Why Are There No Unicorns In Energy Technology?

Opower, the shining light of energy usage management and behavior modification, is being bought by Oracle for (what would otherwise be) a whopping sum of $532M. Under normal circumstances this would be a great thing for the energy technology industry. But it's not.

See until this morning Opower was a public company with a market cap of $556M. Yes, it's being bought by Oracle for slightly less than its market cap. For technology companies delivering products to some of the biggest companies in the world - there are ~27 publicly traded utilities with over $5Bn market cap - it is rather disheartening to see one of the flag bearers end up this way. Especially when the Snapchats and Pinterests of the world command multi-billion dollar valuations.

For technology companies delivering products to some of the biggest companies in the world - there are ~27 publicly traded utilities with over $5Bn market cap - it is rather disheartening to see one of the flag bearers end up this way. Especially when the Snapchats and Pinterests of the world are commanding multi-billion dollar valuations.

So why is it difficult for energy technology startup companies to grow as big or as fast as their social media counterparts? Why are there no unicorns (companies with billion dollar valuations) in energy technology? 3 main reasons (amongst many) for this:

  1. Policy resistanceThis is a system concept where actors all work hard towards their best interests and consequently diminish the value to every actor in the system. The publicly traded utility is focused on maximising shareholder value, the consumer is focused on paying the least possible for secure and stable power, the regulator is focused on protecting the consumer and the technology providers have focused on serving the utility without disrupting business-as-usual. The outcome is a state of resistance where no one's goals are achieved, a suboptimal outcome. For technology startups' innovative efforts end up being stifled and this puts a cap on how much growth is possible in this market.
  2. Regulation and lobbying: The utility industry is, for the most part, heavily regulated. In an odd twist of business logic, the heightened regulation also provides a barrier to entry for smaller entities thereby entrenching the utilities even more. For example an average utility is required to have cash reserves that most technology startups can only dream of. Like pharma and insurance, also heavily regulated sectors, the utility industry spends a lot of money lobbying to maintain this status quo (image below shows the the top lobbying industries)Source: To bring to market a technology that would disrupt the utility business model would require a lot of money and a lot of time. Two things most early stage technology companies do not have are a lot of money or a lot of time. 
  3. Behavioural EconomicsAccenture (and anecdotally Google) carried out some research in 2010 that showed consumers only spend 6-9 minutes a year, outside of paying bills, thinking about their energy. The research also found that most of the interactions with the utility was negative. Opower was early in using social pressure to get consumers to pay enough attention to their bills to reduce their energy usage. But when you are working with just 6 minutes a year of negative interaction you have a long long way to go. Especially considering the number of minutes you and I spend reading memes, watching cat videos and dream boards with pictures of furniture we might never actually buy. The normal rules and expectations for user engagement do not apply when it comes to energy technology and stifles growth for companies in this space.


Combine the three conditions above and you see why there are fewer energy technology companies that have achieved unicorn status (1 and that company is Nest) than there are Women CEOs at Fortune 500 companies (20). 

Will this change? Thankfully the answer to this question of whether there will be unicorns in the energy technology space is a resounding 'Yes'. As the utility industry moves to data as the value and energy as the commodity, a distributed structure, where every device is connected/controllable and becomes an industry with empowered and mobile phone enabled consumers, new companies will sprout up across the value chain to provide what the consumer demands and enable what technology wants (progress). Steve Case calls these sorts of businesses and entrepreneurs Third Wave Businesses. It will require entrepreneurs that see the future of technology, are in tune with consumer needs and are savvy in dealing with regulation and government. It will demand a new approach to thinking about the utility industry.

That work has already started.

SunEdison Bankruptcy? Nothing To Worry About!

I read the news of the SunEdison bankruptcy and @Jigar Shah’s gracious note to his old team from the offices of a nano-grid development company in Lagos Nigeria (picture below). Like everyone who is working, investing and hoping on the impact that renewable energy can have on our lives I asked the question ‘what happened? How does a company, any company, go from a stock price of $34 to (technically) $0 in about a year and a half? 

