Roger Ballentine, Green Strategies
The cycle of disruptive energy is accelerating, says Roger Ballentine of Green Strategies. The barbarians are coming, but they’re not always who you might think.
Major disruption and innovation in a sector like cellphones or software happens at least on annual basis. If you substituted “centennial” for “annual”, you’d have a pretty good idea of the timeframe in which similar levels of disruption and innovation occur in the electricity sector. Ok; that may be a little exaggerated, but not much: major disruptive events in electricity are associated with decades, not years.
The late 1970’s, thanks largely to the Public Utilities Regulatory Policies Act (PURPA), brought a new set of players into the electricity sector as smaller generators flourished and begin to change what we traditionally thought of when we considered how new generation was added to the grid. In the following decades, wholesale and some retail markets were organized and opened to competition, again bringing a new set of players into the sector. These changes were significant and, to an extent, they altered the traditional model of regulated monopolies providing centralized generation and distribution services to customers. Independent power producers, non-utility project developers, and new companies offering retail alternatives to customers were new entrants onto a field long dominated by monopolistic providers of all electricity products and services. Yet one might think of these new market entrants as more like culturally-enhancing immigrants than hostile invaders; while perhaps operating under a different risk-return framework, they were essentially seeking only to do just what traditionally utilities had always done – generate or sell electrons.
But the cycle of disruption in the electricity sector is beginning to accelerate, driven in part by the infusion of DNA from more innovative types of businesses and business models. The players today clamoring to get on the field are not just “energy” companies as we have come to understand them. Instead, we see technologists, software companies, financing providers and information technology companies seeking to redefine the very nature of energy services and to challenge the century-old-model of a one-way grid enabling centralized generation and the distribution of electrons to customer meters the primary function of which is to record and report consumption.
Instead, distributed generation behind the meter, data analytics and connected, smart devices are being offered to customers not just to optimize consumption, but to position them as full participants on a grid or distribution system where both electrons and information can flow freely in two directions. The promise is for customers to have more choices and for the grid to have new options to meet the balance of supply and demand, lower carbon intensity, and reduce the need for new utility scale generation.
The cutting edge of disruption in the electricity sector today is the growth of distributed generation, primarily rooftop solar. This has led to fervent debates across the country as to how and whether behind the meter generation should be encouraged, financed and charged. Yet even that debate is rapidly falling behind the cutting edge of change. Distributed generation is growing at the same time that information and control technologies are ushering in a market beyond “DG” to a more comprehensive suite of distributed energy resources (DER) that promise a more complex and potentially highly beneficial two-way grid that may ultimately blur the lines between the binary construct of “centralized” versus “distributed”.
Central to this potential revolution is the reimagining of the ‘customer’. Electricity policy and market innovations in the past were made with only a static view of the customer – the idea that all relevant changes to the system would occur up to the point where the electrons hit the customer’s meter. That is no longer the case. Yet new technologies and insurgent businesses can only be disruptive if somebody demands the products. Many see customers as the key drivers of change in the electricity world, as technology enabling the servicing of customers’ energy desires and the tailoring of offerings to individual consumer preferences are being imagined and offered. Skeptics believe that customer interests in energy do not go far beyond reliability and price – and in many cases today that is true. Evangelists, on the other hand, might remind us that Henry Ford and Steve Jobs changed the world by bringing customers products that they did not know they wanted or needed.
Certainly, bringing customers to the center of the conversation is still a relatively new thing for the electricity sector, and regulatory structures are not optimized to encourage innovation of the customer-provider model. Some state regulators are pursuing initiatives to create space in the electricity sector for experimentation and for the development of customer-focused partnerships between technologists and energy providers. Such partnerships could allow utilities – or, depending on regulatory approaches, non-utility players — to provide a range of potential new services to their customers, dramatically increase customer engagement and interaction, and provide consumers with a value and experience proposition far beyond the meter-reading and utility bills of the past.
The simplified but instructive construct of incumbents defending the legacy system and insurgents pursuing disruption leads to assigning a label to companies, regulators and other stakeholders as either propelling innovation and risk-taking or blocking evolution to a new clean energy economy. The reality, of course, is not so black or white. While there are active incumbent forces trying to be obstacles to accelerating clean energy to escape velocity, other incumbents are partnering with insurgents or actively working to morph themselves into disruptors. And, of course, all of these debates must occur within the given of the need for universal, reliable and affordable energy and energy services. At the end of the day, technology and new consumer value always win. We might as well show the barbarians in.
Roger Ballentine is president of Green Strategies; Venture Partner at Arborview Capital. This article was originally published on LinkedIn’s Pulse.
