Steve Pullins is Team Leader, DOE/NETL Modern Grid Strategy

It seems clear that private investment and consumer investment is rapidly taking place in the energy technology space, even if utilities don’t invest in this space. If utilities fail to notice what is going on, they could become less and less relevant to their customers.

At GridWeek 2008, Tom Friedman shared from his new book Hot, Flat, and Crowded about the emerging ET (energy technology) revolution.  He related how ET is transformational just as IT (information technology) has been over the last 25 years.  It seems to me there is a connection with the Edge Movement we are seeing today in the electricity sector.

The Edge Movement Gathers Momentum

The Edge Movement is the high-speed innovation and investment evident at the edge of the electricity network – that portion geared to the consumer side of the meter.  For example, over the last three years there has been an explosion of innovation from venture-backed firms.  While there has been an upturn in utility R&D, capital investment, and pilots, they pale in comparison to the consumer side of the meter.

* estimated from several public sources (EnergyBiz, CleanTech, Renewables 2007 Global Status Report, New Energy Finance, DR Monitor Report, etc.)

Although it is encouraging to see the increase in U.S. utility infrastructure expenditures (mainly for traditional builds), the numbers reveal that by the end of 2008, the annual U.S. Energy Technology spend should overtake U.S. utility infrastructure spend.

The Implications for Utilities

Many of you have heard me harp on the changes in the “edge” of the network; how innovation and investment is rapidly increasing here; and how utilities will have to become innovative and aggressive to remain relevant to their customers.  (See figure.)

In the illustration, the gaps shown in 2008 and 2028 represent a loss of utility relevance to the consumer. That loss of relevance results in loss of revenue, loss of control, loss of consumer data, etc. The gaps are not a total loss of utility relevance. They still have many connections and much power flow to consumers, but the percentage of consumer load actually supplied by utilities is measurably smaller and downwardly spiraling. 

Only a small portion of the Edge investment is consistent with today’s utility business model. Most Edge investments are turning new companies into competitors for utility customer attention and dollars.

• Utilities may choose to fight this trend when it starts to show harm to the bottom line, but the fight may be with the consumer. It is not a good plan to make an enemy of your customer base while trying to retain them.
• Utilities may choose to ignore this Edge investment movement.  However, this can only be a short-term strategy until revenue loss forces reconsideration of this strategy.
•  Utilities may choose to get involved in the Edge Movement.  While risky and not a typical space for utilities, it may be the only way to stay relevant to customers.  This means new business models and new unregulated (probably) lines of business.  Today, internal and regulatory policies do not recognize this need.  Utilities could leverage this consumer interest in ET with regulators.

Growth in innovation at the Edge turns into electricity that is supplied to consumers without utilities. The instance of commercial and residential consumers going off-grid (Grid Divorce) has increased 33% per year each of the last 10 years.  Hard to believe that trend will continue?  What if combined heat and power (CHP) is allowed to having private wires between adjacent businesses? Study Section 1308 of EISA 2007 and then realize that even more power flow would flow from private generators to consumers. If the grid divorce trend continues it will lead to 55 million U.S. meters (half of the nation) going off-grid by 2028.  How many utilities will survive if they lose half of their revenue?

Please do not misinterpret the goal. This is not a call to fight against the Edge Movement, but a call for utilities to become aggressively involved. Without utility relevance to the customer, major network synergies and reliability channels could be lost in the new electric economy pushed by the Edge Movement. 

Next month, we will focus on environmental benefits of modernizing the grid.

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   SGN Column on EDGE Invenstment