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IoT and the Future of Networked Energy A Platform for Enhanced Energy Cloud Applications, Services, and Business Models Published 4Q 2016 Neil Strother Principal Research Analyst Mackinnon Lawrence Senior Research Director

WHITE PAPER

IoT and the Future of Networked Energy

©2016 Navigant Consulting, Inc. Notice: No material in this publication may be reproduced, stored in a retrieval system, or transmitted by any means, in whole or in part, without the express written permission of Navigant Consulting, Inc.

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Section 1 EXECUTIVE SUMMARY

1.1 Introduction: The Internet of Things Trend

The Internet of Things (IoT) trend grabs attention with all of its futuristic and hopeful possibilities. The notion of tens of billions of things, from devices to sensors and actuators, connecting on a scale never seen before has tremendous potential—for good and perhaps not so good. For example, the upside for efficiency gains in buildings or new preventive maintenance insights is tempered by potential hacks of IoT devices or systems. Regardless, this growing web of connected things promises unprecedented levels of automation. In addition, the huge volumes of data generated by IoT systems represent a vast treasure to be sifted through for use in new applications and actionable insights. The lofty vision for the IoT is a broader, deeper, and more intelligent ecosystem.

In this white paper, Navigant Research explores the market dynamics, opportunities, and challenges embodied by the IoT and its impact within the Energy Cloud paradigm.1 IoT represents one of several emerging technology integration platforms within the Energy Cloud, which describes a dynamic energy ecosystem. The Energy Cloud leverages ubiquitous connectivity, intelligent sensors and devices, information and operations technology, and data-driven machine-learning functionality across the grid value chain. This paradigm is predicated on the historic transformation underway in the utility industry. A new landscape is emerging in which a more sophisticated two-way grid of networked distributed energy resources (DER) and digital technologies will pave the way for an Energy Cloud ecosystem valued at $1.3 trillion in new annual industry revenue by 2030.

1.2 The IoT Platform

The rapid adoption of Internet-connected devices supports a new digital foundation for the energy industry. This emerging IoT touches, or will touch, nearly all aspects of energy generation, transmission, and distribution. Demand for these connections is fueled by the need to optimize existing grid assets and integrate distributed components like solar PV, EVs, and onsite storage. Furthermore, regulatory pressure contributes to the adoption of IoT technologies, particularly among states like New York, Illinois, and California in the United States. In other regions like Europe, the transition to a low-carbon energy sector, as mandated by European Union regulators, helps drive IoT adoption as a way of creating a more flexible and efficient grid. Similarly, in Japan, IoT solutions are being implemented by leading utilities to increase the efficiency and reliability of their power plants.

1 Navigant Research, Navigating the Energy Transformation, 3Q 2016, www.navigantresearch.com/research/navigating-the-energy-transformation.



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Once deployed, the constant data flow from IoT devices enables a deeper analysis of the grid at a granular level and the ability to act and react in real-time, or near real-time, for the purpose of the efficient use of energy. For instance, smart thermostats enrolled at scale can facilitate demand response (DR) programs for balancing electricity supply and demand. Managing these behind-the-meter assets is conducted through two-way communications networks, often wirelessly, and with software and data analytics capabilities. An IoT platform thus becomes a foundation for various elements:

• The secure, scalable, and open communications of data.

• The management of millions of devices, including submeters, sensors, thermostats, and communications gateways.

• The unleashing of new applications for buildings, smart homes, and transportation automation, with the specific goal of energy efficiency.

Already, vendors are providing basic tools for creating the IoT platform, offering devices like smart thermostats, connected lighting, and mobile apps. But key stakeholders like utilities can seize the new opportunities in various ways:

• Key stakeholders can become first movers in the IoT space before it matures, willing to test new business models.

• They can leverage their position for IoT managed services beyond distinct demand-side management (DSM) efforts.

• They can develop long-term IoT offerings for enhanced customer engagement and increased satisfaction.

In the residential sector alone, Navigant Research expects global revenue from IoT device shipments and services to total more than $815 billion from 2016 to 2026. Moreover, the number of these IoT devices shipped annually is expected to grow more than fivefold during this same forecast period.

IoT can help stakeholders position for long-term success by enabling more flexible business models, which can unlock new revenue streams. It can also create new energy applications or enhance existing ones that drive more value to customers and potentially increased margins. Stakeholders can establish themselves as leaders in the IoT space that can guide customers through a sometimes confusing technology landscape. Furthermore, the IoT will transform the energy sector:

• The IoT will allow new non-traditional entrants to compete with existing players and business models, thus driving competition.

• It will spur growth among prosumers who will be able to more easily participate in the market as both producers and consumers of electricity.

• It will create a more resilient grid with intelligent devices spread through the system and backed up by cloud services that can react in real-time or near real-time.



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IoT is the connective tissue enabling the fast-emerging Energy Cloud, combining a wide variety of assets—from traditional generation to DER, connected homes, intelligent buildings, transportation grids, and smart cities. To remain competitive, industry stakeholders have to move beyond business as usual and play in the sandbox. By embracing IoT technologies and adopting a willingness to fail, agile energy players are likely to stay on top of the transformation taking place, shape demand, and capture their share of the value provided to end customers. Failing to do so could prove costly for those players that miss out on the significant growth and revenue opportunities at stake or could even be fatal to those players that get disrupted out of the marketplace entirely.

1.3 IoT Already Here, but Not Widely Recognized Yet

One of the secrets about the IoT is that it is already here, though many might not recognize it as such, or some might not call it that yet. Consider the following factors:

• The existence of smart meters or smart thermostats, which can communicate with utility systems in a two-way fashion. They receive and share information, or data, that translates into greater efficiency in the use of electricity, reducing strain on heating-cooling systems and lowering costs.

• In large commercial enterprises, connected devices or sensors in elaborate equipment can share data about internal operations, alerting the operator and related equipment of imminent breakdowns ahead of time, thus avoiding costly downtime.

• In the emerging area of LED lighting, connected bulbs and luminaires move beyond simple illumination. They can be transformative, reading and reacting to a changing environment for the benefit of the people they surround and for greater efficiency.

The existence of these IoT technologies is at an early stage, and they often reflect rather rudimentary applications. Nonetheless, these IoT building blocks lay the groundwork for future iterations, providing valuable lessons for what does and does not work. The movement is from somewhat narrow, standalone technologies like smart thermostats that dovetail easily with DR programs toward a more complex set of systems that align with DER or smart city platforms, for instance. Such systems require a nimble orchestrator to deliver responsive, flexible, and customer-centric services. In this fashion, the IoT platform is a key technology component that undergirds the emerging Energy Cloud.



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Figure 1.1 The IoT Undergirds the Emerging Energy Cloud

(Source: Navigant Research)

For energy industry stakeholders, the IoT holds great potential for streamlined operations, the integration of DER, and the ability to connect with customer assets in new and helpful ways. The increasing connectivity of assets results in greater reliability, increased safety from knowing in real-time what is happening in grid edge devices, and the ability to share that data to keep customers comfortable, safe, and even delighted. An IoT-enabled system also helps stakeholders to make more money and can be a competitive advantage when properly understood and managed. For instance, a utility that can delay or avoid investing another $2 billion in generation plants and delivery systems by assembling a smarter IoT-enabled grid is a stronger player. Alternatively, an IoT investment of $2 billion would build the foundation needed to compete for the $1.3 trillion in annual new revenue that will be created across the Energy Cloud in 2030.

DATA ANALYTICSSoftware is fundamental for transforming data into actionable information via home energy management (HEM) and building energy management systems (BEMSs)

DEMAND MANAGEMENTIoT enables proactive and automated energy efficiency and load shifting in homes or commercial buildings

SYSTEMSIoT can deliver demand management through connected lighting, smart thermostats, HVAC, appliances, security systems, EV charging systems, and distributed energy resources (DER)

SENSORS & CONTROLLERSAdvanced sensors, smart thermostats,

wireless controllers, and communication devices

SCALABILITY & SECURITY

IoT in homes and buildings must securely acquire and communicate data and be

flexible to expand the capabilities of demand

management over time

INTEROPERABILITYIoT platforms must utilize open

protocols for data communication—two-way communication of usage data,

control signals, and device status

ENABLING ENABLING

ENABLINGIoTENABLING

ENABLING ENABLING



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Section 2 IOT HYPE DIMINISHING

2.1 Time for Action

The early hype of the Internet of Things (IoT) is being replaced by action. Many corporate executives outside the energy sector now see it as a key part of their future operations. The latest survey from telecom giant Vodafone shows that more than a quarter of executives (28%) say their firms already use IoT in their operations and three-quarters (76%) say the IoT will be critical for the future success of any organization.2 These attitudes point to shifting views about the importance of the IoT in the marketplace.

