Sep 22, 2017
Why the "Murder" of the Modern Energy Industry Is Key to Securing a Bright Future
Three times in the last year, I've sat across a boardroom from different C-Level executives in the trillion-dollar utility industry, talking about the future.
Energy Consumption & Cost
Three times in the last year, I've sat across a boardroom from different C-Level executives in the trillion-dollar utility industry, talking about the future. A common unifying thread in these talks was that while electricity consumption may be going down, the price of everything we use to generate that electricity is going up. For the industry, energy consumption is a revenue source, while generation is a cost. See the problem?
The current business model that has served energy and utility companies so well for so long is dying. What's more, the same companies — who stand to lose a great deal of money — essentially have to participate in the "murder" of the industry. The energy dinosaurs have to be their own asteroids, so to speak. Why? Because while many customers want lower electric bills, and others are concerned about the environment, the bottom line is that they are all demanding a new technology market that's all about using less to do more.
Thomas Kratt, Vice President of Engineering at the Indiana-Michigan division of American Electric Power and a veteran of the industry, states that "We are probably the only industry that is encouraging our customers to use less of our product." And he's right. Today, you can't throw a stone in a utility company conference without denting someone's shiny new energy efficiency program.
Now, let's be very clear. I love a good energy efficiency program as much as the next guy. In fact, my job depends on it. However, if the energy industry decides to go down this path, something has got to give. Most likely, that something will be the very definition of a utility company in the 21st-century economic landscape.
The new age utility company will no longer be an energy provider — it will be a lifestyle provider. Technologies like smart lighting, household appliances, electric cars, IoT (internet of things) enabled personalized service, and Behind The Meter energy storage and generation are already here. Right now, there are companies, like Tesla, that are implementing and embracing these technologies way better than established industry players.
Then there are other services (like solar roads, drone assisted repair and maintenance, and fuel cell energy storage) being invented in labs, garages, and incubators right now across the country that will, one day, be ubiquitous and synonymous with energy services. If the big boys in the utility space want to live to see even another ten years of market dominance, they'd have to throw out the stale strategies and go shopping for fresh ones. In the new marketplace they're not billion-dollar companies — they're startups.
A Healthy Respect for Disruption
At this year's Distributech event (the leading annual smart grid conference) I heard Senior Editor-at-Large of Fortune magazine Geoff Colvin, speak to representatives of 326 utilities from 78 countries. He made it clear that he was an industry outsider and that he had very little experience with the technical operations of a utility. He then proceeded to softly, gently, and with his characteristic wit, completely eviscerate the prediction-models utilities have been using to run their businesses for the last hundred years or so. It was swift, decisive, and a work of art. I was left breathing a little heavily at the end of his talk.
Using the story of Uber as an example, Geoff made it clear that it's prudent to have a healthy respect for disruption in any industry. The transport industry back then faced the same issues confronting traditional utilities today. Utilities have not always been used to personalize their product for customers. Instead, they have operated in a stagnant, monopolized market where little effort had to be made to get, retain, or market to customers. Regulation also meant that utility companies were not incentivized to innovate their product, or pair it with continually updated and relevant services. Innovation is not 'non-volatile' and 'stable' — things that regulators love.
With a new generation of customers who have grown up taking technology, democracy, and environmental consciousness for granted, utilities have to realize that the customer is the king once again and choice is the preferred consort. Having a startup mentality allows them to discard the status-quo and focus on maintaining a competitive advantage.
Many bigger companies are already waking up to this new reality. Phrases like "smart grid," "grid modernization," and "energy efficiency" are being thrown around in boardrooms across the country. It's exciting to see seasoned professionals roll up their sleeves and re-ignite the innovative spirit that drew them to this industry in the first place. A senior engineer who has been working for over twenty-five years recently confided, "I feel like a recent graduate again. Every day at work I deal with something different, something new."
It's truly an exciting time to be in the energy delivery business. It's a time when questions like "who is going to be the next Uber of the utility industry?" are being asked, and when technologies like artificial intelligence, virtual reality, and drones are being paired up with what was essentially once solely a "wires and poles" business. It's a time when everyone gets a seat at the table, and all the players get equal rights to the future.
by Tirthak Saha