So what went wrong? The common understanding, at this point, is that SunEdison fell for three main reasons. The company

  1. spent too much money on acquisitions
  2. placed bets on Yieldcos (special vehicles that were essentially holding companies for renewable investments) but raised about 30% less funding than the $1Bn it intended to raise selling more shares in the Yieldco than it intended to sell.
  3. spent way more money than it was making. Much more. In Nov 2015 the company was $11bn in debt, was generating $2.4Bn in revenue and had net income of $536M.

Summary? Icarus flew too close to the sun (hubris), lost the wax in his wings (money) and fell to his death (bankruptcy).But things are not as bad as it seems.

We have seen this before and things actually turned out great for you and I. It is the story of  WorldCom in the early days of the current telecommunications industry. WorldCom, which started off as a small long-distance telephone company, followed the same strategy of growth through acquisition completing 

  • a mind-boggling 65 acquisitions in 6 years
  • to the tune of $60Bn
  • incurring debt of $41Bn! 

The company bought MFS/UUNet and got into internet service provision to businesses (see where I’m going here?). The acquisitions came with managerial problems for the company and the high flying stock price led to hubris in decision making (more acquisitions and a feeling of invincibility). Like Worldcom SunEdison found accounting issues but unlike WorldCom, which gave loans to executives to load up on company stock, found no fraud.

So what's the lesson from similar paths between two businesses in different industries in different eras but with the same outcome? The similarities are that all the work that WorldCom (better known to you and I as Verizon) did in the 1990’s had a hand in you streaming Netflix and binge-watching Transparent on Amazon this morning. Yes, the wires that were laid, towers that were built and the infrastructure that was put in place during those early days of the telecomms industry as we know it now are critical to the benefits we enjoy close to 20 years later.

And that is the lesson here. The renewable energy sector is in it’s very early days. The bankruptcies and confusion come from the search for business models that will work in a new paradigm of energy provision. We will figure it out. But there will be blood. A lot of money will be spent, made and lost as we wade through the murky waters in the early stages of this industry (the same way it works for the early days of any business). We, as an industry, will figure it out and the world will be better for it.

So whenever you doubt whether the renewable energy will survive just glance at your mobile phone and remember that the companies that laid the foundation for your enjoyment of Beyonce’s visual album mostly no longer exist. SunEdison may be struggling now but hundreds of businesses will take it’s place and ensure the adoption of renewable energy continues.

Here I’ll make a pitch for investing in renewable energy in Africa; The average cost of commercial power in the USA is ~12c/kWh, in Nigeria the average is ~36c/kWh (I’m looking at data from hundreds of commercial locations as I type this) and rises to closer to ~50c/kWh if you factor in diesel generators (which is a big part of the mix). With ~8 sun hours/day solar generation, at 12.2c/kWh, makes so much sense that it’s surprising there aren’t more investors diving into what is a ripe market. Reach out if you are interested...the adoption of renewable energy across the world is inevitable. SunEdison has been a big part of that revolution.

Seyi Fabode is an author and Partner at Asha Labs consulting with power industry executives to develop and implement strategic plans for technological change. Seyi writes about energy (future utility), technology (smart cities) and people (systems thinking) at Follow@Seyi_Fab.

Quick Guide To Nanogrids and Minigrids

One of the ongoing issues with the transition to a new utility paradigm, for both consumers and providers, is the required change from a centralized to a distributed framework. Utilities are worried that consumers will abandon the power coming from a big power station far away in favor of the solar panel on their roofs, the tesla powerwall in their homes and the extra power from their neighbor. At the same time consumers are worried that the new forms of energy will cost them more than they currently pay and not everyone wants to ‘pay a premium to promote renewables’. Good news is that there is a transition opportunity that helps achieve the goals and desires of the consumer for safe (read as clean), reliable and stable power. They are called Nanogrids and Minigrids.