Beyond attitudes, numerous companies are taking significant spending steps in their adoption of IoT technologies, which is made clear in the following examples:

• Japan’s SoftBank is among the latest companies to make an IoT move by acquiring British chip designer ARM Holdings for $32 billion. SoftBank believes ARM can become a leader in the design of chips that power IoT devices, similar to how ARM’s designs are key components of smartphones.

• In the Netherlands, telecom provider KPN has completed its nationwide wireless IoT network and has signed contracts to connect 1.5 million devices thus far.

• Alphabet-Google purchased Nest Labs for $3.2 billion (2014).

• NXP acquired Freescale for $11.86 billion (2015).

• Intel acquired Altera for $16.7 billion (2015).

• Qualcomm purchased CSR for $2.4 billion (2015).

• Cisco acquired Jasper for $1.4 billion (2016).

These billion-dollar acquisitions at the device and chip levels indicate just how serious major high-tech stakeholders are about the future of IoT.

2.2 Expected IoT Tipping Point

As with other major trends, the notion of a tipping point arouses interest. For the IoT, that point is expected to come in 2021, with more than 1.3 billion devices connected in homes and commercial buildings by then, according to Navigant Research forecasts. Among global executives surveyed on the topic, 89% expect this tipping point to somewhat occur later, by 2025.3 Whenever the IoT tipping point takes place, it is being driven by increased

2 Vodafone IoT Barometer 2016; for more information, see: http://bit.ly/29Rb1Aw. 3 World Economic Forum, Deep Shift, Technology Tipping Points and Societal Impacts, September 2015.



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computing power and falling hardware prices, making it economically feasible to connect literally anything to the Internet and creating new possibilities for applications based on sifting the data. Navigant Research conservatively estimates the amount of data points generated by these devices on an annual basis is in the terabytes—and will only grow. One could argue this data will become the operational currency of the Energy Cloud, much like kilowatt-hours were the operational currency of the 20th century. This fundamental shift to data presents management challenges and opportunities for unlocking hidden value. In terms of revenue for the commercial and residential IoT sectors alone, the opportunity is large, with cumulative totals equal to more than three-quarters of a trillion dollars from now through 2025, as depicted in Chart 2.1.

Chart 2.1 Commercial and Residential IoT Revenue by Type, World Markets: 2016-2025


2.3 IoT and the Energy Cloud

The IoT undergirds the emerging Energy Cloud. As old infrastructure gets replaced, the new IoT pieces—hardware, software, and analytics—will become the framework on which the Energy Cloud functions, enabling clean, distributed, and intelligent energy systems. IoT technologies are well-suited for integrating the two-way flow of power, the intermittency of wind and solar, and behind-the-meter processes such as onsite storage or EV integration. This shift to IoT and the melding with the Energy Cloud is accelerating, and energy players should ask some fundamental questions:

• Do we understand the fundamental change brought about by the IoT?

• What is our strategy for incorporating IoT technologies?

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• What does IoT mean to our systems at the edge of the grid?

• How can we mitigate the security risks from a hyper-connected IoT system?

• How do we harness the emerging IoT platform in order to remain a viable business?

• What future can IoT technologies enable?

This white paper provides the frameworks entering the market that will help stakeholders navigate and thrive as IoT technologies take hold within the Energy Cloud paradigm.

2.4 A Transformative Process

IoT is part of a transformative process for the energy industry. Utilities need to adapt their businesses to exploit the technologies for creating a more resilient and efficient grid. IoT vendors must sharpen their offerings and innovate at both large scale and in minute detail, bringing together an array of data and control for the benefit of grid operators and end customers. Regulators need to understand the power of IoT adoption and encourage the utilities they regulate to adopt sensible strategies, and not impede the progress. Customers, both residential and commercial and industrial (C&I), should continue to push the IoT technologies on their side of the meter in an effort to promote a holistic and beneficial grid that works for all participants.

While the pathway ahead is not completely clear and there are hurdles, the IoT holds numerous promising possibilities worth exploring. To fully grasp the dynamic changes inherent in IoT technologies, Navigant Research sees four interconnected forces shaping the market that will lead to a new, more resilient and dynamic technology foundation for the energy industry: new human-machine interfaces, edge-cloud computing, connectivity challenges, and security issues. These forces are discussed in further detail in this paper.



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Section 3 IOT EXPANDS HUMAN-MACHINE INTERFACES

3.1 New Machine Interactions

One of the underappreciated aspects of the IoT phenomenon is how it enables new ways of interacting with the machines, sensors, and systems all around us. For instance, the use of touch is not a given course of action as IoT technologies take hold. No longer do you need to physically touch a thermostat or a light switch to alter the temperature setting or dim a bulb. Through IoT-connected devices, a voice command might be used to make the change or speaking to a smartphone app might trigger the result you desire. Alternatively, when you walk into a room, multiple sensors could acknowledge your presence. These sensors could modulate the temperature during the day based on the changes in ambient conditions, such as increased heat from the sun. The lighting system could also adjust to the amount of natural light from the windows. IoT technology can fundamentally change the way we communicate with hardware and the systems that control our environment.

3.2 Voice as IoT Device Input

The use of voice is still an emerging human-machine interaction. Amazon’s Echo device, also known as Alexa, has set a new standard in this vein. It enables a user to speak a command and have a thermostat like a Nest react by increasing the temperature setting. Or a voice command can turn on an LED light that is part of a Philips Hue system. Increased competition in this area from Alphabet-Google and Apple, among others, will push the technology forward and will alter how people interact with energy consumption.

Some of the advantages of voice for the user include: it is faster than typing, more convenient when needing to interact hands-free (e.g., cooking or doing manual chores), and more useful over time as the devices learn to contextualize interactions. From an energy savings perspective, this ease of use will enable devices and cloud-based algorithms to drive more efficiencies, hiding the complexity and automating the process of reaching efficiency goals.

Figure 3.1 IoT Alters Human-Machine Interfaces




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3.3 Wearables as Input

Wearable devices, like smartwatches, are part of this changing human-machine landscape. The device on your wrist can act as an extended screen for adjusting a connected thermostat, or lights, providing convenience and quicker access to control them. As these devices and sensors increase in sophistication, many of these adjustments are expected to be done in the background. Such wearable IoT devices and sensors will detect the ambient temperature, humidity, and your personal preferences and set the heating, ventilation, and air conditioning (HVAC) system accordingly.

Beyond hardware devices, in the not too distant future, clothing connected to the Internet is expected to become more mainstream. In that case, the notion of clothing that interacts with smartphones, home devices, and HVAC systems becomes quite possible. In such a scenario, sensors in a room could detect a person’s clothing and adjust the temperature automatically to a comfortable level. However, the occupant might not agree and could then reach out via voice to set the temperature to his or her liking.

3.4 Cameras as Input for Interaction

Many might be uncomfortable with digital video cameras pointed at them constantly, but cameras like this already exist in many public settings. Homeowners are increasingly mounting them at entry points for security purposes. By one calculation, the average American can be caught on a surveillance camera more than 75 times per day. And we are on the threshold of these cameras becoming a more common method of interacting with things. Consider Cozmo,4 a robot toy from startup Anki that entered the market recently and provides a good example of what is possible. Cozmo’s camera is touted as the most important sensor on board. It provides a constant image stream to the robot that can detect, track, and recognize faces, as well as estimate head position and 3D orientation.

