There will be blood...

'The core of any revolution in the way that work gets done is, inevitably, (as a result of) changes in energy. When true innovations occur in the production of goods or services, they are the result of a capacity to unearth new sources of energy or to apply existing sources in a radically more efficient way'.

That paragraph above from 'The Shift' by Linda Gratton makes sense. It's happened before; steam and the onset of engine science for transport/industry led to the need for professional qualifications (engineers, floor men/women or train drivers) to manage the steam engines.

It's happening again right before our very eyes... at an increasing pace all across the energy industry. And it's not just because of low oil prices. Just this morning Siemens announced 4500 jobs would be slashed on the power and gas side of the business. But it's not just because of the changes in energy utilization and type of energy. I'll suggest that more than the changing nature of energy, the huge loss of jobs happening in the energy industry is more tied to the changing nature of The Firm as theorized by Ronald Coase in 1937. Sidebar: please read the 'Nature of the Firm', the book not the wikipedia entry :).2nd sidebar: like good wine, the best economic theories get better with age.

Yesterday I read a blog post by Roy Bahat quoting Ronald Coase and the shoe finally dropped for me. I'll summarize the blog post and then relate it to what is happening to the utility industry; Coase (and Bahat talking about the tech industry) suggests that if a firms costs (trust, friction, information etc) of doing business with entities within said firm are lower than the costs of doing work with entities outside said firm, then more of the work will be brought within the firm, and this leads to an increase in the size of the firm. The opposite applies nowadays; the costs of doing business with people outside a firm have dropped dramatically. For example not many firms have in house lawyers nor develop the technological tools they use internally, essentially reducing the need for more employees and large sized firms.

dumbbell shape of the future utility.png

As humans we underestimate the impact of technology. All the time. In the utility industry we grossly underestimate the impact of technology. The DOUGs (Dear Old Utility Guys) of the industry do not even remotely understand how much things are changing. I've spent 13+ years in this industry, I think I get it but I'm sure I'm underestimating the impact. Up until I connected that paragraph from 'The Shift', the blog post by Roy Bahat and the Siemens announcement this morning I'd failed to realize how much of a revolution is occurring in our lives/society due to the increasing pace of solar deployment, advances in batteries, sensors, energy storage and 'energy as data'. 

So what will happen next? As we rely on newer and more sustainable sources of energy we will start to think of energy more in terms of the 'informational value' (how much and when you use energy is very important to the utility) and less about the energy itself. The skills required to play a part in this 'new form' of the industry will be more specialized and there will be fewer people from within the industry that possess the skills to 'add value' in the workforce.

A simple illustration

  • With old electricity meters you required meter readers - several human beings - to physically go to customers homes to write down how much power customers used. This led to a utility that had to hire thousands of field workers.
  • With smart meters you need fewer more qualified employees (say data scientists) to report and analyze the power usage information from thousands of consumer homes. Even in cases where humans are collecting data from meters their devices will be more efficient.

changes in 'energy' and how it is used/engaged with will lead to a change in how work is done and who does it. 

But this is not to suggest that the current utilities will go away. In fact, claims of the utility death spiral are overblown and premature. What will happen is that there will be companies at either end of the 'barbell'; on one end big utilities that have large assets - and consequently large number of employees - and on the other end of the barbell there will small assetless utilities that focus on the 'energy as data/information' end of what a utility provides.

The type of skills required in the utility industry is changing, new firms that require fewer more qualified people will compete with the large ones who will not die but will have to adapt quickly and need to train their old employees or acquire skilled workers from other industries. That being said, there will be blood...