Navigant Research Blog

Blockchain Takes a Step toward Maturity – Event Horizon 2018: Part 1

— April 26, 2018

Over the past decade, I have attended many conferences discussing utilities’ use of technology. Event Horizon is a tech event like no other. It had dry ice, loud techno music, light shows, and was located in an old Berlin power station. Most striking of all was (my approximation of) attendees’ average age, which was well below 40. More traditional energy events rarely go beyond a passing reference to climate change; at Event Horizon, the issue dominated the first morning’s key notes. Distributed energy resources (DER) integration was cited heavily as a way to avert environmental disaster; blockchain—in many guises—will help integrate DER.

Event Horizon was organized by the Energy Web Foundation (EWF), whose founding partners the Rocky Mountain Institute and Grid Singularity were highly visible on the show floor and in the keynotes. However, there was a good mix of other organizations not affiliated to EWF. The event served as a bellwether for blockchain’s maturity, which I sum up in five observations:

Rampant Investment in Blockchain Overshadows Utilities’ Reticence

Blockchain hype is at its peak. One presenter believes over $1 billion of investment capital has been raised by energy-focused blockchain startups, the majority of which was raised through initial coin offerings (ICOs). However, utility spend on blockchain is far lower. I believe this is limited to a handful of larger utilities, which have created small blockchain teams within innovation centers to test a handful of use cases.

The North American Market Is Flailing

US-based ICOs led the world in 2016, but stalled in 2017-2018. CleanTech Group estimates $723 million of ICO capital was raised in Europe, $251 million in Asia Pacific, and $140 million in North America, which recorded the lowest growth of the three regions. This is not surprising, given the US’s lack of market reforms or competition, and its anti-renewables administration: the consensus on the exhibition floor was that North America is about 5 to 10 years behind the rest of the world. The money appears to be following activity; DER trailblazers New York and California may well catalyze the rest of North America into action.

ICOs to Be Replaced by Venture Capital

In a recent blog I discussed why ICOs worry me: they strike me as a way for naïve investors to part with their money. The volume of investment raised by startups is staggering, but it is important not to get too carried away. ICO funding is showing signs of drying up, with few new investors emerging and a lack of originality in startups’ proposed business models. As the industry matures, an increasing proportion of funding will come from venture capital.

Few Business Models Focus on Utilities’ Current Needs

Most blockchain startups are focused on peer-to-peer energy trading. Unfortunately, while I am enthusiastic for transactive energy’s future, it won’t really exist as a mass-market offering for many years. In contrast, a handful of companies—notably Electron and Spherity—presented uses for blockchain that resolve current issues that existing IT fails to address. The rest of the blockchain community should take note: pragmatic solutions tend to make the most money.

Nothing Dispelled My Antipathy toward Token-Based Business Models

Finally, I was disappointed to see so many startups with business models that “tokenize” energy markets. Essentially, this strategy attempts to merge cryptocurrencies with energy markets. Tokens may be useful when used in a system’s backend, but remain invisible to end-users. However, I believe regulators will put the kibosh on any business model that has the merest whiff of cryptocurrency. The world of Bitcoin is far too risky to translate into a workable model for energy customers.

 

The Need to Balance Ride-Hailing Costs and Benefits

— April 26, 2018

People who frequently use ride-hailing and carsharing services enjoy the flexibility and freedom that comes from operating or owning a car. Others complain about the perceived shift back to personal car use from public transit and increases in traffic congestion.

Perspectives from Texas

Case in point is the city of Austin, Texas, where Uber and Lyft have returned after a 2-year hiatus. According to Automotive News, not everyone in the city was happy to see the services return, with some residents miffed about the increasing congestion. Adding to the fray in Austin is General Motors, which recently brought in a fleet of all-electric Chevrolet Bolts via its Maven Gig rental program. The Bolts are offered to people without a car who want to work for the ride-hailing and delivery services, with drivers paying weekly rental fees. The Bolts provide the benefits of zero-emissions driving, but still add to the number of vehicles on city streets.

