Utility Managers May Soon Wear Hoodies to Work

on June 05, 2013 at 11:00 AM

mark z

The internet is all around us. Chances are as you read this article you are either plugged in or tapping into some kind of wireless device (hopefully over a secured network) from your charged laptop, tablet or smartphone. So it can be a large understatement to say that consumer access to the World Wide Web has truly evolved, and more importantly, so has the way consumers use energy. Yet, energy companies themselves have largely fallen short in their efforts to bridge the technology gap needed to discover and  distribute energy more efficiently. This is about to change in a very big way thanks to advances in software.

Cleanweb technology is by no means a panacea for energy supremacy, but the fundamental way energy companies conduct day-to-day business will lead to a seismic shift in the way they approach energy distribution. That means technology is going to play a big role in leveraging IT to do more with fewer resources. So it shouldn’t come as much of a surprise to anyone that the ways of old do not necessarily translate into modern success replication. Should it?

Demand, demand, demand. Everyone wants something these days. Wall Street analysts are demanding innovation while scrutinizing margins and cash flow more than ever to determine true valuation during the present economic recovery, a recovery which still largely puzzles many despite the recent record levels sported by the Dow Jones Industrial Average (DJIA) index. Likewise, investors and customers alike are demanding better results, including increased power reliability in an era where climate change is knocking off power grids at alarming rates all over the country. Now throw into the mix the rise of energy service companies (ESCOs) and the increased competition for clients who not only want cheaper electricity rates, but often demand more renewable options as well, and the mentality that everything old is new again just got debunked when examining today’s energy marketplace.

So where do we go from here? Utilities need to hire more software engineers and code programmers to build more responsive programs and data sets in order to capture the user power profiles necessary to understand consumer habits and redistribute power more “smartly”. If they don’t, utility companies may be forced to grow inorganically through acquisition and grow into new verticals like renewables. NRG Energy is pushing forward in this area. In fact, NRG is carving out a new path in the utility space by building a renewable energy asset basket which includes wind, biomass, solar, smart metering and access to electric vehicle (EV) charging infrastructure. On top of that, the company is bringing carbon capture technology to market  that may turn carbon waste from coal plants into a revenue stream and also stimulate oil production through enhanced oil recovery (EOR) technology by injecting CO2 into existing wells. Suffice to say, NRG is a forward thinking utility company others may soon emulate.

Keep in mind that simply adopting new renewable energy sources sounds easy, but revenue multiples for acquisitions or organic growth can get expensive. CAPEX planning may need to be revised higher since talented workers may be hard to acquire/retain and there is also a large cultural component. By this I mean integrating a young tech group that speaks in letters, not words (for instance OMG = Oh my God!) into a much more established/seasoned utility business culture that often makes the decision making process look like a turtle walking on the Autobahn.

Because of the methodical nature exhibited by many older utilities seeking change, adding progressive twenty-somethings with software ingenuity to the mix may actually deteriorate the value of synergistic intentions. Unless of course, utility executives can more keenly look to the future of energy distribution by being more open to embracing change through technological advances which can safeguard power infrastructure from increased cybersecurity threats and make renewable energy, cogen plants and power allocation more economic and stable (think 24/7 baseload power). In sports, a pitcher needs a ball to get results. In energy, the concept is similar, but the ball for utility companies is now digital. That’s how utilities will get big results in a more populated world where people seek bigger TV’s, more electric vehicles (EVs) and increased mobile computing/smartphones that might keep us more organized, but have also deteriorated our attention span (and maybe even some social etiquette too, but that’s a different conversation).

Utilities must not fear young energy startups. Rather, they must learn to think like one in today’s energy world which is experiencing a changing of the guard with higher demand for power and less reliance on foreign sources of oil. Therefore, simply selling kilowatts is really yesterday’s news. Utilities must consider offering consumers a more complete service-oriented approach  that includes efficiency as part of a bundled service, helping consumers explore new ways to cut back on energy. I know that is a very different idea – I mean utilities selling less energy? However, new energy efficiency standards in buildings (see California; see New York) create the need for changes to the way power is consumed. Also, climate change and digital-social interaction have collectively helped transform the energy market while fostering new industrial subgroups like EVs and combined heat and power (CHP) systems. So utilities can’t just stand idle and watch their consumers’ demand dynamic shift.

Utilities must quickly navigate to bring new technology programs to market before customer retention becomes another big concern for analysts, investors and management alike. In a nod to Mark Zuckerberg of Facebook and David Karp of Tumblr, this could mean veteran utility executives may soon see lots of young, smart new managers wearing hoodies and sharing the office refrigerator. If that’s the case, this is where the best utility investments are likely to be found.

By John Licata – Blue Phoenix