utility

The Future (utility) is here...

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 

  1. 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. 
  2. 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. CustomerI’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...

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: opensecrets.org). 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.

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...

Youtility: Era of Personal Power

Over the last few months I've written posts about the future utility and smart cities with a perspective that our current utility will play a key role in what thisfuture utility will look like. My thinking has been that, due to our reliance on the heavy infrastructure base of the current utility, you and I will be tied to the wires and lines that we currently have.

But I’ve been wrong all along.

We are about to enter the era of the Youtility, the era of Personal Power where we have little to no reliance on the current utility for generation, transmission or supply of the energy we use to power our homes.

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. See my father (and a lot of his peers) currently serve as their own Youtility. Sometimes for weeks on end his home is cut off from the grid since the electric authority (as they are known in those parts) provides no power. Same is true for water and gas. Each home is essentially a republic’ 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. He is his own utility... 

You’d assume this is the case for only wealthy citizens in those parts but that is not the case. The entrepreneurially minded have figured out ways to bring the costs of these Youtility setups down to levels the masses can bear. Granted, the sources of fuel are not sustainable but, as is the case with most technologies, the original need has been served and now is the time to optimize and make it sustainable. 

What makes you think this is impossible in the US? It won’t be the first time we’ve borrowed technology from Africa. Mobile payments? mPesa was doing what we can now do with Paypal Venmo a good 8 years ago with dumb phones. 

How does a person go broke? Slowly and then suddenly (paraphrasing Hemingway). How will the current utility die? From a thousand cuts in the form of solar powered homes, car charging roads, batteries in basements and evenpersonal power plants i.e. slowly and then quickly...

What will happen to those heavy assets? those wires and lines? They will be owned by financial entities that have nothing to do with supplying you and I electricity and own these assets strictly for the rent-earning' opportunity they might provide.

And the rest of us? We'll just carry on being our own Youtility.

The Future Utility

Meet Samantha

  • Samantha lives in Chicago and owns an electric car. One of those fancy ones. We'll say she owns a Tesla.
  • 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). 
  • Her energy consumption (from anywhere) is considered a - on the grid. 
  • When Sam puts power on the grid it's considered a + on the grid. 
  • Sam’s home is powered by a rooftop solar panel. 
  • She also owns a home battery manufactured by Tesla and financed through Solarcity.
  • 40 miles from Sam’s home is a nuclear power plant. Sometimes she 'gets' her power from the nuclear plant. Sometimes she just 'gets' the power from her home battery.
  • Sam’s local Walgreens also has solar panels on it’s roof and puts some power on the grid. Another energy conscious company, Whole Foods, is one block away They’ve also also commissioned some solar panels.
  • There also happens to be a wind farm 25 miles from Sam’s home 
  • And a coal plant 43 miles from Sam’s office.
  • Sam's electric car charge comes from plugging in at home/work/Walgreens and because of Power-over-ethernet functionality Sam's usage can be 'read' in the form of her 'energy IP address'.
  • All of Sam’s production and consumption from any one of these points is measured by a ‘minisculemeter’ (phrase coined by me for an energy measuring sensor the size of a coin), every minisculemeter in Sam's home or on Sam's appliances is ascribed to Sam's account/card
  • Even when Sam charges her laptop at the Starbucks, while she's working, her 'account' is adjusted accordingly (debited). 
  • Sam moves to Arizona to be with the love of her life and she maintains the same account, all she has to do is change her address...
  • And, just like her credit score, any move to a more energy efficient home or purchase of a home energy management device will register as a plus or minus on her 'score.
  • Sam also 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 running his servers at home. Some days Jo (conceptually) ‘gets’ electricity from Sam's 'home battery' or the Walgreens or the nuclear plant or the wind farm depending on whether Jo 'wants' renewable energy. Because Jo is a node on the grid...

The entity in the middle of these transactions

  1. measuring how much is used or produced,
  2. ensuring that all the Sam’s and the Jo’s do not use more electricity than all the solar panels and generating plants can produce (all through software and these minisculemeters) and
  3. making sure the payments are made and collected correctly
  4. using a simple and very customer friendly interface 

is the utility of the future. Allowing Sam to do the things she needs to do to live a normal regular existence. That's all we really ask of our utility...

What's interesting about this is that this distributed, or more aptly termed local, structure is very similar to the first 'grid' when, in 1882, Edison flipped the switch on a few steam generators powering 1200 bulbs in Lower Manhattan. Very rapidly the grid grew to what we know it to be today; a very complex non-adaptive system. But with new technology and increasing customer expectations of what service looks like the grid is shifting to the example I gave above. It's the nature of complex systems to revert to their simplest form.

Welcome to the Future Utility. It's really just the 'first grid' with fancy devices on the end...