Words of Advice for Utility Executives

It’s the high season for Smart Grid conferences.  The recent eMeter Leadership Conference combined practical, hands-on knowledge with intriguing insights and thought-provoking statements about directions for industry and consumer evolutions.   One of the most interesting takeaways is that solutions like meter data management systems (MDMS) are evolving into application platforms, a trend that likely has legs.   There were inspiring stories from utilities such as Westar that are taking intelligent steps to inform, engage, and enlighten their customers to help them fully participate in and enjoy the benefits of a Smart Grid. 

The conference included a disruptive innovations session that featured companies involved in shaking up things from Smart Grid technology or business model perspectives.  Two companies represented distributed energy resources (DER) technologies, three companies focused on consumer-edge products or services, and one company focused on the energy market.  Of all the great questions and answers that were shared in this session, this is the great one that I wanted to pose to you whether you’re an industry insider or someone who only thinks about electricity when it isn’t available.  The question is, “what is the one word of advice that you would give to utility executives?” 

Here is a sampling of the answers. 

  • Easy.  Although this was stated in the context of making utility processes easy for interconnection of DER assets, I’d extend this bit of advice much further across the realm of interaction possibilities.  Make it easy for consumers to interact with utilities.  That means bills that are meaningful, websites that are informative and fun, and elimination of “utility-speak” acronyms and jargon that create barriers to communication.
  • Transactive.  Think about a very different energy marketplace where utilities are buying and injecting energy into the distribution grid (the low voltage side) in addition to the bulk or high voltage supplies.  Whether utilities are investor-owned utilities (IOUs), municipals, or rural cooperatives, they can work proactively to recast energy buying and selling with more participants, including producing consumers or prosumers.
  • Motivation.  Utilities are often considered the “trusted advisor” for energy matters by consumers, and therefore have an important role as communicators to provide reasons or motivations why consumers should care about saving energy.  Granted, this is much more meaningful to utilities that are decoupled – meaning they are not punished financially for encouraging consumers to use less of what they sell.  However, even in states where decoupling is a distant dream, utilities still need to encourage consumers to use less electricity during peak demand times.  There’s no reason for these utilities to not devise compelling messages and programs to encourage time-specific behaviors that reduce consumption.
  • Dare.  Utilities must dare to take risks with new technologies and new ways of working with consumers.  Now this is easier said than done, since IOUs are regulated to be risk-averse and regulators work to protect consumers from the costs of failed initiatives in new technologies or business programs.  Somehow we have to find a balance that allows utilities to experiment with promising innovations and business models that minimize the disruptions, or recognize that the disruptions (to consumers, markets, utilities, and all other stakeholders) are outweighed by long term benefits.
  • People.  Utilities have to be “user-friendly”.  People, whether external consumers or internal employees, were perhaps afterthoughts for the greatest machine on earth – the electrical grid, but people will be prominent actors in the Smart Grid in roles as prosumers and participating consumers.   In addition, the pending workforce changes looming as significant percentages of utility workers retire means that utilities must make their workplaces cool and hip career destinations.  

Fine words of advice, indeed.  What are your suggestions for that one word of advice you’d like utility executives to receive?

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What’s Missing In Smart Grid Roadmaps

Smart Grid technology roadmaps help utilities plan for grid modernization.  At the recent Grid ComForum conference, senior utility executives noted that their roadmaps are adjusting to address organizational realignments – particularly in managing the convergence of Information Technologies (IT – including communications) with Operations Technologies (OT – such as systems that manage the flow of electricity in transmission and distribution grids.)   But Smart Grid roadmaps also must address changes in utility cultures, particularly the investor-owned utilities (IOUs), and these changes will require support in the form of new regulatory policies.   

Why does the corporate culture of the IOU need to change?  Because the Smart Grid, (Grid 2.0) won’t look or operate like the current grid.  Grid 1.0 is a complex machine that manages to deliver electricity from centralized sources across the supply chain in a “just-in-time” format to meters.  It mostly relies on fossil fuels.  Utilities have been marvelously adept at running this machine.  Unfortunately, Grid 1.0 has reached its limits.  Grid 2.0 will have electricity flows back and forth across the distribution grid.  Grid 2.0 will have new participants in the electricity supply chain.  Fundamental shifts in thinking as well as in regulatory policy need to occur so that utilities and ratepayers can gain the most out of their Smart Grid investments.  We all benefit when IOUs can adapt and evolve as the Smart Grid becomes reality.