Austin was rated as one of the 26 best US cities to be an Uber driver based on analysis of earnings per trip. All of these cities will likely see more ride-hailing traffic in the coming years. According to Navigant Research’s Mobility as a Service report, the number of drivers working for ride-hailing services in North America will grow by 20% annually and surpass 5 million in 2026. The benefits and costs of these services to the cities where they operate will continue to generate debate.

Are Millennials Killing the Personal Vehicle, Too?

There have been several studies on the impact of ride-hailing, including analysis by the Institute of Transportation Studies at the University of California, Davis. According to a recent report, ride-hailing customers report using public buses, light rail, and bicycles less, but actually walked and took trains more. While traffic may be increasing, parking is getting easier as people are parking at destinations less, and many cities are seeing declining rates in car ownership. According to UC Davis data, 9% of millennials who use ride-hailing services disposed of one vehicle in their household, and others have delayed car ownership. As the frequency of using ride-hailing services increases, the likelihood of giving up a car rises, while vehicle miles traveled in personally owned vehicles declines.

Sharing Services Continue to Gain Popularity

Between 2010 and 2015, several of the largest US cities saw declines in vehicle ownership among millennials, including Seattle, Detroit, Washington, DC, New York, and San Francisco. The decreases in vehicle ownership are likely to continue as ride-hailing and carsharing services rise in the coming years.

There are positive repercussions for urban land use with the reduction of vehicle ownership and personally owned vehicle trips. Eliminating parking spots in the urban core frees up spaces for greening cities and other uses that are more aesthetically pleasing than parking. Reduced vehicle ownership will make more spots available in residential areas for those drivers who retain their cars.

Economic Benefits

Ride-hailing services also are good for the economy as customers can freely travel to areas with limited parking, stay out later, and indulge in drinking alcohol knowing that a safe, reliable ride is available in minutes. A recent study from the University of Pennsylvania found a correlation between the presence of Uber and reductions in drunk driving, a safety benefit for all. Another benefit is less costly transportation access for an aging population and people with disabilities. Uber recently announced the UberHealth service, which enables caregivers to book appointments for patients.

Ride-hailing should not be left unchecked to create more traffic problems and reduce use of public transit. That said, the benefits of ride-hailing services for customers and local economies are real.

 

Technology Misuse Endangering Automated Driving

— April 24, 2018

If we’ve learned anything from the era of reality television and user-generated online video, it’s that a surprising number of people will risk great harm by misusing themselves or technology to get some online attention. Whether it’s blowing up a microwave, eating laundry detergent pods, or misusing driver assist features on a car, too many are willing to abandon common sense in search of the dopamine hit that comes with seeing the number of views ratchet higher. I shake my head in bewilderment when I hear of someone swallowing a detergent pod, but at least they are not putting others in harm’s way.

Vehicle Travel Should Be Serious

More concerning is seeing videos of people using today’s vehicle partial automation systems, like Tesla AutoPilot, beyond the scope of its capabilities or trying to figure out how to trick it into functioning as a more highly automated system. I have no issues with hardware hacking of stationary devices, or vehicle systems not related to driving. Repurposing hardware you have purchased to provide added functionality can be fun, educational, and allows you to extract more value from it.

But modifying or tricking a vehicle’s guidance system puts innocent bystanders at risk, with potentially disastrous consequences. People who override driver assistance systems or pay little attention to the vehicle’s operation could negatively affect the adoption of automated vehicles.

Consumers Shouldn’t Overestimate Vehicle Autopilot

Tesla AutoPilot and similar systems from General Motors, Volvo, Mercedes-Benz, Nissan, and others are not automated driving systems. Except for GM’s SuperCruise, none of these systems are reliably able to hold a vehicle in lane to the degree of hands-off functionality. All of the driving systems, including GM’s, require the driver to remain engaged with eyes on the road and ready to take over.

