Navigant Research Blog

Elster Embraces Change

— April 16, 2012

Leading meter manufacturer and network gear supplier Elster continues to plot a solid course as it maneuvers the competitive waters of the global smart grid market.  Headquartered in Essen, Germany, the company has deployed more than 80 instances of its EnergyAxis smart grid system, as well as 5 million AMI endpoints (across electricity, gas and water utilities), and has gained a reputation for industry-leading security.

During the company’s recent four-day conference in Pinehurst, North Carolina, Ed Myszka, newly-appointed president of Elster Solutions, emphasized the flexibility of the company’s technology, noting how its new REXUniversal meter platform has a software-upgradeable radio that allows for remotely changing the communication protocols, thus eliminating the need for a truck roll and helping avoid a situation of stranded assets. Myszka added that Elster fully embraces open standards for interoperability.

During breakout sessions, various customers highlighted their experiences with metering technologies: Jay Heaman of Woodstock Hydro in Ontario, Canada, noted in frustration that when his utility moved to smart meters it had to remove popular pre-pay meters because regulators said the meters lacked the necessary higher standards; Idaho Falls Power’s Mark Reed said his utility is on track to begin testing this fall of gear installed as part of the Pacific Northwest Smart Grid Demonstration Project; and Pam Athon of Arizona Public Service said APS has embarked on the largest EnergyAxis deployment in the world. Among customers there was some grumbling, which is to be expected.  Most of the utility people I spoke with, though, are generally satisfied Elster customers.  And, refreshingly, at one point an Elster executive admitted to problems in the past (no specifics), which is a sign of a mature company.  What company doesn’t make mistakes?

One of the highlights for me was a factory tour in Raleigh, where Elster workers crank out up to 100,000 meters – both residential and commercial – per month.  I met a woman there named Dora Johnson, who will retire next year after 40 years.  The plant also was evidence that not all manufacturing jobs have moved to China or other offshore locations.

Elster has a clear vision of the smart grid, combining all of its skills in meters, network infrastructure and software solutions for electricity, gas and water.  But it faces challenges from meter rivals like Itron, GE and Sensus that likewise have solid competing products.  And while Elster leverages many of the best minds in the industry who congregate in the Raleigh-Durham region, so can these rival competitors.  Bottom line: A formidable player that has its act together, but must stay hungry.


A New Energy Management Business Model

— April 12, 2012

How do you consume electricity in your home? For many households, this isn’t a question often considered.  The question “How much do you spend on electricity?” resonates more with households and bill payers.  Most people need an easy and actionable plan for managing costs, which at the same time will reduce overall energy consumption.  Understanding these dynamics in matters of residential energy efficiency is crucial to designing programs that will drive increased energy savings.

Building energy efficient homes requires both technical engineering and “financial engineering”.  The latter is increasingly the focus of stakeholder business models.  Efficient products for the home – from insulation to windows, and appliances to distributed generation – have advanced rapidly, and demand for energy efficient homes is on the rise.  But the market has struggled to connect supply and demand, and a profitable business model for whole-house retrofits or energy efficient-designs hasn’t fully emerged.

Lending organizations and new service providers are eyeing business models based on residential energy efficiency, and some big names in the market think there is money to be made in providing related services.  The KfW Bankengruppe in Germany is a notable example of a proactive lending organization that has developed dedicated green product lines to stimulate energy efficiency in residential properties.  KfW’s green portfolio includes financing for residential upgrades at low interest rates, support for innovation, and consumer outreach.  This proactive approach to the residential energy efficiency market is also driving successful whole-house approaches to retrofits.

In the United States, SolarCity – the firm that changed the dynamic of the distributed solar market through solar leasing – has turned to energy efficiency as the next aspect of its home energy management business model.  SolarCity offers customized home evaluations and delivers reports detailing opportunities to save energy.  Through its strategic partnership with Admirals Bank of Boston, SolarCity targets reducing the financing barriers in the market as well; offering either a one-year interest free loan, or a three- to ten-year loan with low interest rates.