A cute toy, but the robot blends this capability with a mix of artificial intelligence and Wi-Fi connectivity. With some tweaking, imagine the next version of robot-like devices with the same blend of functionalities. Such a device would recognize you and interact with you. It could provide useful information about things such as energy consumption or perhaps offer higher levels of interaction. Imagine a device like Cozmo 3.0 understanding the impact of a storm brewing in your local area and then suggesting options for heating your home and powering down non-critical devices that could be harmed in the event of a power outage. Through a combination of camera, speech recognition, and onboard or cloud-based intelligence, a robot could be an energy efficiency ally, working with available data and systems for the user’s benefit.

4 For more information, see Anki’s website: https://anki.com/en-us/cozmo.



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Moreover, a more conventional device, a smartphone, is already a testing ground for visual inputs via a camera. A number of manufacturers sell smartphones with iris-scanning cameras for unlocking the device, including Samsung, Alcatel, Fujitsu, and ZTE.

3.5 Enhanced Occupancy Sensing—Beyond Motion

The built environment already has existing technology that can react to humans and change devices for comfort. For instance, motion detectors based on passive infrared technology for lighting control or thermostat adjustments are nothing new. But advances in micro-electromechanical systems (MEMS) technology enable the detection of people even when they are stationary. These MEMS thermal sensors are not widely commercially deployed yet, but could be used to improve comfort, sensing when people are present even when not in motion and making the proper HVAC or lighting adjustments, for instance. As the IoT develops, MEMS sensors of this type will continue to be a basic building block for smart devices in homes, offices, and commercial buildings. When these sensors are linked with other data sources, such as from an electric utility or weather forecasts, the benefits are usually twofold: people have a better, more automated experience and energy efficiency processes can take place automatically in the background. In this way, the interface from humans to machines, or smart sensors in this case, is hidden but no less capable.

In the transportation space, advanced sensors for parking work in a similar fashion. Inexpensive wireless sensor systems are now available from companies like WAVIoT, whereby the sensors transmit small bits of data about when a car is entering or leaving a spot through a low-power wide area network (LPWAN) to management systems. Data can be made available to end-user applications through a cloud platform. For a city seeking a solution to its parking challenges, this IoT setup is now a possibility. The interface is made possible by sensors that communicate what is going on with devices like cars so humans can benefit. Such an interface also makes driving more efficient, resulting in reduced pollution.

3.6 Glasses as Interface—Not the Last Word Yet

The idea of Internet-connected glasses could still play a role in the IoT space. With available augmented reality lenses now in market, the promise lingers of interacting with the world through images and data fed through eyewear. Industrial and medical applications are the most likely areas for adoption to take a firm hold, but as more devices and sensors connect with valuable information, it is quite possible energy-related applications could emerge that provide the user with useful information. For example, a building manager or technician could scan a room or parts of a building and get a real-time energy map while on the go—without needing to check a fixed screen in a back office. In spite of their struggles, the last word has not been written about connected glasses as a useful IoT interface. Similar experimental technologies like projecting information onto glass surfaces or reaching into thin air to touch a holographic display also remain possible.



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3.7 Enhanced Location Sensing: Geofencing, Geolocation, and IoT

Superior location technologies represent another facet of the IoT megatrend. Devices and sensors can be linked to global positioning system (GPS) information to enable geofencing, a positioning technology that defines a virtual boundary around a real-world geographic area. In the home energy management realm, geofencing based on a smartphone’s location can trigger a home’s HVAC system to adjust the thermostat. For example, as someone approaches his or her house (e.g., within 3 miles), the location signal from the smartphone causes pre-heating or pre-cooling, depending on weather, time of day, and season. Although not widely used yet, several thermostat vendors have made geofencing technology available, including Honeywell (Lyric), Alphabet-Google (Nest product), and Allure Energy (EverSense).

Similarly, geolocation—the ability to track people or physical assets to a specific place and time—is another form of IoT input that is still emerging. Being able to locate people based on the GPS chip on a smartphone is quite common. However, more companies are using this technology to track assets, like vehicles in a fleet, something utilities usually have in large numbers. As more devices and sensors get linked to the grid, geolocation technology will become one more input to the system, enabling the detection of fraud from a meter that gets moved while being tampered with or providing real-time notice of a physical attack on a fence at a substation, triggering a quick response.

Geofencing and geolocation technologies have yet to be fully tapped. People have valid concerns about being tracked by machines, and they balk at the idea until clear benefits materialize, such as when a GPS-enabled map on a smartphone guides them successfully to an unfamiliar destination. As more things become connected in coming years and people grow accustomed to having location data in the equation, the technology is likely to flourish. New applications are likely to be developed that overcome the barriers, similar to how it took a few years for personal fitness tracking wearables to be widely accepted. Examples include greater adoption of advanced sensors that closely monitor the condition of an HVAC system and sophisticated instruments on a solar PV system that provide minute details about energy consumption, production, and pricing for the benefit of the owner and the local grid or microgrid.

3.8 Touch Still Relevant

Even with the latest human-machine interfaces reaching new levels of sophistication, touch is not going away. For decades, we have interacted with machines or computers through touch: typing on a keyboard, moving or clicking a mouse, and tapping a smartphone screen. Touch has been the dominant interface for much of the desktop, laptop, and mobile phone era. It is a powerful way to interact with devices, giving instant feedback through the skin. But now other ways or interacting with devices and machines are surfacing in useful and convenient ways.



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One example of how connected devices are subtly altering human-machine interaction is through smart thermostats and demand response (DR) programs. It is now possible to communicate with a smart thermostat through a smartphone app, and the thermostat can respond to DR signals from the utility. Data from this process and the calculated savings are available on the phone. This type of interaction is being pioneered by a number of utilities in Bring Your Own Thermostat (BYOT) programs. Utilities like ComEd in Illinois have partnered with smart thermostat vendors like Nest and broadband providers like Comcast to enable this type of engagement, bridging the consumer, the utility, and the hardware to manage energy consumption more efficiently.

3.9 IoT Customer Experience

Among customers, the IoT unleashes new experiences through greater data granularity delivered in a timely fashion. A building manager, for instance, can know with a high degree of predictability when a chiller in a cooling system is about to fail. This, in turn, can trigger an alert to a service technician who makes the necessary repair ahead of a critical failure, saving money that would have been wasted due to lost productivity. While this type of predictive maintenance intelligence is still emerging, it promises to alter the experience of energy customers in meaningful ways, helping to save money and increasing confidence in the systems.

The new experience enabled by IoT technologies represents a fundamental shift in how people use energy. The level of understanding and insights from the large volume of data and applied analytics changes your energy awareness. A building manager or a homeowner with access to IoT devices and system data is more in control of usage and can use tools to manage that usage that results in a better experience. IoT technologies can reduce the friction in the grid and automate processes like DR or the integration of distributed energy resources (DER), making for a better experience. These technologies can meet and in some cases surpass customer expectations for simplified solutions, like the way mobile banking removes the need to drive to a bank or an ATM to deposit a check. Similarly, the smarter, IoT-enabled grid makes interacting with the machines in our lives a better, streamlined experience—if it is well-designed.

Ultimately, the experience of technology is what IoT enables—a different kind and level of experience. In the energy space, this has implications for both internal operations of the grid and among end customers. For instance, utilities are using IoT devices and data to engage customers by helping them better understand their energy consumption, provide actionable insights and tips for adjusting their consumption, and get more involved in energy efficiency and demand-side management (DSM) programs. Customer satisfaction and engagement are perhaps the most important assets—and they also represent the greatest vulnerabilities for utilities. IoT technologies are increasingly providing opportunities to close the gap between the utility and the end customer. On the utility operations side, utility field workers now have instant access to mapping data and real-time, or near real-time, grid status for repairs, particularly when smart meters and distributed automation assets are deployed. The people in this field have more knowledge at their fingertips in part



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because of IoT technologies, and this functionality is only going to grow with more integrated data and feedback loops of information sent to and from the field.

IoT, when coupled with sensors beyond touch to include voice, vision, and location capabilities, changes the game. We are just now starting to recognize the possibilities. For energy applications, imagine a device or a system of sensors that can simultaneously and continuously detect important environmental factors like temperature, humidity, and light levels and predict changes. It could then assess the number of actual people, even pets, in that environment and adjust HVAC and lighting as needed. All of this would be done in the background—and with the least amount of energy needed. But this will not happen in separate, well-defined walled gardens. The IoT world requires computing on a different scale and a hybrid model of computing at the grid edge and in the cloud.