Here are three corporate culture and accompanying policy changes that will help IOUs thrive in Grid 2.0:

Support decoupling policies.  The Smart Grid Dictionary defines decoupling as a regulatory and market strategy that allows utilities to invest in and profit from efficiency-based capacity by assuring them a return that is equivalent to sales of electricity. Decoupling allows utilities to actually encourage consumers to use less electricity without taking a financial hit.  After all, what business would ever spend money to encourage you to use less of their product or service.   But with decoupling, there is no penalty for utilities to have successful energy efficiency programs (which reduce bills for consumers).  Decoupling frees utilities to become trusted advisors to their customer base, and that sets the stage for new programs such as residential demand response.  There are 30 states that do not have decoupling in place for electricity and/or gas.  Utilities and state regulators should create sensible decoupling policies as soon as possible to spur energy savings for their ratepayers. 

Embrace Distributed Energy Resource (DER) strategies and programs.   DER includes customer-owned generation (like rooftop solar) and energy storage (like EVs or stationary batteries) that can substitute or supplement the traditional utility assets that deliver electricity to end users.  Microgrids play a similar role.  Utilities can leverage DER as cooperative, not competitive resources, and offer services to help customers manage DER assets.   IOUs do have one challenge about DER that needs to be addressed with policy changes.  Today’s regulatory policies reward utility investment in assets.  We need to consider a form of “asset decoupling” to help utilities be rewarded for successful participation in DER programs using customer-owned assets.  

Redefine consumer relationships.  Consumers are evolving to prosumers or producing consumers who can produce or store electricity that can offset any distribution grid’s electricity needs during periods of intensive use (also known as peak demand).  Prosumers can help utilities avoid investment in expensive peak power plants or peak power purchases.   However, prosumers are not just limited to people or businesses with the right equipment to make or store kilowatts of electricity.  Any participant in a demand response (DR) program is a prosumer – they are producing negawatts of electricity.  Acceleration of net metering and Feed in Tariffs (FiTs) policies, as well as deployment of residential DR programs promote this relationship redefinition.    

These three substantive shifts in thinking and in regulatory policies will have meaningful impacts on utility cultures.  It will also have impacts on the rest of us too as electricity consumers.  New business models that are encouraged by changes described here can help accelerate adoption of new product and services innovations.   In turn, these innovations can reduce electricity costs, reduce greenhouse gas emissions, and improve our energy security.

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Smart Grid Innovations Will Reduce the Pain of Consumer Energy Costs

The electricity value chain is undergoing extraordinary changes as it modernizes into the Smart Grid.   At a recent series of Smart Grid workshops hosted by the California Public Utilities Commission, one utility speaker noted that the majority of transformations will occur at the consumption side of the electricity value chain.  I agree.  Consumption is starting to be viewed very differently in the USA.  Whether it is consideration of the carbon footprint of that carrot purchased at the grocery store or the source of the electrons flowing into a socket, more consumers are becoming more mindful of how, when, why and what they consume. 

What are the consumer pains that will motivate them to invest in painkilling innovations?  (As noted in this article, successful new products or services have to be painkillers or vitamins.  As a painkiller, an innovation has to resolve a pain for its target audience.  If it’s a vitamin, an innovative product or service has to improve an existing situation.) 

Pain comes in the form of prices for fuel.  Consumers show remarkable awareness of the price of gasoline.  As gas prices continue to rise, more consumers will discover the many painkilling qualities of electric vehicles (EVs) and plugin hybrid EVs (PHEVs).  The equivalent of a full “tank” of electric charge will be pennies/kW as opposed to dollars/gallon.  And as EVs have a completely different motor than internal combustion engines, they may have less downtime for maintenance and repairs.  The total cost of ownership (TCO) looks very attractive when you factor in annual “fueling” costs and maintenance.  Car manufacturers are rolling out new models with prices that fit a broader range of consumer budgets.  The Plug In America website offers a list of all EVs and PHEVs that are available.  For the gloomy naysayers who insist that these cars are still too expensive or that consumers won’t buy because of range anxiety, I have 3 words:  Solar technology trends.  We’ve seen dramatic increases in solar energy harvesting technologies coupled with equally dramatic decreases in production costs, creating an energetic market expansion at a speed that seemed unthinkable three years ago.  Gamechanging breakthroughs in battery technologies and intense competition among manufacturers will similarly drive down EV costs while increasing driving ranges. 