Big-box retail stores such as Lowes and Home Depot are eyeing the growing market for residential energy efficiency, by partnering with programs like ENERGY STAR and offering energy efficient products ranging from windows to home energy management devices.  These stores are also increasingly eyeing the services market for residential energy efficiency, in which energy management could become one of several services as part of a home automation package offered by large retailers.

These innovative business models not only acknowledge the value of investing in residential energy efficiency, but are also poised to drive the market forward.  The ultimate success will come in combining technical and financial engineering prowess.


Iceland Bets on Green Data Centers

— April 12, 2012

It’s always interesting to see a project you’ve been tracking for some time come to fruition.  I’ve been following Verne Global, and its plans for a data center campus in Iceland, for almost two years, so it was rewarding to see its progress first-hand at the official launch event last month.

The Verne Global data center is based on a former NATO facility west of Reykjavik, near Keflavik International Airport.  Iceland’s advantages as a staging post between North America and Europe are important, but it’s the availability of a dual-sourced renewable energy supply that makes the project unique.  Iceland’s electricity is provided 100% by hydropower and geothermal energy.  In addition, Iceland’s temperate climate enables year round free air cooling without the need for chillers, helping the site to operate at a power usage effectiveness (PUE, a measure of how efficiently a data center uses energy) of around 1.2.

The data center’s location provides strong green credentials, but it also offers important commercial advantages.  Iceland’s renewable energy resources mean a stable and cheap source of electricity for data center operators and other businesses.  Landsvirkjun, the local utility, is able to offer up to 20-year terms for electricity rates and has, for example, been offering a public rate of $43 per megawatt for 12 years.  This allows Verne Global to claim that the total TCO for its customers could be 60% lower than a similar deployment in London.

The choice of location has been combined with an innovative approach to data center development through a close partnership with Colt.  I’ve written previously about Colt’s approach to modular data center design, and the Keflavik data center is its first public showcase, though it has since announced another data center customer in UK luxury car maker Jaguar Land Rover.  The partnership with Verne Global also involves Colt installing a new point-of-presence (POP) for its Pan-European communications network within the facility.  Having had a chance to see the actual data center and talk to Colt’s engineering and management team, I understand more clearly how far its offering differs from containerized approaches to modular design.  “Pre-fabricated data centers” is perhaps a better term for what Colt is doing, building the components at its factory in the north of England and shipping them for rapid installation on-site.  Colt’s approach is also modular in that it supports an incremental build-out of the data center in 500 square-meter units, which is also helping Verne Global manage its capital investment.

Another key stakeholder in this venture is the Icelandic government.  During the launch, the local mayor and an Icelandic government minister gave speeches that showed their clear enthusiasm for the project.  Iceland is keen to exploit its natural advantages to develop a large-scale data center industry and has been clearing away regulatory and tax issues that might hamper expansion of the sector.  Iceland, of course, was one of the countries most badly hit by the banking crisis and it is now betting on data centers as a more stable basis for the future growth.  The availability of the new Emerald Express Trans-Atlantic Cable System, a 5,200 km ultra-high bandwidth link between the United States, Canada, the United Kingdom and Iceland, planned for late 2012, will help Iceland and Verne Global better target U.S. data center business.

Today, Iceland’s energy surplus supports a power-hungry aluminum smelting industry.  The government hopes that in future, processing bits may be equally important to the island’s economy.


Is ‘Strategic Intelligence’ an Oxymoron?

— April 11, 2012

An essay on by Eric Garland, a former strategy analyst and author of Future Inc: How Businesses Anticipate and Profit from What’s Next and How to Predict the Future…and WIN!, recounts Garland’s growing disenchantment with the field in which he’s made a living for 15 years: strategic intelligence.