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Section 4 IOT AT THE EDGE AND IN THE CLOUD

4.1 The Edge

As the human-machine interface undergoes major changes due to IoT adoption, so does the edge of the Internet. The edge is where devices have more intelligence onboard with sensors and increased computing power, and correspondingly, the smarter electric grid. Smart meters have new intelligence and two-way control capabilities for sending not just volumetric data, but also remote connect and disconnect, and sharing data with home area networks. Although not as computationally capable as a modern smartphone or tablet, smart meters extend new functionality at the grid edge, giving electric utilities enhanced visibility into what is happening in each metered location and increased control. Customers with smart meters also gain more accurate billing and can have access to a more granular view of their consumption. This more granular data can help customers alter their behavior with the aim of saving money while also enhancing the utility-customer engagement process through participation in grid-tied savings programs like DR.

Figure 4.1 Edge Computing for the Energy Cloud


Smart thermostats and the many built-in sensors can also give more intelligence at the edge, helping to drive more efficient use of energy in commercial buildings and homes. Other edge devices will affect the way the grid is managed, particularly the growing number of solar PV installations and DER assets like onsite storage, wind farms, microgrids, EVs, and charging stations. A significant amount of data generated in near real-time from these IoT devices and systems will be processed at the edge, perhaps as



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much as 40% by some estimates.5 The overall volume of data from IoT devices is likely to exceed exabytes (1018) in the next few years and might move into zettabyte (1021) territory. This is more evidence of data becoming the new operational currency of the IoT and the Energy Cloud.

4.2 IoT Requires New Data Approach

Given such enormous amounts of data, the IoT requires a new way to approach data. Because data is processed at the edge and simultaneously within grid systems, users need a flexible way to process various forms of structured and unstructured data. This takes on the characteristics of a hybrid model, where decisions and processing occur depending on what the context is and how it brings value to the utility or end customers. And this requires an architecture that can handle data from customers and outside vendors. A utility’s system must be able to adapt to distributed devices and systems as well as integrate the data with its own traditional intelligence and control systems, such as SCADA and energy management systems.

To enable the IoT to work with utility grid systems, leading vendors such as Oracle, Microsoft, and C3 IoT emphasize the use of data lakes, which are different from traditional enterprise data warehouses. A data lake essentially is a collection of data in original form, without a predefined design, or schema. This data can then be repurposed on demand, providing new ways of analyzing it and making it useful. Consider an application that dynamically aggregates data from smart meters, internal machines in a business process, electrical load demand signals, distributed solar and wind resources, and detailed weather forecasts to tell the grid operator to prepare for a DR event in near real-time. This is the type of fast, flexible system made possible by data lakes that derive information from existing machines and connected IoT devices and related systems.

5 Bridget Karlin, “Five Critical Success Factors for Capitalizing on the Internet of Things,” CIO, August 1, 2016.



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4.3 The IoT Data Value Chain

The IoT value chain begins once edge devices are connected, sending and receiving data. At that point, the important value takes hold, managing and manipulating data at high speeds for positive outcomes. Navigant Research envisions four major links in this chain, as seen in Figure 4.2: data collection, dynamic processing, delivering, and outcomes. These links offer varying levels of opportunity for stakeholders. The two most valuable are dynamic processing and delivering, since these areas produce actionable insights that can yield high value to customers and elevated returns to stakeholders that harness them.

Figure 4.2 IoT Data Value Chain


4.4 IT Investments for DER and IoT Analytics

Managing the complex and voluminous data available today is no trivial matter, particularly in light of the fast-growing DER trend. Navigant Research views this trend as the most disruptive force currently destabilizing utilities. Global DER capacity is expected to grow nearly 5 times faster than new centralized generation during the next 5 years and generate $1.9 trillion in cumulative investment over the next decade, according to Navigant Research’s forecast. In the emerging Energy Cloud, the way to harness DER is through a strategy of integration that fosters customer choice and flexibility, but also confronts the challenges of aggregation at the grid and utility level. In this context, DER and IoT sit at the intersection of virtual power plants and other aggregation approaches.

Utilities are responding with growing budgets for IT systems, with emphasis on grid analytics and DER. Navigant Research expects overall spending on smart grid IT software and services to surpass $10.3 billion in 2016, with a compound annual growth rate (CAGR) of 6.5% through 2024 to $17.1 billion. Though not specifically designating spending on IoT yet, the rate of utility spending on systems related to IoT is expected to outpace the overall

IoT DATA COLLECTION• Big data sets• Continuous

generation• Numerous

distributed things• Transport to

systems

DYNAMIC PROCESSING• Harvesting from

multiple systems• Converting to

single, usable format

• Understanding and analyzing patterns

• Gaining insights

DELIVERING• Predictive grid

maintenance, consumption, and energy bills

• Integration of systems

• Automation of processes

• Ability to take action

OUTCOMES• Optimized,

predictable, and affordable grid

• Efficient utility operations

• Engaged, satisfied customers



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growth rate for smart grid IT. DER management system investments, for instance, are forecast to have a CAGR of 12.8% through 2024, clearly outpacing the pace of spend for more traditional areas of IT such as geographic information systems, customer information systems, or SCADA. The spending allotments demonstrate a growing awareness among utilities of the need to manage information from resources that are beyond their traditional concern and make the necessary investments in the tools to integrate the data.

Chart 4.1 Smart Grid IT Spending by Application, World Markets: 2014-2024


4.5 Baltimore Gas and Electric: Managing IoT Devices through Analytics

Baltimore Gas and Electric (BGE) offers one example of a utility investing in grid analytics to better manage deployed devices at the edge, in this case meters and sensors. BGE, a subsidiary of Exelon, launched a set of applications from software vendor C3 IoT that tracked some 2 million smart meters and sensors in its service territory. The software vendor collected 2 years of BGE’s historical data in a 10-terabyte federated cloud configuration. It then designed more than 140 analytics and predictive algorithms to match the utility’s requirements. The objective was to reduce non-technical losses, or theft of electricity, and monitor the condition of sensors. The result was the discovery of theft cases amounting to $2.8 million in lost revenue from verified fraud in the first 6 months after deployment. In the same timeframe, the analytics pinpointed sensor health issues with a 99% accuracy rate. Based on the results, BGE projected an annual financial benefit of $20 million to its operations and customers.

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4.6 IoT for C&I Customers

In the C&I space, the IoT megatrend already has a foothold, helping transform business buildings and processes into dynamic platforms for a variety of energy services. Technology and software innovation enable in-building devices to deliver unprecedented visibility into system operations, with algorithms modeling energy consumption and projecting system performance. One example of this IoT-enabled innovation is offered by US energy retailer Direct Energy. For eligible customers, the retailer offers a cloud-based electricity monitoring service based on self-powered wireless circuit-level sensors deployed at commercial locations. The sensors are backed by a software suite that features:

• Web tools that provide business managers detailed visibility in real-time into energy consumption, including peaks and anomalies.

• Several types of predefined alerts that trigger when thresholds are reached.

• Actionable insights that enable a business to identify energy loads and reduce usage, thus lowering operational expenses.

• Machine-learning algorithms that analyze device measurements in real-time to identify operational state and usage patterns.

• Access from standard web browsers, tablets, and mobile devices.

This service differs from traditional top-down DSM programs. Instead, it employs a customer-centric approach, going behind the meter to provide dynamic granular data from Internet-connected sensors. The commercial or industrial customer benefits from lower operational costs, and the retailer extracts value from a deeper customer engagement and increased customer satisfaction.

The growing business acceptance of IoT-enabled solutions, like Direct Energy’s, sets the stage for further adoption and new innovations for C&I customers. Businesses rely on existing software and hardware already, but are hungry for new and affordable methods of further leveraging underutilized data from their systems, allowing them to operate more efficiently. Gathering and partially processing data at the edge from intelligent devices and supplementing with cloud-based analytics for actionable insights can be quite efficient. This type of solution can also integrate with existing building automation and controls infrastructure, providing a more holistic view of energy usage. Given the early stage of overall adoption, even more sophisticated IoT solutions are likely just over the horizon, especially as vendors iterate based on customer feedback.