EVs are also painkillers for two other important stakeholders in the electricity value chain – governments and utilities.  Read about government and utility painkillers for the reasons why.  What’s not to love about EVs? 

For consumers, pain also comes in the form of their electricity bills.  Energy efficiency measures ranging from improving building envelopes with better insulation to Home Energy Management Systems (HEMS) can help consumers reduce their electricity bills.  However, distributed generation or DG will be the ultimate collection of painkilling innovations.  Whether the electricity is produced on consumer rooftops or discharged from their EVs, these distributed sources of generation will earn money for their owners, and offset their electricity bills.  Distributed generation is also a painkiller for utilities because it helps improve reliability, and because it often relies on domestic renewable sources of energy, DG is also a painkiller for governments. 

DG is the painkilling change agent that causes the most profound of transformations in the electricity value chain. Consumers can shift to becoming prosumers.  A term coined by Alvin Toffler, prosumers are consumers as well as producers of electricity.  DG and EVs give us the capacity to become electricity producers as well as consumers, but this transformation relies to a great extent on policy innovations like decoupling and finance innovations that bring these technologies to the masses.  And as prosumers –  aka ratepayers, taxpayers, and voters – we should make sure that utilities and governments are encouraging the rapid deployment of these painkillers.

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Consumer Participation in the Smart Grid

The Department of Energy lists active consumer participation as one of the most important characteristics of a Smart Grid.  This takes shape in two forms – electricity production and electricity consumption.  One of the many benefits of the Smart Grid is its ability to integrate renewable energy sources into large scale electricity production.  Another is the ability to communicate in real time on a broad scale to signal requests to modify electricity consumption.  Both of these benefits have profound, positive impacts for consumers.

I Want To Be A Prosumer

Alvin Toffler coined the term “prosumer” to describe a situation where a producer of electricity may also have a consumer relationship with a utility, aggregator, and other energy provider.

That’s exactly what is happening today.  Consumers can play the role of renewable electricity producers at individual or community levels.  For instance, in California, Community Choice Aggregation offers neighborhoods and municipalities opportunities to join forces to source renewable energy for their electricity needs.  This sensible policy encourages growth of local businesses to build and manage renewable energy production and stimulate local economies.  Unfortunately, Pacific Gas and Electric, the monopoly in Northern California, wants to undermine these policy goals and economic benefits to consumers through its Proposition 16 campaign (See my April 19 blog).

Future electricity production must also consider the “negation” of electricity use.  A negawatt is defined in the Smart Grid Dictionary as “A term that identifies watts of energy saved through a reduction in energy use or increase in energy efficiency.  It is the greenest form of energy.”  It is also called the “first fuel”, and it should be bought and sold like any other energy source.

There are growing numbers of solutions that enable homeowners to monitor and manage their electricity use, and create negawatts.  In other words, a consumer can actively participate in reduction of electricity consumption through new Smart Grid technologies.   Traditionally, utilities or third party aggregators enrolled customers into programs that usually delivered day-ahead notification of requests to reduce electricity consumption.  In the future, maintaining a stable grid with renewable resources will require real-time requests for electricity consumption adjustments (and energy storage too).  That implies low cost, high performance reliability in solutions that homeowners use to manage electricity consumption.  One of the most interesting technology platforms uses open source hardware and software – called OSHAN (Open Source for Home Area Networks).  Why is that important? 

Open source solutions (like Linux, MySQL, Apache –foundations of the Internet) have a solid reputation for top quality, reliability, security, and flexibility.  Open source solutions are created at fractions of the cost of traditional development cycles and eliminate risks of buying products that won’t work together. The OSHAN platform could play an important role in unleashing the creativity of software and hardware developers to create innovative products that manage and reduce energy use, creating negawatt value for consumers.   Just as the Smart Grid enables a broad base of participation in electricity production and consumption, technologies like OSHAN can propel the most cost-effective and easy-to-use energy management products into mainstream use.   I look forward to being a prosumer. 

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