According to estimations by the McKinsey Global Institute, the Internet of Things (IoT) will have a total economic impact of up to $11 trillion by 2025. Some of this will come from the huge energy savings from increasing visibility of the grid’s performance, identifying where we lose energy, and therefore discovering where the savings potential really lie – “efficiency”.

The key to the efficiency-enhancing power of Internet of Things lies in peak usage periods. Electricity is of course much more expensive in the hours when it is in most demand. However, the majority of consumers around the world are still billed purely on how much power they use. This baked-in inefficiency increases overall costs for both the utilities and the average consumer. The consumer is guarded from the spikes of peak usage periods, and the utility companies are either willing to absorb some of the extra cost or pass this on to the bill payer with regular price increases.

Nowhere is this situation more evident and impactful than for small and medium sized enterprises (SMEs). For these businesses the cost on energy is often a sizeable proportion of their operational expenses; therefore any product or service, like the IoT, that promises to reduce their energy costs will be highly valued.

Our recent report exploring the interconnection between Smart Grids and Smart Buildings estimated that the overall market for Energy Software in Smart Buildings came in at $6.35Bn in 2015, and is expected to rise to just under $9.8Bn by 2020, representing a very healthy CAGR of 9% per annum. Of this, Enterprise Energy Management Systems (EEMs) make up the largest proportion of the market in 2015, at around 46% of overall sales. Furthermore, the EEMs market share will grow further to 49% by 2020, the report predicted.

Organisations can manually lower their energy needs by switching off unnecessary lights or adjusting heating and ventilation systems. However, the greatest savings will be found by lowering their energy use at peak hours. For entities like supermarkets, hotels, offices, campuses, hospitals and factories reducing peak time consumption can help the national grid manage peak loads and, at least in developed power sectors, they will receive considerable dividends for doing so.

This is where distributed energy storage comes to the fore. Distributed Energy storage refers to a variety of technologies, which use mechanical, electrochemical, or thermal processes that take electricity from the grid and supply it back at a later point in time, and it has the potential to enhance grid flexibility in several ways, as our report demonstrates.

“Energy storage provides an inventory of electricity to the power system, adding a buffer to the current “just in time” system. It can be used to manage peak load, follow power system ramps, provide responsive reserves, relieve T&D congestion, and mitigate service outages. Storage can also make the overall grid more flexible by accommodating more variable, renewable generation resources. It can reduce strain on the grid caused by power fluctuations and can help optimise dispatch of both variable and conventional generators. Grid energy storage can respond quickly to second-to-minute changes in electricity demand and to supply changes resulting from variable generation.”

So IoT’s larger promise arises from an integrated system in which smart products, such as storage but also consuming devices, are in regular conversation with dynamic utilities and a smart energy grid. These solutions are sometimes referred to as “grid edge intelligence”, Distributed energy resource management systems (DERMS), and demand response management systems (DRMS). Through such systems Cisco believes the IoT could generate $4.6 trillion over the next ten years for the public sector, and $14.4 trillion for the private sector.

This goes well beyond large storage and HVAC systems to truly encapsulate the term “things”. Continued expansion of the IoT will connect everything from thermostats to fridges to electric cars to the Internet and, with a vast amount of processing power, will use that connection to optimise energy usage and flow on an unprecedented level.

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“The IoT today is like the Internet itself, as it was in its infancy about 2 decades ago, full of promise and potential but still a conceptual leap for many individuals”, says Gaurav Burman, VP & Country President, India, for IoT building automation firm 75F.

However, like the young Internet, the IoT is becoming more and more understood by the day. This understanding can’t come soon enough when you consider the rapid rise in demand and cost of electricity. As the understanding increases further and the compounding benefits become more tangible, adoption and further development of the IoT will increase exponentially; to the benefit of businesses, utilities and society itself.