Are utilities fighting the last war?


There is an expression in the military that goes something like this: Military leaders train and prepare for the next war using available information, which typically means they're planning for the last (previous) war -- and that's a recipe for disaster. So what does this have to do with utilities and the traditional utility business model? Plenty.

The utility industry is the backbone of the civilized world. It touches every facet of modern life and is (or should be) credited with advancing society from basic comforts to huge leaps forward in science and technology. This is all well and good; the problem is that the utility business model is not fighting the next war, nor are utility leaders and regulators embracing the need to prepare for the next war. At least not yet, and not industry-wide.

At the core of this conundrum is the arrival of renewables, which has brought sweeping changes to the established utility paradigms around the delivery of electricity and the traditional utility-to-customer relationship. Central station generation and power flowing in one direction is now moving towards distributed generation and multi-directional power flows; and as for the utility-to-customer relationship, it's going the way of the dinosaur.

The intent here is not to be overly critical. In fact, there are a lot of super innovative things happening in utilities today. Micro-grids. Grid-scale renewables. New business development. The challenge (listen up, regulators) is unleashing innovation while still ensuring reliable, affordable, secure electricity. Here are a few examples of how this might happen, and how regulators can work with utility leaders.

  • Electric vehicles: Where do we begin with EVs? For starters, picture a consumer world where the Pacific Gas & Electrics and Duke Energies of the world have displaced the Chevrons and Shells of the world. Give utilities the thumbs up to take a shot at different ways to serve the emerging EV market. How about smart charging networks, partnering on home charging units, and innovative pricing for those "EV electrons"?
  • Rooftop solar: I live in California. Rooftop solar is everywhere. Why should utilities have to concede this business? Utilities typically have reliable (if flat) cash flow. How about buying up local solar providers or partnering with solar providers to get a piece of that action? This could even extend to leasing or payment plans. How about selling or leasing bundled solar + battery packages with a long-term service agreement? (Note: look at how GE transformed its business by building long-term services into just about everything it sells).
  • Grid-scale renewables and microgrids: Another approach to NOT conceding the rooftop solar market is to offer grid-scale solar or wind energy. There's an argument to be made to all of those green consumers that the most efficient way to deploy renewables is at grid-scale (or maybe re-packaged as "neighborhood- or community-scale").
  • And what about the grid?: Watch the grid operations model closely over the next three to five years. Utilities that move towards a model that's best described as being much like a "mini-ISO" (independent system operator) will likely be in a position to provide a service in the emerging distribution model that is unique and valuable across all of their customers, particularly important as the current model is still "fighting the last war."

Having started in the utility industry nearly 28 years ago as an analyst, I have the benefit of being an old dude in this industry. I've seen a lot changes, many of which occurred in the last few years. Unlike incremental improvements in the utility business over the past decades (SCADA and GIS developments,for example), today's challenges strike at the heart of survival for the industry (losing revenue every day with no end in sight!). The good news is that utilities are becoming more digital and data-driven every day, and savvy utility and regulatory leaders are certainly learning from the past, but are also re-thinking the utility business model and preparing for the next war.

To learn more about how utilities are using analytics to meet these business challenges, download this whitepaper: Utility Analytics in 2017.


About Author

Mike F. Smith

Mike Smith is a 26-year veteran of the utility ‘smart grid’/IT/automation, information services and media business, and is currently the Utilities Principal Industry Consultant for SAS, where he is involved in client engagement, thought leadership, and business development activities to drive growth of the business unit. Immediately prior to joining SAS, Mike was Vice President, Sales & Marketing at E Source. He was previously Vice President, Utility Analytics Institute where he has been responsible for product development, business development, and growth of the division. Mike is a graduate of San Jose State University (BA, Economics) and is a veteran of the US Army (Captain, Infantry).

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