Overconfident Users Are Misusing Existing Automated Capabilities

While Tesla CEO Elon Musk often talks about software updates that will give AutoPilot full self-driving capability, that day has not arrived and may never be here with the current generation of hardware. Despite the well-known flaws and limitations of AutoPilot, Tesla owners continue to ignore warnings from the system and the company, using the system in ways or in places where it should be disabled. One owner that has posted dozens of videos to YouTube recently tried to demonstrate that stuffing oranges between the steering wheel rim and spokes could fool the system into thinking the driver’s hands were on the wheel. Had this been done on a closed track, it might have been an interesting stunt. On a public road, with other vehicles around, this was downright reckless.

An Apple engineer recently died when his Tesla was on AutoPilot mode and ran into a highway barrier in California. While the system clearly failed to hold the vehicle in the lane, this driver had previously complained about the car exhibiting the same bad behavior to Tesla service. Since the accident, several other Tesla owners have replicated the situation while recording video with a hand-held phone, risking further injuries.

A pedestrian was killed by an Uber autonomous test vehicle in another instance of a driver not paying attention as instructed and pushing the technology beyond its limits. Automakers need to continue clarifying the vast differences between the driver assist technologies of today and the driver not needed technologies of tomorrow.

Holding out Hope for Progress

A number of studies have already shown that a majority of people don’t trust automated driving systems. Automation has the potential to provide enormous societal benefits by saving lives and damage to property. However, if the actions of those looking for views erode public trust in the technology even as it improves, those benefits may remain off in the horizon.

 

New Musings on Business Sustainability from a Guru in the Field: Part 1

— April 24, 2018

I recently had the honor to interview my former business school professor and mentor Andy Hoffman about his new article in the Stanford Social Innovation Review, The Next Phase of Business Sustainability. Professor Hoffman has been teaching and writing about corporate sustainability for over 20 years, and is a leading academic voice in the field. This latest article reflects his and the industry’s changing perspective on what sustainability means and how it will be accomplished, based on the belief that we are not going to solve the problem unless we change the system. The bottom line? The era of corporations integrating sustainable practices is being augmented by a new age of corporations actively transforming the market to make it more sustainable.

Business Students Prioritize Environmental Sustainability

Before diving into business itself, the article discussed the changing atmosphere at business schools, where future leaders are trained and develop their management beliefs. Surveys show that 88% of business school students think that learning about social and environmental issues in business is a priority, and 67% want to incorporate environmental sustainability into their future jobs. As a clear example of supply and demand, the percentage of business schools that require students to take a course dedicated to business and society has more than doubled since 2001, and specific academic programs on business sustainability can be found at almost half of the top 100 US MBA programs. Another recent article rated the seven best business schools for careers in cleantech.

Hoffman noted that students used to go to public policy/government/non-profit management graduate programs to address these types of topics. Today, more and more believe in the power of business to make a difference. When I decided to go to grad school 20 years ago, I chose business school over policy school because I felt that business was slightly less corrupt than government. I also felt it would help me make more of an impact on society. Who knows if I was right.

Enterprise Integration and Market Transformation

From there, the article discusses two phases of business sustainability. The first is “enterprise integration,” which is founded on a model of business responding to market shifts to increase competitive positioning by integrating sustainability into preexisting business considerations. The second is “market transformation,” where instead of waiting for a market shift to create incentives for sustainable practices, companies are creating those shifts to enable new forms of business sustainability.

Hoffman feels that changing the way we do business is essential to addressing the challenges of environmental degradation. The market is the most powerful institution on earth, and business is the most powerful entity within it.

I asked him about his thoughts on the term corporate social responsibility (CSR), which is a common way to look at these issues outside of the core of business operations. He tries not to use CSR as a term because it makes people’s eyes glaze over when they hear it—it can sound like a peripheral issue like philanthropy or social activism, and not central to the corporation’s purpose. Instead, he aims to teach sustainability as business strategy by translating the issue into the core language of business management, as opposed to a separate and distinct topic.

In the next part of this blog series, I will explore impact investing, capitalism, and energy and mobility.

 

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