Nanogrids: are considered as discrete loads (the power drawn) that sometimes use direct current (DC) to reduce on energy losses that we normally see in long distance energy transmission. Navigant suggests a 5kW capacity for standalone systems and 100kW capacity if the system is tied to the current grid. Sidenote: think of kW as stock (energy in a tank) and kWh as flow (power used by your ac). The off-grid central Texas farm with its solar panels and its diesel generator on the back of the pickup truck is already operating as a nanogrid.  Why is it less disruptive to the the utility? Because nanogrids, at current scale, do not take too much off the plate of the utility enabling them make the adjustment in a more transitional way. Why is it good for consumers? The ability to manage your own generation, demand and usage using renewable energy is where we are all going so why not get there earlier than others. The fascinating thing is that in African countries, including the one where I was born, either through lack of infrastructure or depreciated assets this is already the case. I wrote about my fathers generation serving as their own Youtility with each home running a nanogrid unto itself with a generator combined with solar energy for power, a borehole dug in the back of the compound for water and gas tanks swapped out at the gas station for cooking gas. A nanogrid…

MiniGrid: So what do you get when you combine nanogrids? Doesn’t take too much of a leap in imagination to see what a minigrid is; in lay terms it is a modular collection of nanogrids. It is often a collection of demand nodes (buildings) all pulling from one or a few distributed energy sources (a solar array and some storage). The difference from the current microgrid or centralized utility structure is in the size. There will be wires required to connect the homes and commercial buildings, which is not the case in a nanogrid, but not at the range that the current grid covers. This structure of grid lends itself to the pay-as-you-go model of electricity usage that is prevalent in the developing countries where this is already in play. This is a model that can be borrowed for low-income areas of most of our fast changing cities, a model that starts to cater to the customization of service that the future utility (customer) will demand.

Nanogrids will play a big role in the smart and connected homes we will all live in in the future and consequently the minigrid system will heavily impact the smart city future that is upon us. It is quite ironic that is a grid system that we in the US will be borrowing from developing countries where the lack of infrastructure is forcing the fast adoption of these systems. The utility, in it’s current state, will play some role in this future.

What is required is for the utility to take their vast reserves of cash and infrastructure and decide which part of the value chain - infrastructure, technology or people - their strengths lie.

It is a decision that needs to be made soon.

3 Ways Blockchain is Fundamentally Changing The Power Industry

I attended a TED style energy conference about a week ago and the consensus was that the future utility is here regardless of how reluctant the industry is. With impending delivery of Tesla Powerwalls and continued reduction in solar panel prices (with science now able to facilitate solar power generation even in rainy conditions [PDF]) fundamental change is not just imminent, it is here.

I wrote a future utility post a year ago and in it I suggested a scenario where

'Sam is considered as a 'node' on the future electricity grid (with a card and a mobile app to measure how much energy she uses or produces)... Sam’s home is powered by a rooftop solar panel and has a neighbor, Jo (with his own + or -), who doesn’t drive, doesn’t own a solar panel but trades stocks for a living, using a lot more electricity than Sam by running servers at home. Some days Jo (conceptually) ‘gets’ electricity from Sam's 'home battery' or the Walgreens or the wind farm depending on whether Jo 'wants' renewable energy. Because Jo is another node on the grid'.

That scenario is closer than I projected all because of Blockchain. As I share in my ebook Managing Technological Change In The Utility Industry I see 3 areas of fundamental change

  1. Consumer data management: The ledger function that the Blockchain provides will allow 3rd party technology and service providers to safely interact with the end consumer in a relationship that up until now didn't exist; the utility acted as the gatekeeper of consumer data preventing access to the services that we now take for granted in other industries for example the ability to get contracts based on your customized usage profile.
  2. Retail trading between consumers: the contract between the utility and you is for the utility to generate and deliver electricity to the your home. Smart contracts, enabled by blockchain, will enable a solar panel and Powerwall owner to sell electricity to their neighbors, effectively cutting out the utility. It's already being piloted in NY and will be an area of huge impact. Yes, the future is now.
  3. Utility security: data transmission, and consequently data security, at the scale the utility has never known is currently at the top of industry concerns. Secure data transmission, using the blockchain and its public/private key cryptography and cryptographic signatures (amongst other cryptographic techniques), takes away the pain of the utility CIO. 

The industry is not prepared for these changes and in some cases is actively resisting it. Blockchain as an infrastructure platform is not a fad, even if Bitcoin may be, and Goldman Sachs is spending heavily to disrupt itself [PDF].

