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Podcast S14E07

HEM, the energy crisis, and a hockey stick

HEM, the energy crisis, and a hockey stick

Home energy management has been talked about for a long time, but so far has largely been a playground for engineers and innovation teams. Now, that is starting to change – with the energy crisis accelerating this. In this episode, Jon talks with Delta-EE experts Arthur Jouannic and Zuoxiang Zhang about HEM, the energy crisis, and why we’re at the beginning of a hockey-stick shaped curve in market growth of HEM.

Episode transcript

[00:00:03.490] - Jon

Hello, and welcome to the episode. This week, we're looking at the energy crisis from the angle of home energy management systems, or HEM, as they're often known in the acronym filled industry that we all work in. And to discuss HEM and the energy crisis, I'm joined by two colleagues at Delta-EE, Arthur Jouannic. Hello, Arthur.

[00:00:26.630] - Arthur

Hi, Jon.

[00:00:27.900] - Jon

And Zuoxiang Zhang. Hello, Zuoxiang.

[00:00:31.430] - Zuoxiang

Hi, Jon.

[00:00:33.650] - Jon

Arthur, you've been working or looking at the HEM sector for quite a while, haven't you?

[00:00:38.870] - Arthur

Yeah, since I did of my career for the past ten years. And while in the past called HEM, almost anything that was related to smart devices, it has changed a lot in the past ten years. And now it is an exciting time to see what the future might look like for this sort of services.

[00:00:57.530] - Jon

So you've been patient for many years, Arthur, because it's been, I guess, the embryonic market. If listeners can picture a hockey stick shaped curve where it's flat at the beginning, and then there's a change in the curve, and then it gets steeper. Where are we on that curve Arthur, do you think at the moment?

[00:01:16.310] - Arthur

Well, just at the angle where it starts to grow interestingly.

[00:01:20.890] - Jon


[00:01:21.260] - Arthur

And I guess that angle started six months ago when the crisis started from energy prices and then Ukraine, and it's sort of like, yeah, the technology has been here for a long time, but there wasn't really a need for customers to optimise their PV system because they were feeding tariffs. There were no dynamic tariffs or not many. And now all of this, plus the energy crisis, means that customers are really pursuing this sort of system to help optimise their energy at home and therefore save money.

[00:01:55.220] - Jon

So is it fair to say HEM was a technology let's call it that. But was the technology looking for a market and now it's found its market, or is that a bit strong?

[00:02:08.330] - Arthur

Not exactly. The HEM market was driven by engineers who love to put products together and do some optimization and things like that. And luckily, in the past ten years, technology has improved, the connected home market improved as well. And therefore, the user interface for stuff in the home really improving. Customers are okay now to have things being controlled remotely. But today, really, it's not an engineering thing. It's a tool that will help customers save money. And there are more than 80 companies offering this in Europe alone. And customer demand is increasing because people want to buy solar PV to avoid having to buy electricity from the grid. People want to make use of the time of use tariffs available, and they are looking for systems to help them optimise all of this together. And therefore, we see a real bright future for the systems for those who are already positioned in the market.

[00:03:04.130] - Jon

Well, we can debate in the next 25 minutes or so how steep that change in the direction of a line is going to be Zuoxiang. Some of our listeners will have heard the acronym HEM for the first time listening to this episode and home energy management or what does it mean, Arthur you've given a few glimpses as to what it means? Can you just take a half a minute or a minute, Zuoxiang, to explain what we actually mean by home energy management?

[00:03:38.270] - Zuoxiang

Yeah, definitely. So HEM, or HEMS when it comes to home management systems, the short version of the definition is really a system that helps home owners to optimise the energy flows in the home, try to create some value in terms of the financial value, comfort value for the homeowners. To achieve that. There are many ways, but a home energy management system can really achieve that kind of optimization in an automatic way and to help customers to really reduce their energy and consumption and to at the same time to reduce their energy bill. So that is the principle of the HEM proposition.

