Utility alert: Why building automation is both a threat and an opportunity

.

By Jesse Berst

I just received an in-depth briefing from executives at Johnson Controls (JC), the $34 billion multinational giant that is now moving aggressively into demand response.

The update helped me realize that smart buildings are poised for explosive growth. That coming upsurge is both a threat and opportunity for utilities.

Let me see if I can summarize the trend. Then I'll tell you more about Johnson Controls to illustrate how one of the big players intends to own a piece of this market.

There is a huge stock of commercial buildings ripe for energy efficiency (EE) and demand response (DR).  The nation’s approximately five million commercial buildings are responsible for 18% of total annual energy consumption in the U.S. And office buildings have the highest energy expenditures of all commercial building types – $15.8 billion per year.

All of the major vendors of building controls and building automation already offer energy efficiency programs. Those programs can often trim 10-30% from a building's energy bill. The story gets even more compelling if you then stack on revenue streams from participation in demand response programs. As a result, virtually every building automation vendor of note has added demand response to its existing building management and energy efficiency capabilities.

Connecting those buildings to the grid represents both a threat and an opportunity. Utilities have already seen erosion from existing third-party demand response providers. Those providers has siphoned off both revenue and customer loyalty. When global giants like Johnson Controls enter the fray, the erosion could get much worse unless utilities learn the right way to partner.

Third-party DR companies take customers from a utility's service territory, package them up, then make hundreds of millions of dollars selling that aggregated power into the capacity markets. Some of the benefits flow to customers. Some to the DR companies. And some to the market makers. Very little benefit comes back to the utilities. In fact, you could argue that the DR companies are training customers to think of them first when it comes to electric power issues... in other words, training them to bypass their utility.

Over the next few years, utilities should figure out ways to partner with giants like Johnson Controls. Let's take a look at Johnson Controls as an example of this trend. I think you'll quickly see that the firm could make a powerful friend. Or a powerful rival.

,

Read Page Two >>