As Nobel prize winning physicist Max Planck suggested 'a new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents finally die'. Time for the industry to wake up.

Berkshire Hathaway, Alphabet & Why Warren Buffett Should Be Worried

Warren Buffett (through NV Energy) and Elon Musk (through Solarcity) are currently battling in Arizona; one wants status quo and the other wants the government to continue providing subsidies to homeowners with solar panels who want to sell their power back to the grid (it’s known as net-metering). NV Energy has fought the subsidies using lobbyists, and won this round by getting the laws rewritten making solar cost prohibitive  for new customers and uneconomical for current solar panel owners. Apart from the creepy image of half naked Buffett and half naked Musk, Bloomberg Business magazine shows a myopia that I doubt Warren Buffett himself has. 

Sidenote: The battle actually highlights a systems thinking trap that actors fall into called Policy resistance; various actors try to pull a system towards various goals (most of the time conflicting as in this case), the result is an outcome no one likes but everyone spends considerable time and money maintaining. Point is, no one benefits from this war.

See, this battle might be between Warren Buffett (Berkshire Hathaway or BRK) and Musk (Solarcity, Powerwall) but the real war is actually between Berkshire Hathaway and Alphabet (formerly known as Google).

A simple look at Berkshire Hathaway’s portfolio of companies shows a heavy tilt towards companies that provide (according to Maslow's Hierarchy) safety, physiological needs and a huge dose of self esteem. The graph below shows how BRK companies are heavily skewed towards these needs we have - the desire to house, clothe, feed and affirm our families; in the form of home construction/ownership, protecting those homes and our livelihoods in the form of insurance and the things we do when we have security and comfort, boating/jewelry and the like.

Crazy thing is Alphabet is not just borrowing the holding company model from BRK, Alphabet is competing directly. Here are the 3 segments of competition below. Some clear areas of overlap and competition: 

  1. Energy (safety and security): Apart from NV energy (the entity battling with Solarcity above), Berkshire Hathaway has made a lot of investments in traditional energy (coal, natural gas etc). As I mentioned in an earlier post about Alphabet/Google’s ambitions in the utility space, is fully focused on where the industry is going. Point is, for Alphabets bet to succeed to the heights we expect of Alphabet/Google bets, BRKs bet on NV Energy etc has to fail. 
  2. Infrastructure~40% of the manufactured homes in the US are owned by Marmon  a BRK portfolio company but these are traditional homes. According to Zillow more people are renting longer and less consumers are buying. What BRK has done is ‘own’ the resources required to give consumers the sense of ownership of a home, that’s the bet BRK has made. On the flip side Alphabet has made a bet on the new definition of a home not being the four walls; Nest and it’s suite of products, combined with the energy story above, enables Alphabet to own ‘inside’ the home. Again, opposite sides of a bet with the changing demographics and behavior trends giving an indication of who might win these bets. 
  3. Esteem (and maybe even self-actualization): The ‘vanity’ bucket of BRK’s investments are expressions of wealth from a time fast fading; jewelry, luxury boats and jets. While some of these might still be signs of affluence the demographic trends point to a move towards experiences. I’ll also suggest that as much as Calico is about extending life, it is the new ‘vanity’ desire, with the goal being to live long to enable us continue to have more experiences.

Larry Page has taken Warren Buffett’s playbook and modified it for the next century. Alphabet is a Berkshire Hathaway for the next 20 years, with a focus on advanced technology to satisfy our basic needs. 

I’m not a fan of trite general statements but ‘Software is eating the world’ by Andreessen Horowitz, might be apt here; the software guys are eating Warren Buffet’s world. Alphabet will be sharing their numbers for Q4 2015 today but Larry and Sergey are about to be even more embedded in our lives (and a lot richer) than we can imagine at this point.

The Failure of The Connected Home

There is a war going on in the connected home space. Google is trying to own your home by providing the connection layer (through Fibre) and the energy and security layer (through Nest), while Apple is butting in with Homekit built directly into IOS software. Unsurprisingly, utilities are trying to get in the game too, with acquisitions and partnerships of their own (e.g. British Gas purchasing AlertMe). The telecomms companies are also making sure they aren't left out; with Comcast partnering to sell energy to consumers and other telcos adding security and energy to their internet/cable offerings. But these partnerships, acquisitions and experiments miss the point...more on that shortly.