[00:04:25.040] - Jon

Okay. And it's focusing very much on the timing of energy consumption, maybe as well as the amount of energy consumed, but very much so on the timing of energy, is that right?

[00:04:37.970] - Zuoxiang

Yes, exactly. And the key point is that it should create value for the homeowners because you can see a lot of propositions in the market that are controlling the load, the asset at home. But sometimes those propositions are created to create value primarily for the system, for the grid or for the company themselves. But in our definition, we think a HEM proposition need to at least to share some of those value to the homeowners.

[00:05:09.170] - Arthur

What's really interesting as well is that the electricity loads in the home. And what I mean by that is an EV charger, a PV system, a heat pump, a hot water tank, battery, all of these products. The market for these products are exploding across Europe because of the decarbonisation, because of the crisis, because of all the energy efficiency debates that we have. And by having so many big loads in the home, customers will consume a lot more electricity. And as I said, the question is when will the electricity be cheaper, when will it be available? And how can we make sure that this electricity is used at the best times to the minimal amount so that customers end up paying less than they would have otherwise? And that's the key thing surrounding the whole HEM concept. And this is what we think we'll be there in the future.

[00:06:05.450] - Jon

So if a lot of it's about the timing of when these appliances, when these products that you mentioned Arthur are through using energy or using electricity or storing it, are there markets where there's no value in that timing, where actually if I have my PV generating during the day and exporting and in the evening, I have my heat pump running at the same time as my car is charging, I don't care because my tariff is purely for how much not for when. So is there a question about, okay, in principle, there should be value, but is there actually value in the market?

[00:06:49.550] - Arthur

Yeah. So let's say 5, 10 years ago in some countries, if you bought solar PV, you were paid for exporting that electricity to the grid, and therefore there was very little incentive to self consume your PV production because anyway, you get money from not using it. In some countries, there is also a net metering system where actually when you export PV, you are basically running your meter backwards, which means you're basically getting free money or electricity in the future.

[00:07:20.830] - Jon

You don't care what.

[00:07:23.270] - Arthur

Yes, exactly. It didn't matter. Now, like the feed in tariffs and the net metering are going away in most countries or are not interesting enough. And therefore people are left with solar PV on the roof and say, okay, what do I do with this? How can I make sure that I use it as much as possible? And while solar PV is during the day and your EV charging might be at night, well, maybe the day where your car is at home at 04:00 P.m., for example, you might want to make sure that all the PV production is going there and telling the car actually before you might charge at night because it's cheaper electricity. Actually, no focus on the charging when there is free electricity. This is the sort of concepts that really make sense, but it depends a lot, obviously, on the habits of customers. And the habits are changing a lot because sometimes people are at home, sometimes they're not. And the systems have to really learn how to understand customers, how to understand comfort levels, how to understand how much charging you need in your car, these sort of things. And that's what will matter.

[00:08:25.940] - Arthur

So today the value remains small, but the electricity prices increasing makes that value actually growing as well. And we don't expect energy prices to go anywhere near back to where they were. And therefore the value is really there and the payback for the systems might be really interesting at the moment.

[00:08:43.070] - Jon

Okay, so if you've got PV on your roof and you don't have a feed in tariff, if you've got an incentive to self consume that PV, that will make a lot of sense. Dynamic tariffs, I guess, are another source of value, and they're not widespread, but they're popping up in more and more places.

[00:09:06.030] - Zuoxiang

Yeah. For example, in France, I think energy suppliers, who has more than 200,000 customers, are mandated to provide time of use tariffs, and that is becoming more common in many other markets. So especially when the energy price is really high today, there will be more fluctuation of the prices when it becomes dynamic. So they will provide more and more value for customers to be able to find a system to help customers arbitrage from that kind of dynamic prices.

[00:09:37.370] - Jon

And it's one thing to save a few cents when putting on your dishwasher at the time of when the tariff is cheap. But if you can automatically run your heat pump when the tariff is cheap, you can save a lot more than a few cents. You save many euros.