4.7 IoT for Residential Customers

In similar fashion, homeowners and renters are gravitating toward advanced IoT devices and smarter energy solutions for their homes. Smart thermostats have become the prime connected product that has appealed to early adopters eager to test equipment that promises to save on energy bills while not sacrificing on comfort. Connected LED lighting systems, like the one offered by Philips called Hue, have gained some traction as well.



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Even smart appliances with Wi-Fi built-in are seeing modest sales. It is no tidal wave, but IoT products and services are resonating. However, most consumers think of these in terms of a smarter or connected home solution; they are not adopting the geeky IoT moniker.

One recent US consumer survey found 69% of respondents said they have an interest in buying a smart appliance, and 68% expressed interest in taking part in a smart thermostat program.6 The same survey, sponsored by SmartGrid Consumer Collaborative, found that more than 55% of respondents have an interest in moving to either a peak-time savings or time-varying electric rate plan. The upshot is consumers are ready for new IoT technology, though it has to provide benefits, which can be somewhat elusive. Bear in mind, too, that having an interest is not the same as spending money on products and investing the time to implement them. Nonetheless, consumers have a history of adopting new connected technologies, particularly in the PC, laptop, and smartphone eras. As more IoT products enter the market, Navigant Research expects a steady rise in adoption, though some categories may not take hold. For smart and communicating thermostats, Navigant Research expects a robust market in the next 10 years, with device, software, and services revenue rising from $1.1 billion in 2016 to nearly $4.4 billion in 2025 at a CAGR of 16.7%.

Chart 4.2 Communicating, Smart Thermostat Device, Software, and Services Revenue by Region, World Markets: 2016-2025


6 SmartGrid Consumer Collaborative, The Empowered Consumer, 2016.

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4.8 Integrating IoT Devices, Data, and Insights

From an energy perspective, one of the challenges hindering consumer adoption of IoT technology is a lack of direction or guidance for putting the many pieces together in a unified way. Solutions are often in silos or in bundles that are marginally flexible. Some utilities have noticed the challenge and are seeking ways to unlock the hidden value of IoT technologies that could be offered to customers in a more flexible, comprehensive, and holistic fashion. One such utility is Green Mountain Power in Vermont. The utility has developed an IoT program called eHome to promote different benefits and increase customer satisfaction. The utility is taking a holistic approach to energy management, making some of the latest devices available to customers, including smart thermostats, solar PV, and a battery storage system from Tesla. It then integrates the equipment with advisory services, bridging some of the IoT gaps by providing flexible solutions that can be customized to meet specific customer needs.

4.8.1 PEVs as IoT Edge Devices

Plug-in EVs (PEVs) and charging equipment can be considered IoT devices. In vehicle-to-grid scenarios, a PEV being charged in a garage can react to signals from the grid and alter charging based on price signals. It can charge when rates and demand are lower, for instance, or send power to the grid if needed during a peak. A PEV could also be connected to a whole-home system, combining solar PV with onsite storage for increased energy efficiency.

In California, a trial is underway to test some of this functionality. Utility Pacific Gas and Electric (PG&E) has experienced significant PEV market growth in its territory, where some 70,000 vehicles tap into its grid. The utility wanted to gain a better understanding of how these vehicles could be used to the benefit of the owners and PG&E. So it set up a partnership with automaker BMW to test the DR potential. A total of 100 customers who own BMW i3 vehicles are enrolled in the 18-month pilot. Results are expected in 2017. Besides the two-way flow of energy and the DR program, PG&E and BMW are studying what motivated participants to take part, which included incentives valued at up to $1,540. The partners are also gathering participant feedback on the trial’s process, how they use a smartphone app, and what their home electricity needs are.

4.9 Cloud Computing and IoT Complement Each Other

It is worth noting the value of cloud computing as a vital complement to the IoT. Without the affordable and scalable networks of remote servers that store, manage, and process data, the actual deployment of IoT services would be greatly hindered. Not all of the processing can take place at the edge. The two overarching computing architectures, in the cloud and at the edge, often working in parallel, represent the best solution for the foreseeable future. Cloud infrastructure coupled with smart, two-way communicating devices and sensors provides utilities the scalability and nimbleness necessary to stay relevant in a dynamic energy market, where competition is heating up from non-utility players and alternative business models.



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Section 5 IOT COMMUNICATIONS CHALLENGE: CONNECTING BILLIONS OF DEVICES

5.1 Connectivity in the IoT World

For IoT to flourish, data needs to move swiftly and be relevant to the many applications existing or imagined—and under multiple scenarios or use cases. This will require more robust and reliable communications networks. For decades, utilities have deployed and managed such networks for grid operations using multiple protocols. They have often done so with capable in-house engineers. But they have not faced the prospect of adding millions or billions of IoT devices and managing those connections at scale. What is equally challenging is that many IoT devices sit beyond a utility’s traditional control boundary, which has been up to the meter. In the Energy Cloud, data communications among IoT devices interacting with systems, and systems of systems, will need higher levels of functionality and integration.

Connecting devices is fairly straightforward when there are thousands or millions of them communicating mainly in a one-way scheme. However, when it comes to deploying billions of IoT devices on a much larger scale and managing two-way functionality, connectivity becomes a major challenge. Figures of installed IoT devices numbering in the tens of billions by some year in the future get mentioned frequently by experts and repeated in tech media outlets. Industry stakeholders fill slide presentations with the astounding numbers of IoT devices to come, and this drives enthusiasm and product marketing hype. But often glossed over is the non-trivial task of actually building and maintaining reliable IoT networks to reach even the lower end of those forecasts. In the mobile phone industry, it has taken more than 20 years for nearly 5 billion people to become subscribers7—and keeping all of them connected to voice and data services is a monumental engineering feat. So there is a precedent for connecting devices at large scale. The difference for the IoT world is that the expected volume is an order of magnitude larger, not to mention the data tsunami that will come along with it.

7 According to the GSM Association, there were about 4.7 billion unique mobile subscribers worldwide at the end of 2015, or approximately 63% of the global population; http://bit.ly/2dTnsx6.



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5.2 5G to the Rescue?

On a wide area network basis, fifth generation, or 5G, wireless technology promises to tackle many of these IoT networking challenges, as noted in Navigant Research’s Communications in the Energy Cloud white paper.8 In addition, telecom giants like Verizon and South Korea’s SK Telecom are collaborating now to develop standards for 5G networks. They and other vendors envision 5G as the backbone for the IoT. It could be, but the reality is that 5G is likely a few years away from just moving out of trials. The delay is caused by multiple groups and companies working on their own versions of what 5G is. Clearly defined and accepted standards are years out. However, commonly discussed features of 5G networks sound encouraging, though previous wireless generations—2G, 3G, and 4G—prompted similar hype well ahead of actual market uptake:

• 1 Gbps-10 Gbps connections to endpoints in the field (not theoretical maximum)

• 1 ms end-to-end round-trip delay (latency)

• 1,000 times bandwidth per unit area

• 10-00 times number of connected devices

• 99.999% availability

• 100% coverage

• 90% reduction in network energy usage

• Up to 10-year battery life for low-power, machine-to-machine devices

5G sounds impressive, but experts warn that all of these promised capabilities cannot work simultaneously without breaking known laws of physics. Instead, a few of these capabilities might work for some applications, and those would suffice. Actual use cases for such a lofty network might be few and far between; it could often prove to be overkill.

8 Navigant Research, Communications in the Energy Cloud, 2016.



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Current smart grid communications protocols can handle some of the expected burgeoning load of IoT devices. Vendors like Silver Spring Networks have already demonstrated an ability to provide utilities and cities with device communications for smart meters and smart street lighting systems using existing protocols such as radio frequency (RF) mesh, power line communication (PLC), fiber, Worldwide Interoperability for Microwave Access (WiMAX), cellular, and the like. But as the IoT explodes, there is a need to move beyond what is now in play and toward robust and highly secure networks that can handle the increasing volume of data in a safe, reliable, and high-speed manner.

