At a conference recently one utility CEO suggested that (like Mark Twain) 'the reports of my company’s death are exaggerated'. Most people in the audience, also utility industry executives, laughed. I believe they laughed prematurely...
Three things have happened in in the last few months at the layers of the industry (infrastructure, technology and customer layers) that make me believe that the pace of the change going on within the industry is accelerating. Taken separately they are not insignificant. Taken together, from a systems perspective, they are signs of a seismic (pardon the pun) power shift. The three things
- Infrastructure: This layer of the industry tends to be the source of utility executive confidence about their indispensability in this industry. It’s totally understandable that this would be the case; it takes 7-8 years and billions of dollars to build a power plant. The first signs of a huge crack came in the form of Pacific Gas & Electric’s announcement yesterday that they’d be transitioning their oldest and most popular nuclear plant Diablo Canyon by 2025. The plants being phased out supply 1.7M homes in Central and Northern California homes. 1.7M homes that will now have to be supplied by alternative distributed power generation. 5 years ago the plan would have been to build or recommission the plant. It’s a new day when this is not the case.
- Infrastructure Technology: The second transition happening at this layer requires some systems thinking to connect the dots
- A few months ago a research team from the University of Electro-Communications in Japan announced in the Optical Society research journal that they’d passed 60W of power over 300 meters of Fibre cable by modifying the fibre cladding. The team, led by Prof Motoharu Matsuura, had failed at their attempts over several years but finally got their breakthrough in 2015. It’s a short distance and not that much power but the barrier has been broken. Before Roger Bannister broke the four-minute milein 1954 or before it seemed impossible, now pretty much every elite long distance runner breaks it. It will be the same with the power-over-fibre wattage and the distance barrier as researchers will figure out how to increase the distance and power that can be passed over that distance.
- In Michael Lewis’ ‘Flash Boys’ Spread Networks laid 827 miles of fibre optic cable between Chicago and New Jersey at the cost of $300M. The cable was supposed to help shed milliseconds off trading times to improve returns for electronic traders. As far as I know those cables are still there.
- Google continues to roll out fibre across the US announcing more cities at an increasing pace (see image below).
What am I suggesting here? That the old technology for distributing electricity, transmission wires/lines, might soon lose its place as the only channel. I’m suggesting that disruption is also happening at the level where the utility continued to charge rent (you and I continue to pay the utility for power moving over transmission lines even in deregulated states like Texas where you can buy electricity from alternative suppliers). That should be scary for those laughing executives from the conference I mentioned above. But the smiles are truly about to be wiped off when we consider the customer layer of the industry.
3. Customer: I’ve written about the lack of a brand name company in the utility industry. That is about to change. On two fronts. Tesla, one of the coolest brands in the world, just proposed to buy SolarCity, one of the leaders in the residential solar industry. By combining Tesla will own distributed generation (solar), storage and some demand (Powerwall) and more demand (electric vehicles). Putting aside the likely difficulties of combining businesses and manufacturing the 400K Teslas that were pre-sold a few months ago the utilities should be worried. Bringing a brand play to this staid market will certainly shake things up. Something else missed is that a few months agoSolarCity launched their utility-scale solar (generation) and dispatchable utility scale energy storage products. In layman's terms? SolarCity was already starting to move into the terrain of some of the utilities they have slowly been taking customers from. Between Tesla’s 450K customers and SolarCity's 300K customers all captivegeneration, demand and storage customers the combined company can be considered a sizable utility. The second brand play is by Apple, the company recently applied for a license that allows it to sell excess solar energy from its campuses. Wholesale now, retail electricity to you and I soon? Time will tell.
Granted these are experiments, especially the fibre research and Tesla/SolarCity story, but some of these experiments will succeed. The time between WorldCom building all the infrastructure that laid the groundwork for the high-speed internet we know today and the computer-in-every-pocket-world we have now is a mere 13 years. The infrastructure of landlines (analogous to the infrastructure of the centralized grid) and the steady uni-directional business model (you use the phone and you pay a fee) have given way to free phone calls to my childhood friends in Lagos over WhatsApp. In 13 years business models have been upended. Financial cycles tend to be between 7-9 years so it’s taken about two cycles for phone service provider business models to change. This power shift in the utility industry started roughly around a cycle and a half ago (2006). As the infrastructure layer becomes more distributed, the technology layer becomes more fluid and the customers pay more attention to
This power shift in the utility industry started roughly around a cycle and a half ago (2006). As the infrastructure layer becomes more distributed, the technology layer becomes more fluid and the customers pay more attention to brand at a pace that the utility has up until now never had to deal with. Business models will be forever changed and new utility companies will arise.We’ll see who will be laughing then...