I don’t particularly trust anyone who writes books with titles like that (particularly ones with totally ungrammatical subtitles), but Garland’s indictment is stinging and persuasive. “The market for intelligence is now largely about providing information that makes decision makers feel better, rather than bringing true insights about risk and opportunity. … Our future is now being planned by people who seem to put their emotional comfort ahead of making decisions based on real — and often uncomfortable — information.”

Garland is mostly talking about strategic intelligence at the corporate and nation-state level, but his definition of “strategic intelligence” (“researching trends, analyzing their potential impact, and reporting the possibilities to decision-makers”) could certainly apply to the field of clean technology research and analysis that we inhabit at Pike Research, as well.  He identifies three trends that are making it harder for empirical evidence and clear-eyed analysis to overcome institutional biases, internal politics, and short-term thinking.  First, “the explosion of cheap capital from Wall Street has led major industries to consolidate,” leaving a smaller pool of firms, many of which operate in markets distorted by politics, protectionism, and government handouts.  Second, this concentration of capital and economic clout has created giant bureaucracies in which “conventional thinking and risk avoidance become paramount.”  When you’re part of a large bureaucracy far removed from the real-world consequences of individual decisions and actions, it’s harder, and less rewarding, to base your thinking on strategic intelligence.

Finally, the influence of policy-makers is stronger than ever before.  This may seem counter-intuitive at a time when the United States can’t even craft a national energy policy, but Garland makes the case that national governments are now in the business of shielding large corporations – GM, Verizon, big banks – from the turbulent forces of globalized capitalism.

“How can you use classical competitive analysis to examine the future of markets when the relationships between firms and government agencies are so incestuous and the choices of consumers so severely limited by industrial consolidation?”

Watch Out for the Elephants

I have a couple of responses to this lament. One is that, although many cleantech sectors (electric vehicles and solar power, to name two) are certainly influenced by – many would say “distorted by” – government policy and government handouts, I have not found it the case that that limits the usefulness of evidence-based analysis and quantitative market sizing and forecasting.  Quite the opposite: the companies we talk to every day need independent intelligence more than ever, in large part because the actions of governments can be so unpredictable and so market-changing.  When you’re trying to run through an elephant herd it helps to know which way the trunks are swinging, as it were.

Second, the lamentable state of strategic intelligence is not news.  Garland never refers to the invasion of Iraq nor the intelligence failures (or misuses) that led up to it, but his critique certainly springs from the dark days of 2002, when an entire generation of CIA intelligence gatherers and analysts saw their work distorted and repurposed to further a predetermined foreign policy objective: the invasion of Iraq.  In 2007 John Heidenrich wrote a long essay on the CIA’s official website called “The State of Strategic Intelligence,” which made the same complaint that Garland makes today:The architects of the National Security Act of 1947 would be greatly surprised by today’s neglect of strategic intelligence in the Intelligence Community.”

Last year former Fortune managing editor Walter Keichel III published an essay on the Harvard Business Review site in which he noted that the entire business model of corporate strategic analysis has shifted: “Behemoths such as McKinsey and BCG … have broadened what they do and moved down the food chain. McKinsey teams are beavering away in places like the United Arab Emirates and the ‘Stans — Turkmenistan, say, or Tajikistan — but they’re as likely to be doing operations projects as pure strategy work.”  These days the real money, Keichel notes, lies not in corporate strategy but in “semi-permanent, year-in, year-out relationships with companies rich enough to pay scores of millions annually for help and advice.”

That reminds me of the old Woody Allen joke: “I know therapy works – I’ve been doing it for 30 years!”  (To be sure, though, ongoing customized client relationships are often not only more lucrative to the consultant but more valuable to the client than one-off, high-level strategic studies.)

Garland’s overall point is inarguable.  “The study of the future used to be easier to sell, maybe because the analysis usually predicted the growth of the consumer economy or the next great gadget,” he writes.  “But the future is no longer nearly as palatable, and the customers are less interested.”

But the customers who aren’t interested in hard truths about an unpalatable future aren’t good customers, anyway, because they’re not going to be around for very long.


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