Table 5.1 Smart Grid Communications Protocols, Relative Comparison

Technology Bandwidth Latency

(Amt./Variability) Reliability Security Leased Lines Low Low/Low Medium-High Medium Fiber High Low/Low High High PLC Low Medium/Medium Medium Medium RF Mesh Low High/High Medium Medium Wi-Fi Mesh Medium-High Medium/High Medium-High High Private Pt2MPt Low Medium/Medium Medium High WiMAX Medium-High Medium/Medium Medium High 2G/3G Cellular Low Medium/Medium Medium Medium 4G Medium-High Medium/Medium Medium-High Medium VSAT Satellite Low-Medium-High High/Medium Medium-High High


5.3 Not Waiting for 5G

To that end, companies focused on IoT communications and networking are not waiting around for 5G. In the Netherlands, telecom provider KPN has announced the completion of its nationwide wireless IoT network. The company says it has signed contracts to connect 1.5 million devices so far, and potential customers include governments seeking to link sensors on critical infrastructure, firms specializing in lighting and traffic control, and consumers monitoring location via fobs on bicycles.

French startup Sigfox is another company building out a wireless IoT network infrastructure. Currently, the company is rolling out its LPWAN in some 22 countries. It recently announced a partnership with operator UnaBiz to set up an IoT network in Taiwan. US-based Ingenu, formerly On-Ramp Wireless, is a privately held company active in the same space. Its random phase multiple access technology features long-range, two-way connectivity among devices. The company has customers across a number of verticals, including smart grid, smart city, and fleet management, to name a few. Ayla Networks is yet another company offering an IoT solution. The venture-backed firm’s cloud-based platform as a service enables manufacturers to create IoT products that can be managed in the cloud and accessed through mobile and web applications.



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5.4 Cellular Carriers Emphasize IoT Growth

Among traditional cellular carriers, there is a fresh emphasis on IoT business. AT&T, for instance, reported the addition of 1.2 million connected devices to its network in 2Q 2016. Most of the additional devices are actually connected vehicles and other IoT devices that are not phones or tablets. In the same period, Verizon noted a 25% bump in IoT-related revenue, which was about $205 million for the quarter, and approximately $400 million for the year to date. While much of this IoT device and revenue growth is automobile-focused, both carriers also offer enterprise IoT solutions, which are likely to gain prominence in coming years as commercial customers seek to connect more devices and systems within their buildings. In addition, the fact these leading carriers call out their IoT business growth during earnings calls reflects a shift in two ways: increased carrier thinking about its role in the IoT realm; and customers growing more comfortable with IoT services from network operators.

As demonstrated above, there is no shortage of networking companies pushing IoT solutions and gaining traction. This amount of activity and competition bodes well for energy grid operators, and it means significant R&D focus and money will be aimed at solving the IoT challenges.

5.5 Protocols and an IoT Operating System

Even as IoT networking activity increases, there remains a glut of protocols in play, which tends to stall adoption among grid players and end customers. With multiple protocols and standards in the market, it creates confusion about which ones to adopt. It is a common drag on newer technology markets when standards and interoperability are in question. Competing communications protocols include: Wi-Fi, ZigBee, Z-Wave, Bluetooth Smart, and HomePlug. Some of the platforms vying for adoption are AllJoyn, Thread, and Apple’s HomeKit.

But which one to choose, knowing there are risks if the market shifts away from the one selected? At this point, Wi-Fi is a default safe bet, but it might have too much bandwidth for connecting low-power products like smart plugs or switches. Navigant Research recommends choosing an established protocol for existing applications, but considering multiple protocols for some devices or systems as a hedge against making the wrong choice. This approach might cost a bit more initially, but could prevent a device from becoming a stranded asset long before the end of its normal product lifespan.

On a positive note, leaders of various technologies have recognized the need for cooperation and are taking steps to unify a fragmented market. Thread Group and the Open Connectivity Foundation, for instance, have agreed to work together to drive interoperability among connected home devices, systems, and sensors. In addition, the ZigBee Alliance and Thread Group have partnered to allow ZigBee’s application layer protocols to operate over Thread-based networks. More detente among the players is expected in the coming quarters and years as proprietary IoT solutions lose appeal in a maturing marketplace.



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Figure 5.1 Prominent IoT Communications Protocols and Standards

(Sources: Apple, Ayla Networks, Bluetooth SIG, Thread Group, Z-Wave Alliance,

ZigBee Alliance)

One vendor going further than most in setting its own IoT technology path is Chinese manufacturer Huawei. The company has developed a software-defined network solution dubbed Agile IoT, which includes an operating system called LiteOS, a gateway called Agile Gateway, and a management platform called Agile Controller. The company says the operating system is lightweight, just 10 kB in size, and up to 20% faster than competitive offerings.



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Section 6 LOOMING CYBERSECURITY ISSUES

6.1 Ongoing Vulnerabilities

The one issue looming large over the IoT trend is cybersecurity—how to protect hardware, software, and data from bad actors looking to do harm. Nearly all stakeholders mention it as a top priority in their IoT pronouncements, and for good reason. Reports of devices getting hacked or known IoT device security risks surface on a regular basis. The number of such reports continues to alarm:

• Webcam: A mother in Houston, Texas reported the webcam in her two daughters’ bedroom had been hacked and was streaming video of their activities.

• Baby monitoring system: A couple in Indianapolis said the video monitoring system in their 2-year-old daughter’s bedroom was hacked by someone who played the song “Every Breath You Take” by The Police into the device and made lewd noises over it.

• Ransomware vulnerability in a smart thermostat: Two UK-based security researchers demonstrated a method for planting ransomware in a Wi-Fi-enabled smart thermostat. An attacker would need physical access to the thermostat or the owner would have to be tricked into infecting it by deception. Once loaded, the malware would allow the attacker to take full control over the device and could demand payment to unlock it.

• Tesla overwhelmed: A group of researchers reported at a hacker conference their ability to overwhelm a Tesla automobile’s sensors, causing it to hit an object the vehicle would normally detect and avoid.

• Smart fridge vulnerability: Researchers uncovered a likely method for stealing users’ Gmail credentials from a Samsung smart refrigerator by exploiting a man-in-the-middle vulnerability.

• Smart bulbs vulnerable: Canadian researchers showed how they were able to commandeer Philips Hue light bulbs, taking control from a long range.

These IoT vulnerabilities are isolated so far or have been revealed as part of testing for threat vectors. But the message is clear to IoT manufacturers and developers: there are too many holes ripe for attacks. More pernicious acts could become the norm as the market develops. In a larger context, grid operators are all too aware of the potential for damage to their systems, particularly as details surface of the malicious 2009-2010 Stuxnet cyber-weapon attack on an Iranian nuclear facility. No one is suggesting a smart thermostat hack has the potential to take down a utility grid, but no one is saying it could not happen either. And a more recent 2015 hack of Ukrainian substations, which left more than 230,000 people in the dark for several hours, is a potent reminder of the negative possibilities.



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6.2 Companies Working on IoT Security

The need for strong security measures is not lost on most managers at energy and utility companies around the globe, although results from Vodafone’s survey, cited above in Section 2, cast some doubt. Nearly 6 in 10 (59%) energy and utility companies are working on IoT security guidelines, according to the study that gathered responses from people in 17 countries from all the major regions. Approximately half (52%) of these companies are working with a specialist in security provision. The direction here toward a strong IoT security focus is encouraging, but the emphasis could use some improvement. One explanation could be the lack of IoT deployments at this stage of market development and a perception that dealing with threats can be put off for the near term.

6.3 Concerned Experts

Several leading technology experts have expressed their concerns about IoT vulnerabilities that are noteworthy. Vint Cerf, one of the founders of the Internet, says that not until headlines read “100,000 refrigerators attack Bank of America” will people really start to take note and react. Dan Kaufman, deputy director of the Advanced Technology and Projects group at Google, is quoted as saying he is “worried about people taking these devices—either taking my information or actually causing the devices to physically do something wrong.” Lastly, colorful software pioneer John McAfee points the finger at China, telling a conference of Internet security professionals meeting in Beijing that “China is taking the lead in putting intelligence into devices, from refrigerators to smart thermostats, and this is our weakest link in cybersecurity.” He added that his goal for speaking out was to “raise a warning flag that we have to take security of these devices even more importantly than our large computers or our smart phones.”

