Navigant Research Blog

Where Are All the Meter Manufacturers in Transactive Energy Projects?

— December 7, 2017

That’s a question I’ve been asking myself recently. The answer seems to be “nowhere.” In the 110 or so trials of utility industry-related blockchain and transactive energy (TE) Navigant Research has identified, meter vendors are at best the silent, invisible partners of other companies. When asking leading blockchain and TE startups about the meter hardware in their trials, the stock response has been “nothing is available that supports our requirements, so we built our own.” So, why aren’t meter vendors making more noise about a potentially significant growth opportunity?

Blockchain is the hottest, most hyped technology in the energy industry, and TE is its hottest use case. If current TE trials prove successful, I expect rapid adoption, particularly in countries with high penetration of solar, supported by ratepayer-funded incentive mechanisms. TE’s market-based incentives could replace subsidies. Large-scale, fully automated TE platforms have a number of requirements, as discussed in Navigant Research’s Blockchain for Transactive Energy Platforms report:

  • TE pricing requires visibility into local network conditions, including network assets and distributed energy resources.
  • Smart contracts—which determine when transactions are opened and closed—must be hosted locally and fed with market data.
  • Meters measure and record all TE power supplied and consumed.
  • Communication networks will transport data to interested parties.
  • Transactions must be recorded to the blockchain.
  • Significant distributed compute power will support automation of the TE platform.

Meter Vendors Can Support Many TE Functional Requirements

TE markets will have to be settled in much the same way as wholesale power markets are today, in accordance with strict market regulations and technology standards. This is a complex system, where a lot of trust will be placed on the technology platform. Meter vendors have many capabilities that could put them in a commanding position to lead the TE space:

  • Smart meters already provide visibility at the point of consumption.
  • Advanced metering infrastructure communications could provide the data networks on which TE runs.
  • Smart meter data concentrators could be used as nodes for the blockchain, store smart contracts, provide compute power for localized pricing calculations, and so on.

There is another feature that meter vendors have so far overlooked: it is difficult to amend records already committed to the blockchain. Consequently, it is vital to ensure that transaction data is correct before it is recorded. This will be a difficult task in a largely automated TE platform. While smart meter accuracy is generally high—between 99.5% and 99.9%—a validation algorithm is run regularly to estimate missing or erroneous meter readings. In TE, a similar algorithm must run on transaction data. However, it is likely that validation will be distributed alongside the ledger, rather than a centralized batch process. Most meter vendors also offer a meter data management system with an associated validation algorithm.

Despite meter vendors’ requisite hardware and software, they are nowhere to be seen in the TE world. There are many reasons: ongoing major smart meter rollouts command a lot of attention, and there is little money to be made in TE right now. However, I would have expected at least one vendor to have taken the leap into the world of TE. The biggest risk is that meter vendors are trapped in the old utility world, where metering innovation was driven by utilities—with whom meter vendors have decades-old relationships—and adoption of new metering technologies was slow and incremental.

TE adoption will be different. It is driven by startups that have no previous relationship with meter vendors. These startups could develop their own validation algorithms; they could choose to use public 5G networks for data communications; or they may decide to deploy their own distributed compute. If this happens, meter vendors will miss out on potentially billions of dollars of value created by TE. Meter vendors must wake up to the reality of TE and the opportunities and threats the market presents.

 

Utility Cloud Use Soars in 2017

— December 5, 2017

I’ve been analyzing technology markets long enough to have observed the entire cloud computing hype cycle; it’s now a well-understood, mature technology. Which also means that there’s little to write about for an analyst more used to covering emerging technologies. However, from 2008 to 2011, I never got the chance to write a detailed report about cloud computing in the utility industry. While the cloud hype volume was cranked up to maximum, the utilities industry was doggedly refusing to move any IT infrastructure into the cloud. Which was a personal disappointment: for a fan of puns, it was difficult to resist the temptation to write a report titled Utility Computing in the Utility Industry.

I even advised a couple of cloud vendors that wanted me to tell them how to break through the conservatism of the utilities industry. My only advice? “Lobby the regulators, because utilities just aren’t going to budge on this one.” And why? Three primary reasons:

  • Conservatism: No utility ever liked going first with something new. In any monopoly market, moving first was only ever a disadvantage. Rather, utilities would wait for someone else to stump up investment capital and let vendors learn from the mistakes of others before bringing a more reliable product to market.
  • Security: I have been told more than once of security officers halting vendors’ cloud pitches midway because of security concerns.
  • Regulatory: Some regulators would not let data be transported outside of certain geographic areas, killing off any idea for clouds based in other jurisdictions.
  • Finance: The key selling point of cloud is its OPEX-based pricing scheme. While music to the ears of CFOs in other industries, it killed cloud’s chances in utilities rewarded for making capital investments.

Until a year ago, cloud’s adoption by utilities was slow and steady. However, 2017 has marked a dramatic change in the industry’s attitude toward the technology. There is no better way than using cold facts to describe the rapid acceleration of its adoption. In a recent call with SAP, I was astounded at the company’s growth in cloud-based revenue in the first three quarters of 2017: a 90% year-over-year increase on 2016. SAP’s utilities business unit recorded the second-highest growth in cloud revenue across the business, just behind retail.

Market Requirements Have Eroded Resistance to Cloud Adoption

This growth isn’t completely unexpected. European utilities are under significant pressure to reduce costs and are no longer concerned about the OPEX versus CAPEX argument. The cloud is helping them achieve this. Cloud vendors have also made great strides to improve security issues. So much so that investment in security is typically higher than a utility can manage for its onsite data centers. And with the growth in demand for cloud, vendors can build infrastructure in more locations, negating the need to move data across international borders.

