How Innovation is Driving Change in the Energy Industry
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Listen to our audio Q&A with |
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Q&A with Stephane Kirkland—Senior Vice President, Strategy & Solutions
Parts 3 & 4 of a 4-part series.
Q3: What do you think will happen as the forces of innovation try to change a sector that is fundamentally organized in a way that makes it resistant to innovation?
A3: The utility industry is notorious for resisting change. Some view it as more of a public service, almost like a government department or something, rather than a normal part of the economy. We have seen what happens when you get stuck in a regulatory framework that doesn’t support innovation or when you rely on standards that turn out to be obsolete. That is what we used to have in industries like telecommunications and air transportation before they went through deregulation.
There are two major battlefields I see when it comes to encouraging and permitting forward progress in the utility industry: The first is control of decentralized generation assets.
The seismic shift is one from a world where you had a big electricity plant serving a certain area, to a future vision were we have numerous decentralized generation assets, including wind, solar, biomass, geothermal etc., as well as combined heat and power units. Today we are still closer to the old world than the new world.
Change in the energy industry involves changing the very logic of the system—from a juxtaposition of relatively discrete service territories into a totally interconnected web—and that’s what gets everybody so excited about the possibilities of the smart grid. It reminds us of one of the things we know how to do, thanks to the Internet, and one that we already see the extraordinary practical power of. The open architecture principles of the Internet that were set up at the outset of its inception allowed the system to perform with no centralized operational control. So the idea of decentralized operations was at the core of the structure design of the Internet.
The same cannot be said of our energy structure. I would submit that what we are seeing now is a concerted effort by the utilities to retain control of generation assets and thereby prevent the effectiveness of a decentralized multi-point system. The industry wants to be able to continue to think in the old paradigm: that it doesn’t matter where a kilowatt is physically generated, it is still part of a single virtual power asset, composed of the supply and demand resources controlled by the utility.
I see the vision of technology and innovation as it applies to supply and demand—lots of demand-side appliances with IP addresses receiving instructions—but if users need to be enrolled in a utility program to monetize the benefits, it will defeat the purpose. If everything is controlled by gatekeepers, we will miss the promise. This is exactly what the Internet has been great at avoiding—preventing no single entity or group of entities from controlling it.
There are other obstacles however, such as the sheer regulatory complexity of implementing the required changes. Our electricity generation, transmission, distribution and supply system is extremely complicated and not the least because of the layers of short-sighted regulation we have put one on top of the other and the web of vested interests that are involved. Making any kind of change to these layers is a Herculean task, much less making a change that serves the public’s best interest.
So, the control of generation assets is a battle that still is in the balance, and one that I see as critical to capturing the promise of innovation in energy.
Possession of information is another area that is inhibiting the implementation of technology and innovation in the industry.
There’s the question of who owns energy information—specifically meter data—which is critical to moving an antiquated system forward. The information that would be required to make the change I’ve been talking about is not currently open and available to all. It can therefore not be adequately harnessed to move things forward. Only those in possession of the information can use it to their benefit but it is not currently accessible to those that might find better ways to use it and bring new ideas and innovations to market.
A case in point is the Google PowerMeter project. What is really fascinating about the project is how they are going to access the necessary data across a broad base and what kind of impact a powerhouse like Google can have on this industry.
Going back to the example of the open architecture of the Internet, we don’t have anything like this in the utility data world and the question is whether or not we can get to it. Will we get to a level of “freedom of information” in the utility industry where we see the data being used in unexpected ways that really captures its potential? In my estimation, if we don’t get to the point of both accessibility of data and accessibility to the structure of the system itself, the whole promise of the transformation of the grid structure will not be realized. We may end up with lots of new components. But, with an underlying structure that is static and rigid, it will be incapable of meeting the new challenges we face as a society.
Q4: With so many political and cultural initiatives around change and innovation in the energy industry, how do you expect industry players to respond to this pressure?
A4: The energy industry, which has been culturally shielded by its technical complexity and by regulatory construct, has so far been the epitome of a low risk/low return environment when it comes to the influx of bright, eager and ambitious young minds. The ability for innovators to ask basic questions about why things are the way they are and how they should be is not a behavior that is genuinely valued in the energy industry—which is more focused on how things are. And, if changes are necessary, they must be requested and routed through regulatory action. There is little room for the “improve the world” questioning that is the kernel of real innovation.
I’ve been reading about the heyday of innovation in personal computing in the early 1980s and I like to compare personal computing in its early days of development to where we are today in developing the structure and functioning of our energy industry. Back in the early 1980s, you simply couldn’t see how everything would coalesce into the amazing information technology ecosystem that we have today and that everybody—even the technologically inept—take for granted.
We’re in the same place for energy. We can see possibilities—pieces of technology and functionality—but we have no idea what the industry, and the world as a result, will look like in 10 or 20 years. Some pieces will turn out to be successes far beyond what was first apparent while other promising ideas will turn out to be failures. The only takeaway is to apply our passion and energy to build up the pieces one by one.
Click here for audio Q&A Part 3.
Click here for audio Q&A Part 4.
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