What is the connected home you ask? The simplest definition is the connection of devices and tools in an automated way to save labor and effort in the homeOverly simplified as it is this definition highlights two fundamental problems that the companies above are facing

  1. Adoption is low and slow: because there is a push to sell customers stuff without providing clarity on the benefits to the customer. It's hard to convince a customer that savings of $25/year on your energy can justify a $100 expense on a device. It's even more difficult to sell most people on the need for a connected smoke detector when they hardly notice their current one until the battery runs down and it starts to make that dreadful how-can-I-break-this-device sentiment inducing noise. Save less than you spent on the energy saving device does not make for a compelling marketing message..
  2. Interoperability: there are competing devices and standards, there is no Operating System (OS) for this space as of yet. The players are trying to solve this either through the Thread consortium approach or through a home hub device approach. The focus so far has been on making it easier for the provider and not the customers; my mother in law does not care about your standard because, guess what, she's not buying a standard or platform. This feels very much like the betamax vs VHS battle (if you're my age you'll remember) or Blue Ray vs HD DVD battles. Like a few other analysts, I think there won't be one winner here. There will be a few standards and platforms that cater to specific use cases.  

The two issues above are anchored by the same core keylog; what my mother in law (and the average consumer) cares about is that her home and any technology in it maintains her sense of self esteem while she stays reassured of her well being and safety, without stripping her of her sense of control. The promise of the connected home currently makes consumers feel like they are not empowered in their own home and it's to the benefit of the device seller.

Providers need to stop selling automation and cater to the feelings. 

Consumers buy the why not the what...

How Google Is Cleverly Becoming Your Power Utility

It’s quite fitting that while COP21 is going on in the background, with leaders and governments talking about climate change, Google announces 842MW of renewable energy purchased. While world leaders plan to make the world greener and promise money towards future research, Google is actually doing the work of moving us towards a greener more sustainable future. 

What you might not know is that Google's current renewable energy portfolio of~$3Bn (investments and assets) makes it one of the largest renewable energy owning utilities in the world. Google has invested in Solarcity, Sunpower, Wind Farms in Carson County Texas, Jasper Power in South Africa, Clean Power Finance (a residential solar financing company) and runs several locations on hundreds of megawatts of clean energy with plans to run all it’s facilities on renewables by 2025. That's more investments in renewables than even the most progressive US utility (in a glacial industry like the utility industry it’s not quite hard to be called progressive)!!

As with dinosaurs, what will kill you is not a bigger dinosaur. It is the meteorites you didn’t even know were coming your way.

Remember how Google powered Yahoo search? Guess who’s wondering where the internet went now? What the utilities signing solar participation deals with Google don't seem to realize is that they have a powerful competitor on their hands. The industry forgets that Google had Powermeter (a dashboard for residential energy use management) that was shut down after 2 years it launched in 2010. What they don't know is that Powermeter was not a failed experiment, Powermeter was a 2 year beta test to learn things like how consumers only spend 6mins a year thinking about their energy (outside of paying their bills)! Sidenote: when Powermeter was shut down I sent an email to someone at Google trying to buy it for $10 or something ridiculous like that, I thought it would be a great ‘win’ for the company I’d founded then! Unsurprisingly I never got a response..

Still don't think Google is planning on becoming your utility? A few more indicators of intent:

  • Nest: Unlike most analysts suggested, the Nest acquisition was not for data. It was the PowerMeter replacement with a product that actuallymanages the energy in your home rather than just measure and monitor the ~$1400/year the average consumer spends. Most utilities are spending millions of dollars to own the connected home to hedge their future. While the utilities are trying to figure this out Googlethrough Nest and it’s Google Fiber product in cities like Austin and Kansas City, already owns the Connected Home infrastructure layer...power over ethernet will get better.
  • Toothpaste Test: Power (and energy) usage passes Larry Page’s toothpaste test; Other than energy, I can't think of too many other things that you and I use all day and makes our lives better. Energy is probably the only thing left that passes this test that Google isn’t currently involved in at scale.
  • Power (the other one): What is more important than access to the internet for most of us? If you’ve read this far, you already guessed it; it’s the energy that we use to power the devices that give us access to the internet. From Google's perspective why not control that too? From a systems perspective, one of the input flows for what makes our use of the internet possible is energy. Own the energy and you own another critical element in how you and I survive in this technology driven world we live in.
  • Smart Cities/Infrastructure: Google is doing serious work, through Sidewalk (one of the few startups to have been spun out of Google), on smart city development and understanding. Energy is one of the 4 core elements of a smart city. The other three are policy, infrastructure and people. Google is making big and bold statements through investments in both energy and city infrastructure.
  • Market Size: The global energy industry is one of the few Trillion Dollar opportunities left. It also just so happens that the product does not need customization in every new market you go into...

These investments, these steps, are the elements of the long game where losses are incurred in the short-term (something the utility competitors cannot afford due to shareholder pressure) to lay the ground for long term competitiveness and outsize returns based on learnings from in-house experiments and external bets. It’s the typical strategy for innovative companies.

What would complete Google’s move towards this inevitable future? It would be actually purchasing renewable energy and connected home assets of a utility. Or even the utility itself. One big one did just come up for sale...

Now that's a #BigIdea...

How Will Utilities Handle COP21, Tax Credit Extensions and other disruptors?

What's going on?

President Obama recently announced he will not be supporting the Keystone Pipeline project. As an energy consumer this is probably not the most high profile news you’ve heard relating to the energy industry in the last few weeks. A lot of talk has been about the hard to monitor (or even enforce) COP21 Agreement, a great step that will require a lot of hard work.  Some other pieces of energy news that that you might have missed in the last few months

None of these got on your radar? Well the utilities are paying attention to all the changes happening and you should too.

See, you the consumer are at the center of all this change. It all boils down to one thing; how you consume energy. This is because how you use energy fundamentally affects or is affected by 

  1. The utility business model: You pay money for the energy you use but the energy is now coming from different sources (some renewable) and your usage no longer follows the old profile. Will the utility still continue to send you a bill that you pay once a month?
  2. Policy: are time of use prices right and should we all bear the cost of renewables coming on the grid? And the one change that’s already affecting how you do everything else in your life...
  3. Technology: The mobile phone has changed your expectations from your service providers and also (again) changed your energy usage behavior (87% of us now watch TV with a second device on) . Which cheaper products will come after the early adopter products like the Nest thermostat, Solarcity panels and smart meters? 

Yes. These are all related and have YOU at the center. If you think this is confusing imagine how utilities, that haven't changed since Thomas Edison, feel? It's all chaos and as Robbie Wright, VP Innovation at Direct Energy said at ETS@Chicago in July 2015 

‘We’re undergoing massive disruption, whether we know it or not, in the energy space and it’s delicious and chaotic.' 

How to make sense of all this chaos? I'll be moderating a panel at ETS16 which will be looking at "Transforming the Chaos". The idea is to bring utility leaders finding scalable revenue generation amidst chaos, and exploiting new ways to solve these problems. The expectation is that the conversation will be about you and I as the center of this chaotic industry. This was not the case at an industry conference I attended a few weeks ago; it felt like everyone was happy to pretend things aren't changing at a rapid pace. My hope is that ETS will be about you the consumer as a partner in this transition by bringing great minds, institutions and doers from the utility industry to the table to discuss and debate what happens next.

What is required to survive?

Smart thermostats and appliances, solar panels, and electric vehicles that are now beyond just being a good idea, are they worth investing in? Impact of new mandates handed down from conferences in Paris? What happens when solar hits grid parity in a few years? Or are we already there? What about energy storage in the form of Tesla's Powerwall? Impending reality or marketing ploy? What if oil prices stay low and continue to negatively impact renewable adoption? What does this mean for utilities? What does it say about the industry when one of the few utility CEOs who tried to transition to the renewable future gets fired for his troubles? 

