Cleantech Market Intelligence
Agile Innovation in the Energy Cloud
One year ago, Navigant’s Energy Cloud: Emerging Opportunities on the Decentralized Grid white paper described a power industry evolving into a dynamic network of networks far more sophisticated than the traditional hub-and-spoke model of yesterday. Propelled forward by the convergence of multiple megatrends transforming how energy is produced and consumed globally, tomorrow’s grid will be more clean, distributed, and intelligent.
Marking a shift in industry sentiment, there is now nearly unanimous consensus among utility executives and stakeholders that the industry is facing profound change. Utility Dive’s State of the Electric Utility 2016 survey shows that 97% of the 515 U.S. electric utility executives who responded to the survey believe their own utility’s business model needs to change.
But while some aspirational endpoints may be clearly defined (e.g., “Grid to Cloud“), the pathways to position for success in this emerging environment remain elusive.
Stakeholders continue to run up against the same issue: yesterday’s playbook to capture and grow revenue no longer applies. Whereas yesterday’s coal plants could be rate-based over a 30-year timeframe, for example, today’s distributed energy resources (DER) technologies are likely to be obsolete in a matter of years, replaced by ever cheaper and more efficient solutions. Navigant Research analysis shows that new global DER capacity deployments, for example, are expected to outpace centralized generation deployments by a factor of five by 2025—both a reflection of a rapidly evolving energy landscape and the emergence of a more modular, plug-and-play grid.
As the scale and velocity of DER adoption accelerate, utilities will become more exposed to technology innovation than ever before. With many hemmed in by a regulatory model better tuned to centralized generation, utilities must maneuver to allow sufficient flexibility to continuously swap out obsolete assets and programs.
Today, nearly all major utilities in North America and Europe are heavily invested in demand-side management, utility-scale renewables, and DER, according to Utility Dive’s survey. However, many utility investments remain siloed, focused on new business models targeting single technology solutions. Meanwhile, the emerging Energy Cloud is a multi-variable landscape where agility and flexibility are fast becoming a strategic necessity. The threats transforming the industry are both nuanced (e.g., value of clean, intermittent power versus reliable, baseload power) and multifaceted.
Take the aforementioned trends—clean, distributed, and intelligent. While each are profoundly disruptive in their own right, they are also interrelated and cut across multiple dimensions: customers, regulation, business models, technology, and operations. Strategic planning requires a view toward the multitude of disruptive forces eroding utility revenue.
Perhaps most challenging for utilities, strategic planning must embrace the ability to fail fast, early, and often to keep pace with the rate of technology change. If innovation tells us anything, it is that most initiatives are bound to fail, or worse yet, return just enough to sustain interest and occupy resources for several years before finally flaming out.
While the pursuit of new business models remains vitally important in this shifting landscape whether regulated or not, the utility opportunity lies more in the ability to continuously shape and prune DER portfolios, shedding laggard components and embracing emerging solutions rich in grid services.
Agile innovation, an extension of an approach to product development that gained fame in the highly competitive software industry, provides a useful blueprint. Focused on two objectives—accelerating the time to market readiness and reliably producing high-quality results—agile innovation is designed to be highly iterative, enabling rapid adaptation to unfamiliar and turbulent environment. Sitting on the precipice of profound industry change, utilities that embrace holistic planning while remaining flexible are likely to be prove most successful at preserving and growing revenue.