[00:09:55.410] - Arthur

Yeah, exactly. Ten years ago I saw some people talking about putting a smart plug for your fridge or your washing machine and things like that to save real cents on your bill. But actually what makes sense is the heat pump, the hot water, the EV charging, the battery, this sort of stuff. And if I'm a customer and I say I want to have 20 degrees in my home at 06:00 P.m., for example. But if I have free electricity or cheaper electricity at 4pm, maybe I tell my heat pump to just heat up my home at 22 degrees ahead of me arriving home so that I don't need to have my heating turned on at the peak prices at 06:00 P.m., for example. So this is really hard to adapt to comfort levels of the homeowner based on the kind of variables that he or she is willing to get at certain points in the day. And that combined with free PV, or free electricity from PV or different tariffs every day is really interesting. And we have seen people trying to do it themselves because I get a signal that in the next hour the electricity is cheap and I turn on something.

[00:11:03.910] - Arthur

But actually, people don't really care about doing that themselves and they will never actually so they end up losing money. Probably what we need is systems that do that automatically and optimise that by learning the habits of customers, by prompting customers to tell the machine what they actually want and also looking at the price signals from the grid to see what we can do actually to help them save money.

[00:11:24.630] - Jon

Reminds me of a story when demand so part of this is demand response. What we've talked about so far, I think, is implicit demand response. There's explicit demand response where the flexibility from thousands of HEM systems can be aggregated and sold to the system operator, for example, or the DSO. It reminds me of a story in the US when demand response was first emerging. It was before the Internet of Things, and the aggregators would send faxes, for example, to hotels, say, can you turn down your demand? And talking to one hotel energy manager, in this case a he, he'd get a Fax and then he'd send some poor colleague running to every ice making machine on every floor of the hotel to switch it off. So that's the most manual demand side response you can get. And Arthur, I guess, maybe one or two homeowners that would do the same thing in their home. But largely this needs to be fully automated, intelligent, smart, and as you described at the beginning, we've now got the technology to execute that really well.

[00:12:44.450] - Arthur

Yeah. And customer centric like I'm looking around in France because I'm based in France for solar PV and battery systems and HEMS. And actually a lot of the companies just provide a system with basic monitoring of production and self consumption. What people really want is also to see if there is an optimization, what's happening, how much you've saved, what if I change this particular habit or the temperature of the driving of my car and what impact that has on my energy bill? And once we have this engagement with customers, this starts to become real and customers talk to each other, recommend to each other specific companies, etc.

[00:13:22.900] - Arthur

So it can't be just a simple, basic, non sleek looking up. It has to be the best in class apps so that customers engage and understand the values from these systems.

[00:13:36.720] - Jon

So it's quite a complex set of capabilities or value chain, isn't it? Because you need technically to connect to the heat pump, the battery, the PV inverter. You need great customer interface and a really good app and behavioural science to engage customers in the right way. You need a lot of IoT Internet of things capability to get that data back to the cloud. And then you need the interface with the energy tariffs, with the energy markets to work out how you optimise every device hard work to do. But Arthur 80 companies doing it, 80 companies doing all of it, or part of it, or lots of alliances of people working together?

[00:14:25.430] - Arthur

Yeah, Zuoxiang actually knows more details, but what is missing from your list is the licence to supply energy. And some of these HEM companies are starting to think about and have some of them have done like Tibber or Avatar or my systems. I started to become an energy supplier because it makes a lot of sense to sell energy to customers and then help them reduce as much as possible their energy consumption from us. So on top of everything you said having a licence to supply energy. But yes, there are lots of different types of companies and they're not at the same level of technicalities.

[00:15:03.840] - Zuoxiang

Yeah, definitely. We can see inverter companies, we can see battery companies, EV charge point providers, heat pump providers, many types of providers or manufacturers in the market today. They're all coming from different industry, but now they meet together in the house and previously they don't care about each other because they don't have to talk to each other. But now with more and more people have more than one or two assets at home, there is a growing need for a solution to help homeowners to control and optimise all different types of products. That's why we need some solutions to achieve interoperability, to be able to control multiple appliances, to achieve create more value.