A lot of unanswered questions (which will be discussed at the conference) but some things are obviously required to weather this chaos

  1. A willingness to transform: utilities will have to overhaul business models (and look to other methods of making money). The industry will have to redefine standards, regulations and policy. Investments will have to be made with an eye on the long term (and not just on the current stock price or on lobbying against renewables).
  2. Emergence of the 'new': Investment is required in a new class of leaders and technologies from within and without the industry. The time for lip service is over.
  3. Recognize convergence of trends: As it was in the telecomms industry, where we moved from centralized assets and uninformed consumers to distributed assets and prosumers, so will it be in the energy industry. Mobile as an enabler for the consumer and the workforce, analytics for managing the assets and their utilization and system design changes are all coming together to ensure things will not stay the same.
  4. The role of the consumer (aka humans): humanizing energy and energy service delivery through purposeful storytelling based on a thorough understanding consumer context (something now enabled by insights from data). This is counter to how the utility has always engaged. To stay that way is to ensure extinction.

This whole dynamic currently fuels the national economy and due to the critical nature of the energy industry there is a massive opportunity here and it will require change. To survive the incumbents must change. Chaotic times ahead... 

Exciting times ahead...

BlockChain, Solution To Energy Usage Data Security Fears?

I attended an 'Improving Third Party Access to Customers’ Smart Meter Texas Data’ held by ERCOT at the beginning of the summer. It was my first of such having just moved to Texas from Illinois with a desire to continue to contribute to moving the utility sector into the future. Unfortunately I left with more questions than answers about how to get customers in Texas to a point where they get the user experience that considers their context/lives as we consume energy daily. It was a very diverse group of stakeholders all interested in seeing things improve but the sense I got from the 2 days of conversation was

  1. the Texas utility believes that all third party service providers are out to ‘get’ the consumer
  2. there is a realization by the utility (but little incentive) of the need to change how it currently operates as it relates to providing data access to service providers. And (the most critical point)
  3. very little 'Voice of the Customer’ considerations is present in these conversations we continue to have about said customer. We have the utilities on one side and the vendors on the other. 

The utility takes a stance that the customer should be protected to an extent that is, if not totally unnecessary, is excessive. The utility’s view is that 3rd party entities who want access to consumer data are out to invade the consumers privacy, act as a middleman between said consumer and the utility and desire to commit some fraudulent act with the consumers data. There is some overkill here; for someone who is intent on committing a crime, 15 minute interval energy usage data is a lot less valuable than intercepting the security camera video stream from the consumer's home.

Image courtesy of

Image courtesy of

On the other side are the 3rd party service/product providers who are interested in using tools and techniques (behavioral psychology, gamification, user experience design etc) to help consumers reduce their energy usage and expenses. How do they get to run their businesses doing the things that we know the utility (as a business) is not set up to do well?

So how do we get to a point where the utility gets it’s desired outcome in the form of privacy and fraud protection for the consumer and the 3rd party vendors get access to data that enables them aid the consumers (and run their businesses)? I propose adoption of the Blockchain. Before you click away, I said Blockchain not Bitcoin (the maligned and still misunderstood cryptocurrency). Blockchain is simply a centralized ledger or a read only distributed database. Blockchain takes over the ‘customer storage’ function that the utility currently play. It is an immutable historical record of transactions or usage data in this particular case. The Blockchain technology combines peer-to-peer networks, distributed systems, Hashing functions, public/private key cryptography and cryptographic signatures (amongst other cryptographic techniques). These are not new technologies just cleverly combined. Blockchain is being adopted in industries like finance and healthcare where (I dare suggest) consumer data is more critical than in the utility industry. Using the Blockchain to provide consumer usage data to 3rd party vendors provides 

  • fraud protection and detection
  • consumer anonymity and
  • privacy
  • and enables trust in a system that is being run without a middleman.

 If implemented properly it’s a win-win-win situation for all involved; the utility gets to ‘protect’ the consumer, the vendors get access to consumer data that is encrypted unless the consumer enables full disclosure and the all important consumer gets the benefit of cutting edge services from 3rd party vendors. This new technology enables us all to focus on the important task of moving us towards more sustainable energy usage. Granted, our industry is not the most friendly towards new technology but we have an opportunity to create new business models and increase consumer satisfaction by peeking round the corner and borrowing from industries that are currently serving the new kind of empowered (energy) consumer..

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...