Figure 6.1 Cybersecurity Threat Sources




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6.4 National Institute of Science and Technology’s Network of Things

From a policy standpoint, few if any guidelines have been written to define the IoT and specify a security scheme. In this void, however, the National Institute of Science and Technology (NIST) has just released an IoT model9 that aims to frame the technology. The new model, called Network of Things (NoT), was created by Jeff Voas, a NIST computer scientist. His model, announced publicly in July 2016, is based on the concept of distributed computing, which has been around for decades. The NoT model is based on four fundamental elements of the IoT: sensing, computing, communication, and actuation. The model goes on to describe five primitives:

• Sensor: An electronic utility that measures physical properties such as temperature, acceleration, weight, sound, location, presence, identity, etc.

• Aggregator: A software implementation based on mathematical function(s) that transforms groups of raw data into intermediate, aggregated data.

• Communication channel: Medium by which data is transmitted (e.g., physical via USB, wireless, wired, verbal, etc.).

• External utility (eUtility): A software or hardware product or service. The current definition of eUtility is deliberately broad to allow for unforeseen future services and products that will be incorporated in future types of NoTs yet to be defined.

• Decision trigger: Creates the final result(s) needed to satisfy the purpose, specification, and requirements of a specific NoT.

Some NoTs might not contain all five primitives, but that would be rare, according to Voas. The model also defines six elements—environment, cost, geographic location, owner, device ID, and snapshot. And though not primitives, these elements play an important role in fostering trustworthiness that a specific NoT can provide, notes Voas.

9 For more information on NIST’s NoT model, see: http://bit.ly/2aKammM.



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Figure 6.2 NIST’s Network of Things Model

(Sources: Navigant Research, National Institute of Standards and Technology)

The NoT model is a valiant first effort in creating and easy-to-grasp IoT framework. Elegant in its simplicity, it is more than likely to be further developed as the market and technologies mature. In fact, its creator encourages research from interested parties seeking to build on the foundation, even as Voas himself continues to explore reliability and security issues.

6.5 IoT Security Mandate

Because the potential risks are so high, the mandate for IoT stakeholders is to position security as the top priority, and this must be backed up by concrete actions, not empty words or vaporware. Protecting modern technology systems from harm is nothing new, and the current challenges pressed to the forefront by the IoT trend are likely to be overcome through similar paths, just as online and mobile banking took steps to become secure enough for wide adoption, despite the number of disturbing hacks. At some point, IoT technologies will contain as much security as is feasible, with an acceptable level of risk assumed.



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Section 7 7.1 Recommendations: The IoT Playbook

A sensible IoT strategy takes the long view of this major trend and does not get bound by either-or thinking. Stakeholders should not simply accept or reject IoT technologies; rather, they need to be evaluated on their own merits and within context. For most, the traditional devices and processes are not immediately replaced. Instead, the recommended approach is to skillfully include older technologies, even as they fade, while simultaneously embracing IoT technologies. Figure 7.1 outlines a framework for an IoT strategy that utilities and other stakeholders can adopt and adapt as the market unfolds within the Energy Cloud.

Figure 7.1 The IoT Playbook




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Early adopting utilities are already integrating legacy control systems while also deploying IoT solutions for DER or storage, for instance. On the customer side, both business and residential, people are doing the same, adding submeters, sensors, and smart thermostats, for example. They are taking advantage of the latest IoT products and services for efficiency, comfort, or automation gains. But they are doing so in measured steps, hedging their adoption to fit their needs in a still somewhat murky technology arc. The process is to embrace the benefits as the IoT ecosystem evolves, but do so strategically:

• Assess the need for adopting IoT solutions within your business: What problems could adopting IoT technologies solve? Adopt those that fit with your objectives and ignore those that do not for now. You can reassess questionable solutions as they develop and mature. Just because you can connect things in new ways does not mean there is a good reason to do so.

• Specifically quantify potential IoT benefits: These include lower operating costs, enhanced automation, and increased comfort controls. Also soberly assess the downsides, especially the potential damage from security breaches.

• Stage deployments or adoption in manageable buckets: For example, deploy things like smart meters or sensors in increments in order to test and manage the systems. Discover what brings added value and what does not, particularly at this early phase. With this background, the next IoT deployments become easier to incorporate.

• Budget for the longer term: The IoT is a multiyear trend, with many uncertainties as it evolves. Paying for new devices, advanced data management systems, and services will require investments worth making, but some can be spread over time. A smaller investment in an IoT technology that turns out to be ahead of its time, or simply fails, is easier to recover from than an all-in bet that goes sour. Nonetheless, be willing to experiment since unforeseen lessons and benefits could be worth the money.

• Closely monitor IoT projects, programs, or systems: Also be ready to pivot to new advances in networking, data analytics, or applications that are not yet apparent.



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Section 8 ACRONYM AND ABBREVIATION LIST

2G ..................................................................................................................................... Second Generation

3D ...................................................................................................................................... Three-Dimensional

3G ......................................................................................................................................... Third Generation

4G ....................................................................................................................................... Fourth Generation

5G .......................................................................................................................................... Fifth Generation

AMS ..................................................................................................................... Asset Management System

ATM ....................................................................................................................... Automated Teller Machine

BGE ...................................................................................................................... Baltimore Gas and Electric

BYOT .................................................................................................................. Bring Your Own Thermostat

C&I ........................................................................................................................ Commercial and Industrial

CAGR ........................................................................................................... Compound Annual Growth Rate

CIS .................................................................................................................. Customer Information System

ComEd ....................................................................................................................... Commonwealth Edison

DER ................................................................................................................. Distributed Energy Resources

DERMS .......................................................................... Distributed Energy Resource Management System

DMS ........................................................................................................... Distribution Management System

DR .................................................................................................................................... Demand Response

DRMS ............................................................................................ Demand Response Management System

DSM .................................................................................................................... Demand-Side Management

EMS .................................................................................................................. Energy Management System

EV ........................................................................................................................................... Electric Vehicle

Gbps ............................................................................................................................... Gigabits per Second

GIS ............................................................................................................... Geographic Information System



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GPS ....................................................................................................................... Global Positioning System

HVAC ............................................................................................ Heating, Ventilation, and Air Conditioning

ID ......................................................................................................................................................... Identity

IoT ....................................................................................................................................... Internet of Things

IT ............................................................................................................................... Information Technology

kB ....................................................................................................................................................... Kilobyte

LED ................................................................................................................................. Light-Emitting Diode

LPWAN .......................................................................................................... Low-Power Wide Area Network

MDMS ........................................................................................................ Meter Data Management System

MEMS ........................................................................................................ Micro-Electromechanical Systems

ms .................................................................................................................................................. Millisecond

MWMS .............................................................................................. Mobile Workforce Management System

NIST ........................................................................................ National Institute of Science and Technology

NoT ..................................................................................................................................... Network of Things

OMS ................................................................................................................. Outage Management System

PC .................................................................................................................................... Personal Computer

PEV ............................................................................................................................ Plug-In Electric Vehicle

PG&E ........................................................................................................................ Pacific Gas and Electric

PLC ..................................................................................................................... Power Line Communication

PV ............................................................................................................................................... Photovoltaics

RF ......................................................................................................................................... Radio Frequency

SCADA .......................................................................................... Supervisory Control and Data Acquisition

SCADA .......................................................................................... Supervisory Control and Data Acquisition

UK ......................................................................................................................................... United Kingdom

US ............................................................................................................................................. United States



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USB ................................................................................................................................. Universal Serial Bus

WiMAX .............................................................................. Worldwide Interoperability for Microwave Access



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Section 9 TABLE OF CONTENTS

Section 1 ...................................................................................................................................................... 1

Executive Summary .................................................................................................................................... 1

1.1 Introduction: The Internet of Things Trend .................................................................................... 1

1.2 The IoT Platform ........................................................................................................................... 1

1.3 IoT Already Here, but Not Widely Recognized Yet ....................................................................... 3

Section 2 ...................................................................................................................................................... 5

IoT Hype Diminishing ................................................................................................................................. 5

2.1 Time for Action .............................................................................................................................. 5

2.2 Expected IoT Tipping Point ........................................................................................................... 5

