The death of the traditional utility business model has been highly exaggerated, to butcher the Mark Twain quote. But that doesn’t mean change won’t happen, and when it does, those companies with a strong ‘ecosystem of innovation’ will be faster to pivot and more likely to survive.
The drumbeat of warnings has grown louder that the traditional system of overpaying for centralized, excess energy production powered largely by fossil fuels and shipped long distances to customers cushioned from the full social cost and veiled from transparency is under stress. Earlier this year Edison Electric Institute warned of hits to its the business model from distributed solar, following the self-evident weaknesses exposed during the lengthy Hurricane Sandy blackout, and this week a group gathered by the Climate Group to discuss innovation against the backdrop of 2013 New York Climate Week added convincing fuel to the funeral pyre.
“The real question for utilities is ‘who can pivot fastest,'” said Andrew Shapiro of Broadscale Group, saying that while some firms had begun to seek out opportunities to prepare through partnerships with smaller technology-based companies threatening to upset traditional models, the general sector approach has been to hide from change. He said that increased realization of the sector’s “death cycle” whirled up by data-enabled transparency, distributed generation and aging infrastructure would finally prompt some change.
A convergence is emerging between energy technology and information technology through leveraging big data that allows energy firms and energy startups to steer clear of the massive capital requirements to scale infrastructure changes, JiYoung Kim of Goldman Sachs said at the the Climate Week Innovators Forum. Shifts in financing models have encouraged the development of a distributed solar market boom in California, and Kim said she had received multiple inbound expressions of interest by foreign investors in the US distributed solar market. (Breaking Energy recently covered a successful fundraising for distributed wind energy company United Wind, read more about that here).
Always With the Startups
“Startups” in 2013 can sometimes begin to sound like “deregulation” did in the 90s; the catchall solution to any problem. But the fact remains that as long as utilities are obligated by regulation to focus their core business on reliability alone, innovation and the accompanying acceptance of a degree of disruption are rarely going to come from inside the regulated firm. That means taking the approach technology giants like Cisco have and buying innovation from interactions with smaller partners or through acquisitions.
US power companies, particularly smaller companies active in deregulated markets, have been working to build partnerships with startups. Andrew Shapiro cited the success of Opower, an energy efficiency technology company that works with more than 85 utility clients.
When the system of complementary partnerships and acquisitions works well, it creates an ecosystem that can prompt acceptance of disruption and build processes of innovation into the corporate parent, the panel agreed. Corporations don’t buy or invest in startups because they will add to their return on investment, Broadscale’s Shapiro said, despite public perceptions to the contrary.
“You’ll never make enough money to impact their balance sheet, so the sale point is on innovation acquisition and new business process for the acquiring power company, he said.”