[00:15:51.010] - Arthur

For when we are so far from that. Like Zuoxiang and I were at SmarterE in Munich two weeks ago, the big old industry event where all the PV companies meet up and now there are lots of EV charge point companies, battery companies and so on. And when you ask people and companies what is their strategy with interoperability to interact with people with products from other companies, it's not really open. It's the same issue as we had with smart thermostats and boilers. It's just everyone is doing its own thing in its own corner. And products don't really talk to each other. And if they do, it's at a very basic level. So a major barrier to developing HEM system and making a big success in Europe will be to get these companies to talk to each other and have common protocols, common communications, and share technical data about their products. So we can achieve this. But so far, everyone wants to be in the middle of this. Everyone realises that there is value to be gained, maybe in five or ten years. And everyone wants to protect their own business. And it's really counterproductive with this development.

[00:16:59.490] - Arthur

So we strongly believe that the future of winners are very likely to be the ones that are able to be open to integrate with lots of other products and ultimately be in the middle of discussions for home energy management.

[00:17:13.200] - Jon

Well, there's a phrase I hear often which is open always wins or go alone, go slow, go fast, go together. I guess that applies to HEM. I want to move on after the energy crisis and what we see Arthur you talked about that inflection point in that hockey stick shaped curve is where we're at. Would one of you like to describe why the energy crisis is driving interest in HEM, or how the energy crisis is driving interest in HEM? At the moment?

[00:17:51.450] - Arthur

I can go first and then Zuoxiang can go, but first is - Zuoxiang and I live in France. Electricity prices have been really low for decades because of nuclear energy. Suddenly, with the energy crisis, prices have gone up to the roof, like really bad. And people who were not on the regular tariff got really big bills for electricity. I'm part of that, but it's been a while. So when you see that, you're like, okay, why is that my electricity bill that high? What did I consume? Is it my heating? Is it my hot water? Is it something else? It's like, am I willing to continue paying that much money for electricity, or should I do something about this? And we know from our analysis that electricity prices are very volatile and it's impossible to predict. But the reality is that it's very likely that this will continue. It will probably even get worse in the next years and decades because of gas supply and et cetera. So now is the time for customers to get this shot digested and then think about, OK, now, what can we do to actually not spend a huge part of our income on just electricity, which we didn't before?

[00:19:04.770] - Arthur

And that is driving anything related to energy efficiency whether it is replacing a battery system with a more efficient one, what is electrifying because gas is unavailable, what are replacing my car with an electric car? What are sharing electricity between consumers, et cetera. And that is really what the energy crisis means for the rates of the market. And the fact that it went so quickly really shocked I think people in Europe and there will be solutions developed to help them do that. But now it's the right time to be in that market.

[00:19:42.480] - Jon

I think so when you talk with the  - sorry go on Zuoxiang.

[00:19:48.150] - Zuoxiang

Yeah, thanks. I fully agree with Arthur. So actually the electrification of home appliances and also the deployment of PV has started years ago because of the energy transition. But the current edge crisis has really accelerated this and just creating stronger willingness from end customers because people are searching for non gas device systems and appliances and also they're searching for their energy independence. So they're really turning more to solar PV, battery and also electric heating, electric mobility, for example. And for the customers, it's really about reducing their energy bills. And at the same time it will be really good to have some positive impact on environment as well and also for our grid system. With more and more those kind of electric loads being deployed, I think there is a growing need to balance the grid and also to keep the stability of the grid. So there's a two change from the customer side and also from the system side, which lead to the growth of homeland's management systems which can really optimise those increase in loads in the residential sector.

[00:21:10.240] - Jon

I think it's a really nice way to think about it. Zuoxiang. It's got to be a fantastic customer proposition and it's got to work to share or to create value for customers and reduce their bills. It's also going to work for the energy system and provide that flexibility in response to both direct price signals or implicit demand side response and explicit demand side response where the value of that flexibility can be sold to the market and HEM systems are in a way the glue that joins all of that together and optimises multiple appliances in the home. The interesting.

