Navigant Research Blog

Disruptors Welcome in the Future Energy World—Sort Of

Neil Strother — May 17, 2016

CodeThe future of electric power in the United States looks brighter than many might think, given all the wringing of hands in recent years about a supposed utility death spiral and lurking technology disruptors seemingly about to upset the old guard. I was reminded of this by two stories that crossed my inbox in recent days.

One was an intriguing piece by Tom Kuhn, president of Edison Electric Institute, the trade association representing investor-owned electric utilities. He notes the profound transformation taking place in the industry, and says, “At the heart of this transformation is the terrific progress that we are making today to deliver America’s energy future—a future driven by new and innovative technologies, developments in public policy, and changing customer and market expectations.”

Investments Increasing

Fair enough, and expected comments from an industry booster. But then Kuhn goes on to point out, “What you might not know is that just as all of the devices, gadgets, and services we rely upon are becoming smarter and more dynamic, the power grid is too. In fact, the electric power industry is investing $100 billion per year, on average, to build smarter energy infrastructure and transition to even cleaner generation sources. A record $108.6 billion in investments is estimated in 2015 alone.” That’s real money, and a sign of an industry not afraid to embrace change, though perhaps at a slower rate than Silicon Valley expects. And, finally, Kuhn embraces the competition. “We view many of the so-called ‘competitors’ or ‘disruptors’ to our industry as partners,” he says. “Today, we are working with hundreds of leading technology companies, including Tesla, Google, Apple, and Nest, as well as the startup community, to bring tomorrow’s technologies to customers today.”

Battle of Billionaires

The other was the contrast between energy billionaires Elon Musk and Warren Buffett. In a Las Vegas Sun piece, author Daniel Rothberg paints a picture of old-versus-new grid business models in an ongoing clash between Buffett’s NV Energy and Musk’s SolarCity and Tesla. Nevada is ground zero in this debate, with Musk and Buffett seeking the same goal, a carbon-free grid, but achieving it by different means. “Buffett wants to do that mostly by buying power that is centralized at large-scale plants,” Rothberg writes, while “Musk, with SolarCity, wants to integrate more decentralized rooftop solar and battery-storage technology with the grid.” The outcome means a lot to each businessman, of course, since both stand to win or lose depending on the model that emerges, and that will depend mainly on how the state’s energy policy is shaped in coming years.

This battle between Musk and Buffett is healthy and instructive. It shows there is more than one way to look at energy production and distribution. The combined debate and competition should yield a more efficient, cleaner, smarter grid in the long run, and it has implications for other states wrestling with similar issues. And I agree with Kuhn, the transformation and disruptors in the industry are welcome. It will be messy for a while as stakeholders—policymakers in particular—sort out the competing interests and business models. But a utility death spiral? Seems like that won’t happen. Utility transformation will, and it is already here.

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