2.3 IoT and the Energy Cloud ............................................................................................................. 6

2.4 A Transformative Process ............................................................................................................. 7

Section 3 ...................................................................................................................................................... 8

IoT Expands Human-Machine Interfaces .................................................................................................. 8

3.1 New Machine Interactions ............................................................................................................. 8

3.2 Voice as IoT Device Input ............................................................................................................. 8

3.3 Wearables as Input ....................................................................................................................... 9

3.4 Cameras as Input for Interaction ................................................................................................... 9

3.5 Enhanced Occupancy Sensing—Beyond Motion ....................................................................... 10

3.6 Glasses as Interface—Not the Last Word Yet ............................................................................ 10

3.7 Enhanced Location Sensing: Geofencing, Geolocation, and IoT ............................................... 11

3.8 Touch Still Relevant .................................................................................................................... 11

3.9 IoT Customer Experience ........................................................................................................... 12



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Section 4 .................................................................................................................................................... 14

IoT at the Edge and in the Cloud ............................................................................................................. 14

4.1 The Edge ..................................................................................................................................... 14

4.2 IoT Requires New Data Approach .............................................................................................. 15

4.3 The IoT Data Value Chain ........................................................................................................... 16

4.4 IT Investments for DER and IoT Analytics .................................................................................. 16

4.5 Baltimore Gas and Electric: Managing IoT Devices through Analytics ....................................... 17

4.6 IoT for C&I Customers ................................................................................................................ 18

4.7 IoT for Residential Customers..................................................................................................... 18

4.8 Integrating IoT Devices, Data, and Insights ................................................................................ 20

4.8.1 PEVs as IoT Edge Devices ................................................................................................... 20

4.9 Cloud Computing and IoT Complement Each Other .................................................................. 20

Section 5 .................................................................................................................................................... 21

IoT Communications Challenge: Connecting Billions of Devices ....................................................... 21

5.1 Connectivity in the IoT World ...................................................................................................... 21

5.2 5G to the Rescue? ...................................................................................................................... 22

5.3 Not Waiting for 5G ....................................................................................................................... 23

5.4 Cellular Carriers Emphasize IoT Growth .................................................................................... 24

5.5 Protocols and an IoT Operating System ..................................................................................... 24

Section 6 .................................................................................................................................................... 26

Looming Cybersecurity Issues ................................................................................................................ 26

6.1 Ongoing Vulnerabilities ............................................................................................................... 26

6.2 Companies Working on IoT Security .......................................................................................... 27

6.3 Concerned Experts ..................................................................................................................... 27

6.4 National Institute of Science and Technology’s Network of Things ............................................ 28



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6.5 IoT Security Mandate .................................................................................................................. 29

Section 7 .................................................................................................................................................... 30

7.1 Recommendations: The IoT Playbook ........................................................................................ 30

Section 8 .................................................................................................................................................... 32

Acronym and Abbreviation List ............................................................................................................... 32

Section 9 .................................................................................................................................................... 35

Table of Contents ...................................................................................................................................... 35

Section 10 .................................................................................................................................................. 38

Table of Charts and Figures..................................................................................................................... 38

Section 11 .................................................................................................................................................. 39

Scope of Study .......................................................................................................................................... 39

Sources and Methodology ....................................................................................................................... 39

Notes .......................................................................................................................................................... 40



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Section 10 TABLE OF CHARTS AND FIGURES

Chart 2.1 Commercial and Residential IoT Revenue by Type, World Markets: 2016-2025 ................... 6

Chart 4.1 Smart Grid IT Spending by Application, World Markets: 2014-2024 .................................... 17

Chart 4.2 Communicating, Smart Thermostat Device, Software, and Services Revenue by Region,

World Markets: 2016-2025 .................................................................................................... 19

Figure 1.1 The IoT Undergirds the Emerging Energy Cloud .................................................................... 4

Figure 3.1 IoT Alters Human-Machine Interfaces ..................................................................................... 8

Figure 4.1 Edge Computing for the Energy Cloud .................................................................................. 14

Figure 4.2 IoT Data Value Chain ............................................................................................................ 16

Figure 5.1 Prominent IoT Communications Protocols and Standards ................................................... 25

Figure 6.1 Cybersecurity Threat Sources ............................................................................................... 27

Figure 6.2 NIST’s Network of Things Model ........................................................................................... 29

Figure 7.1 The IoT Playbook .................................................................................................................. 30



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Section 11 SCOPE OF STUDY

Navigant Research has prepared this white paper to provide current and interested stakeholders at all levels of the electric industry, including utilities, regulators, technology suppliers, service providers, investors, and policymakers, with an overview of the opportunities and challenges offered by the emerging IoT trend. The main emphasis is on providing context around the forces driving market adoption the IoT and how those apply to the Energy Cloud paradigm.

The white paper’s objective is to provide meaningful insights about the IoT trend and a framework for making key business decisions for harnessing the benefits to drive growth. It also aims to provide a high-level assessment of some of the risks involved as the IoT market shifts and matures. The report does not, however, aim to provide an exhaustive market assessment or a comprehensive forecast of potential revenue volumes. That type of market research data is available in Navigant Research’s in-depth market and technology reports.

SOURCES AND METHODOLOGY

Navigant Research’s industry analysts utilize a variety of research sources in preparing Research Reports. The key component of Navigant Research’s analysis is primary research gained from phone and in-person interviews with industry leaders including executives, engineers, and marketing professionals. Analysts are diligent in ensuring that they speak with representatives from every part of the value chain, including but not limited to technology companies, utilities and other service providers, industry associations, government agencies, and the investment community.

Additional analysis includes secondary research conducted by Navigant Research’s analysts and its staff of research assistants. Where applicable, all secondary research sources are appropriately cited within this report.

These primary and secondary research sources, combined with the analyst’s industry expertise, are synthesized into the qualitative and quantitative analysis presented in Navigant Research’s reports. Great care is taken in making sure that all analysis is well-supported by facts, but where the facts are unknown and assumptions must be made, analysts document their assumptions and are prepared to explain their methodology, both within the body of a report and in direct conversations with clients.

Navigant Research is a market research group whose goal is to present an objective, unbiased view of market opportunities within its coverage areas. Navigant Research is not beholden to any special interests and is thus able to offer clear, actionable advice to help clients succeed in the industry, unfettered by technology hype, political agendas, or emotional factors that are inherent in cleantech markets.



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NOTES

CAGR refers to compound average annual growth rate, using the formula:

CAGR = (End Year Value ÷ Start Year Value)(1/steps) – 1.

CAGRs presented in the tables are for the entire timeframe in the title. Where data for fewer years are given, the CAGR is for the range presented. Where relevant, CAGRs for shorter timeframes may be given as well.

Figures are based on the best estimates available at the time of calculation. Annual revenues, shipments, and sales are based on end-of-year figures unless otherwise noted. All values are expressed in year 2016 US dollars unless otherwise noted. Percentages may not add up to 100 due to rounding.



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Published 4Q 2016

©2016 Navigant Consulting, Inc. 1375 Walnut Street, Suite 100 Boulder, CO 80302 USA Tel: +1.303.997.7609 http://www.navigantresearch.com

Navigant Consulting, Inc. (Navigant) has provided the information in this publication for informational purposes only. The information has been obtained from sources believed to be reliable; however, Navigant does not make any express or implied warranty or representation concerning such information. Any market forecasts or predictions contained in the publication reflect Navigant’s current expectations based on market data and trend analysis. Market predictions and expectations are inherently uncertain and actual results may differ materially from those contained in the publication. Navigant and its subsidiaries and affiliates hereby disclaim liability for any loss or damage caused by errors or omissions in this publication.

Any reference to a specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise, does not constitute or imply an endorsement, recommendation, or favoring by Navigant.

This publication is intended for the sole and exclusive use of the original purchaser. No part of this publication may be reproduced, stored in a retrieval system, distributed or transmitted in any form or by any means, electronic or otherwise, including use in any public or private offering, without the prior written permission of Navigant Consulting, Inc., Chicago, Illinois, USA.

Government data and other data obtained from public sources found in this report are not protected by copyright or intellectual property claims.

Note: Editing of this report was closed on November 3, 2016.

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