[00:21:52.660] - Zuoxiang

Yeah, definitely. It's not only a customer driven market but also regulations are changing to open some use cases for HEM systems.

[00:22:03.390] - Jon

Arthur. Can you give us a feel for how the market is getting excited about this? Are we seeing lots of new product launches? Are we seeing companies a step away from having product in the market but now really accelerating their plans? A bit of both. What sort of companies are active, what's this market feel like at the moment?

[00:22:26.010] - Arthur

I would say it's really buzzing again, referencing the event that Zuoxiang and I attended SmarterE two weeks ago on one of the stands there was a Wheel of Fortune on paperboard and by spinning the wheel you could end up on heating on hot water on cooling, on EV charging on PV and battery and all of this. And that was why we referred it as the HEM wheel fortune. And basically every company active in any part of this wheel is thinking, okay, I've been selling these products for a while. This has been growing nicely because of the transition, but now things are changing so fast. There are so many business opportunities. Where can I sell my products even more? How can I help customers save money? Should I go to different product categories? Like if I sell heating, should I sell any of EV charge points? If I sell PV, should I combine with a heat pump to do something? Everyone is basically talking about it. The scary thing is because it has happened so fast that not a lot of people actually understand what's happening. They might understand it in their country, but across Europe and beyond, it's very hard for them to grasp what's happening.

[00:23:39.480] - Jon


[00:23:42.590] - Jon

The regulations around things like self consumption and PV and feeding tariffs are different in every country. So the value stream is completely different.

[00:23:51.990] - Arthur

Regulations, energy prices, availability of installers, customer awareness, this sort of stuff is different everywhere. And that is really changing everywhere at the moment. And the understanding is very low.

[00:24:09.030] - Jon

When you've got a very fragmented market like that, often you end up with companies driving it in one particular market. So you end up with a very large number of small companies active in their home market. Do you see international companies who have the potential to scale this, maybe to create a product, adapt it locally, but international companies that have the scale, the budgets to really put towards doing this at a European level, and are they starting to get active and drive this?

[00:24:45.330] - Arthur

Yeah, I really think for me there are two types of companies that are really well positioned to do this, but these are corporate. So it's sometimes difficult to get things moving in a specific direction very quickly. The first type of company is obviously energy suppliers because they supply energy. So a big energy supplier active in different European markets has a big advantage that they have people in the country who are in the market, they might be already selling services or products like solar PV, and they can see the trends going. And as a synergy, they could potentially do something across Europe. Their problem is they are not necessarily aligned between different countries and even internally.

[00:25:27.430] - Jon


[00:25:30.140] - Jon

But they could build a common platform and then adapt that locally if they have the right strategy and way of executing that.

[00:25:34.970] - Arthur

Yeah, they could. And a lot of them are trying. The problem is often these companies are in the dinosaur category, and we need a lot more agile startup like developments in order to get that customer experience right. And the second type of company is the electricity OEMs, and by that, I mean those who are building electrical switchboards sockets, like anyone really who knows about electricity in this and has a network of installers and electricians in most of the countries that they have. Because when you want to sell solar PV with HEM system, you need to be able to explain to your installer actually what it is. I mean, PV is doing really well. Why would it do something different? But actually there is value for you in doing this as well. And these guys know about electricity. It's not something new, it's something that they are expert in and they have the capability to develop the right technology, the right software potentially if they are distributed to the rest of the installer and the full customer. These are two main companies, but I guess there may be others that we've identified. Who might be interesting as well, I think.

[00:26:53.320] - Zuoxiang

I agree that those are the two types of players who have the ability to scale. But today in the current market we are seeing most of the dynamic and active players or some of these Integrators, but most of them are more active locally because they know more about the local players. They have worked very hard to try to integrate different types of products. But when they move to another market, some technical details will be different. Some market dynamics will be different. So comparing to the two mentioned by Arthur, I think Integrators will face some more challenges when it comes to different markets and different customers.

