed a smartphone app that allows customers to control their heating and hot water remotely. Energy suppliers may need to adapt to the emerging market opportunities in the wider technological world if they are to survive in the longer term.

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