How a comprehensive strategy can enable the convergence of technology, people, and markets
By Neil Placer, EnerNex
Technology is advancing at an exponential rate across various industries and markets. It seamlessly encompasses all parts of our lives, from business operations and recreational activities to our daily interactions with social media. The digital revolution is in full swing and the name of the game is data – and more specifically, how data can be leveraged. As the old adage goes “knowledge is power”, but a more apt description of today’s world may be to say that “leveraging data is power”.
Historically, the electric utility industry has been somewhat insulated from changes occurring outside of their immediate control. This has enabled utilities to take a measured and orderly approach to “keeping the lights on”. This long-standing utility construct has been present in for over a century, but is now beginning to change. Electric consumers are now exposed to a growing array of available technology options provided by market forces operating outside of the utility “firewall”. To those within the electric utility industry these changes are clear and come as no surprise. What is not as clear is how the electric utility industry can strategically adapt to become a market competitor, rather than a market memory.
Ironically, utilities are no strangers to technology. In fact, the utility grid is one of the most complex and coordinated technological systems that exists. The key differentiators between utility technologies of the past and the future are twofold – they differ in source and substance. The sources of energy and energy management are shifting to the edge of the grid. Distributed generation, such as solar energy, along with energy management devices such as energy storage, demand response tools, and in-home energy devices are some of the key grid edge solutions. Collectively these solutions are grouped as distributed energy resources (DERs). Although much could be said about DERs, the focus of this article will be on the other side of the technology evolution – the shift in technology substance.
Utility technology solutions are also shifting from a focus on electrons to data. This is not to imply that electrons are by any means disappearing; after all, the electric utility industry would cease to exist apart from electrons. This is to say, rather, that the management of electrons and the associated data governing energy use is enabling this fundamental shift. In other words, the electric utility is moving from electron-only management to electrons plus data management.
A diversified energy portfolio has been one of the key tenants for success in the electric utility industry. Similar to a prudent financial investment portfolio, a diversity of energy resources keeps all of the utility “eggs” from being placed in one basket. But what happens when these “eggs” are gradually being transferred to new “distributed baskets”? The simple answer is that utilities need to begin to build diversity in terms of baskets rather than only eggs. One of the solutions for “basket diversification” is data.
Because of this, technology presents a bit of a paradox. At the same time, technology is both the biggest challenge to utility survival and the greatest opportunity for utility success. Data enables utilities to build new “data baskets” whose “eggs” are services provided to their customers or other external markets. Essentially, data becomes a means for utility diversification by being both a seamless provider of energy (electrons) and services (data-driven amenities). Changes in technology sources and substance are therefore moving the utility industry from a historic era of generation diversification to a new era of revenue diversification. The utility conversation will no longer solely revolve around the balancing of gas, coal, nuclear, and renewables, but will be focused on the types of services that can be provided to usher in a cleaner energy future.
How do utilities navigate this brave new world of revenue diversification that seemingly appears to be driven by technology? The answer is somewhat counterintuitive. One could logically assert that if the greatest source of change is technology, then technology itself must also provide the greatest solution. Reaching this conclusion is not necessarily wrong but can be short-sighted in approach, resulting in less than desirable outcomes. This simplistic strategic approach forgets to step back to recognize some important indicators, namely the influence of people and markets on technology.
A key litmus test to determine if utilities are taking a comprehensive view, can be seen in their approach to corporate strategy. It is imperative that utilities take a step back to reassess their core mission, strategic direction, and strategic initiatives. In doing so, utilities will find that although their mission to serve the customer remains intact, how they do so (i.e., their strategic initiatives) will need to change. Leadership should consider how to strategically shape a new type of utility at a “forest” level, instead of following the traditional approach of tactically pruning the existing infrastructure of “trees”. This approach of pruning “trees” is precisely how technology can result in solutions that are short-sighted and do not enable the construction of a new utility “forest”.
How can utilities avoid developing short-sighted strategy? One answer is to view technology as a means to an end, not as an end in itself. Technology-centric solutions should not be viewed myopically or independently. Part of stepping back at a “forest” level is to ask some fundamental questions related to the convergence of technology and business direction. These questions may include:
· Why am I pursuing a specific new technology or one technology over another?
· Are these technology choices driven by mandate or sound business strategy?
· Is the technology solution a near-term tactical fix or part of a long-term strategy?
· How will technology solutions position me to meet the changing needs of the customer?
When a utility takes the time to reflect on these high-level concepts, the genesis of holistic strategy begins to take form. Obviously, there are many facets of strategic thinking that could be applied and certainly depend upon specific utility scenarios. With that said, a utility is still able to pursue timeless business tenants that provide a basis for sound strategic direction. Three fundamental pillars which drive the success of nearly any business are technology, people, and money. Up to this point I have emphasized the importance of technology, largely because this is where most of the utility focus currently resides. But what about the other two areas? Substantial time needs to be taken to comprehensively unpack these topics, however two high-level principles stand out concerning their immediate impact to electric utilities.
1. People—The fundamental mission and purpose of most utilities is related to serving their customer. Therefore, the customer should be placed as the central focus for change, not as a secondary driver or tertiary byproduct of other drivers.
2. Money—If revenue diversification is a key to utility change, then the evolution of financial markets becomes an increasingly important focus in defining sound utility strategy.
How does this translate into a holistic strategy for utilities?
1. Strategic Alignment & Balance—Technology, the customer, and financial markets should be comprehensively considered as core pillars for strategy development. The customer is the reason, the technology is the means, and the financial markets connect technology to people to make sustainable business possible.
2. Strategic Sequencing— The focus on technology, the customer, and financial markets should be appropriately sequenced over time. Although all three areas must be aligned, there is a logical sequence that should occur for these areas to practically come to collective fruition. The preferred order is technology investment first, then an expansion in capability and services to customers, and lastly the convergence of financial markets and transactive energy platforms.
Grid modernization is the most common term used to define the evolution of the utility industry. Most grid modernization efforts will point out, in their own terms, that technology, the customer, and market convergence are all a part of the solution. However, most of the focus is on the technology aspects of this transition, primarily because this is the most familiar and most tangible to utilities. Even the name “grid modernization” naturally leads us in that direction. As stated in my second point above, this is a positive result in terms of strategic sequencing. Technology should come first, as it is the backbone for future utility transformation. However, without the first point (strategic alignment & balance), technology solutions can fall out of step with future customer concerns and developing energy markets.
For a utility to be prepared for the coming industry evolution they must embrace these changes from a new paradigm of holistic utility strategy. This will not only involve incorporating all three facets discussed with greater alignment and balance, but also having the appropriate personnel to do so effectively and at pace able to compete with new market forces. Holistic utility strategy begins with leadership vision, takes form in comprehensive utility staffing and planning, and culminates in progressive and continuous external actions. Change is already upon us, and the utilities that will thrive will be those that see the forest from the trees. They will pursue revenue diversification by serving their customers with services that extend beyond electrons to include data management. Utility leaders must be able to envision their utility as the next generation “Energy-as-a-service” provider. This begins with a choice, but the heavy lifting comes in developing an effective and deployable holistic strategy.
In truth, this all boils down to one question: What role will you take in forging a path towards this brave new world of bits and bytes? Be forewarned, your answer to this question, either negative or positive, might shape your energy future in ways than you can only begin to fathom.
About the author: Neil Placer is the Director of Utility Services Consulting at EnerNex. He has nearly 20 years of experience working for major corporations in both the solar energy and electric utility sectors. Placer’s overarching focus is to combine his broad experience and strategic, technical, and communications capabilities to simplify complex challenges into holistic, “no regrets” solutions for EnerNex clients.