[00:27:36.390] - Jon

I think it's a fascinating market because you've got the OEMs that EV charge point manufacturers who described earlier they can build capability into their products. Some of them are already doing that and able to connect them to heat pumps, to hot water tanks, to inverters and so on. Partnerships feels like the key word to me, that complex value chain. Some companies may be able to do it all themselves, but I think most people have to partner. Okay, let's move on now getting towards the end of the podcast. So move on to the talking new energy crystal ball. Get out and put it on the desk in front of me. I'm going to set the dial this week to 2030 and I'd like you to give a listeners a feel for how big this market could be in terms of households with home energy management functionality systems, product, by 2030 thought on who you think will be what type of company will be leading that market in 2030, acknowledging that it may well be partnerships as well. So number of homes with home energy management functionality in 2030. And thoughts on the type of company that will be really important in driving this to 2030.

[00:29:08.660] - Jon

Zuoxiang - Do you want to go first and then Arthur?

[00:29:11.630] - Zuoxiang

Yeah, I think the market is going to go very fast. I think in our previous search we are expecting a 20% of annual growth rate from 2020 to 2030. And that was an estimation pre energy crisis. So we think that considering the current background, this market is going to grow quicker than we expected. And in terms of the different players, I think we had a customer research to ask people who do they really expect a HEM solution come from? And 60% of customers are expecting energy supplier to provide the solution. So when it comes to the direct relationship between a solution provider and customers, I think energy suppliers are really at a very good position to offer this. But to provide such a complex solution platform and suppliers cannot do it by themselves. They need to partner with some solution vendors like Integrators and to partner with some OEMs to be able to be compatible with those different types of products. So, yeah, that would be very exciting to see those kind of partnerships come to the market.

[00:30:32.460] - Jon

I guess the other thing is that energy suppliers can do is capture some of the value if they're settling on for those that are into the nitty gritty details of how energy retail works, if they can settle on actual load profiles rather than standard load profiles, then they can access a big chunk of value that others won't be able to access. Arthur, how about you? A view from 2030 as the crystal ball takes us, eight years forward.

[00:31:00.980] - Arthur

I really think that in terms of the market for houses at least easier to do HEM. I think 20% of European houses will have a HEM system by 2030. So that means tens of millions of homes already equipped compared to less than one today.

[00:31:22.410] - Jon

That's the steepness in the curve and the hockey curve starting to kick in.

[00:31:25.930] - Arthur

Exactly. And that's in ten years it's possible that it will be even faster than this. But I think HEM systems in houses is something I will put my money on today.

[00:31:37.590] - Jon

If you were betting man.

[00:31:41.650] - Arthur

And we know on this, I think someone like Tesla, if they wanted to, could do it because they have EVs, they have EV charge points, they have batteries, they have solar installers. They could potentially enter the heat pump markets if they wanted to. So while we are mostly focusing on the US and other markets, maybe someone who is a massively innovative company like Tesla and who understands the business model in five years or ten years time will be potentially disruptive in the market. There are already some startups out there that are really fascinating, some of which are being established for four or five years, some of which are renew. And I think one of these players is possibly going to be one of the biggest actors in the HEM place. It's just again, we need to have this European overview, we need to have this technology overview, and we need to have the customer at the heart of the proposition.

[00:32:42.790] - Jon

Well, it's going to be exciting to see that hockey stick curve unfold over the next year. I really believe that in the medium term. It's very clear that the value of energy will be in the timing. HEM systems are critical to unlocking that and they can share a lot of that value with customers as well. So not only, I think, will we have lots of HEM systems, we need lots of HEM systems if we're going to succeed in the transition. So Arthur, Zuoxiang, thanks very much for your time for sharing your views. An exciting market to be looking at. Listeners. I hope you enjoyed the episode and that shed a bit more light onto the world of home energy management. We've talked about it before. I'm sure we'll talk about it again in future or episodes and look forward to welcoming you back to the episode next week. Thanks and goodbye.


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