What’s next? The industry is becoming more comfortable with cloud, and more IT infrastructure will be moved to it. However, this will be done in a controlled manner. Despite some (frankly laughable) claims to the contrary, private clouds will account for the vast majority of utilities’ use. Core IT infrastructure likely will never be moved to public clouds, due to the inherent increased risk.

Finally, a word of caution. I predict that some utility’s adoption of cloud services will be piecemeal, unstructured, lack a coherent strategy, and uncoordinated. Different departments will procure cloud services for their own departmental means. In effect, reversing the recent trend to consolidate data in a data lake or data warehouse. Instead, new cloud-based operational data siloes will be created, where access to data is restricted. To counter this threat, individual departments must be reined in just enough to ensure enterprisewide data management without choking innovation.

 

Utilities Will Rely on Vendor Ecosystems to Support the Energy Transition

— November 10, 2017

Until recently, I often introduced presentations or blog posts with a warning that the utility industry was about to enter the most disruptive decade in its century-long existence. That is no longer true, because I believe the industry has now entered that decade. Okay, the timing for different countries may vary, as will the length of the period of disruption. In fact, some countries—Germany and Denmark in particular—have experienced significant disruption already. But for most markets, the rumblings, threats, omens, and rumors have only recently turned into action.

Navigant Research has a significant volume of commentary on future energy markets, all based around its concept of the Energy Cloud—where energy becomes more distributed, clean, intelligent, and mobile. The old business model of centralized generation will shift to a decentralized, customer-centric value chain, where energy services become far more important than energy supply. Navigant Research also identified an additional $1 trillion of new value created in the Energy Cloud by 2030.

There Will Be No Energy Transition without a Digital Transformation

It is important to note that the energy transition is as much a digital revolution as it is an energy revolution. The $1 trillion of new value identified by Navigant Research will likely be created through the provision of digital energy services, from automated demand response to transactive energy. None of this value will be delivered without access to vast quantities of data from an enormous and heterogeneous array of devices. None of this value can be delivered without a robust IT infrastructure to support digital energy services.

As part of thought leadership, Navigant Research has identified seven platforms that are critical to the delivery of digital services within the Energy Cloud. Additional white papers are on the roadmap to discuss these platforms in further detail. Next up is a white paper on the neural grid platform, which describes—among other things—the devices, communications, and analytics that will underpin all other digital services in the Energy Cloud.

Vendor Ecosystems Will Help Manage the Complexity of the Energy Cloud

Navigant Research’s upcoming Neural Grid white paper will shine a light on the sheer complexity of the IT infrastructure required. There will not be any plug and play platform for the foreseeable future. The market is new, moving rapidly, and different utilities have different requirements. As a result, over the next decades individual utilities will deploy many platforms that rely on many datasets created by many devices communicated over many networks using many protocols stored in many locations supplied by many, many different vendors.

It is critical for the success of the Energy Cloud that vendors cooperate within official and unofficial partnerships and work toward their customers’ common goals. Join us on November 14 at 2:00 p.m. EST for an Intel-sponsored Navigant Research webinar. We’ll explore in more detail how the energy transition and associated digital transformation requires strong vendor ecosystems and gain some insights from Intel, which sits at the heart of one of the largest smart grid ecosystems.

 

Innovation Aplenty at the European Utility Week

— October 10, 2017

From October 3 to 5, the European energy industry converged on Amsterdam for European Utility Week, an event I have attended off and on since 2009. In a conservative, slow-moving industry, previous events have felt a little like the utility technology equivalent of Groundhog Day. This year’s event was far from it.

The 2017 exhibition is an excellent barometer for the current speed of industry change. And how things have changed. In 2009, the event was known as Metering, Billing/CRM Europe. This far from catchy title was somewhat misleading because metering and other electrical hardware companies ruled the exhibition floor, with a handful of billing vendors and nary a mention of CRM. Virtually all the exhibitors had many decades’ experience in the utilities industry.

Back to the Future

Fast forward to 2017. The exhibition is now 4 or 5 times larger and the focus has shifted from hardware to software. The hardware vendors of old have expanded their focus to offer a suite of products from the traditional metering business to communications, data, and analytics platforms into services. There is now a profusion of software vendors that would have looked out of place at the event of 2009. This reinforces the message that the energy transition is not just about a shift to smarter, cleaner generation, but a shift toward software that will manage future networks and enable new business models.

However, the most marked difference between this exhibition and those of previous years was the existence of many small booths for startups and several EU-funded Horizon 2020 demonstration projects. Nine years ago, startups in the energy industry were few and far between. Innovation was typically led by a utility that would develop solutions with a long-term partner that would, in turn, create products around these innovations and bring them to market. But how things have changed. Innovation does not have to occur with a utility’s blessing. The shift to software means entry costs are significantly lower, and startups are developing products that can just as easily compete directly with a utility as be adopted by them.

Disruption at the Edge

If this exhibition-as-bellwether idea runs true, utilities should raise their competitive threat levels a notch or two. Disruption at the edge is a key indicator of future disruption at the core, yet most companies fail to closely monitor startups chipping away at non-core parts of their business. The industry has entered the most disruptive decade in its century-long existence. Many utilities are planning for a more distributed, competitive future. Those that don’t run a real risk of becoming irrelevant in the not too distant future.

 

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