Navigant Research Blog

Utilities Embrace Innovation at EUW, but Struggle with Culture

— November 25, 2015

There was a palpable buzz at European Utility Week in early November centered around change, innovation, and outsiders. For instance, one of the crowded presentations I witnessed was Neil Pennington’s talk about smart thermostats. Dr. Pennington, the director of innovation for RWE npower in the United Kingdom, noted that smart thermostats are a logical first step, but utilities should consider going beyond these devices and offer products and services that are highly personalized, connected, and automated. Move outside the heating, ventilation, and air conditioning (HVAC) system, he says, and think about home security and customer lifestyles if you want to succeed as an innovator.

Pennington’s message was effective. It generated some enthusiastic questions, and people in the audience were hungry for insights into how to engage customers in new and effective ways.

Other vendors and presenters at this trade show, which set records for attendance (some 9,000 visitors from 77 countries), offered similar stories about innovation and change. Joris Jonker, one of the founders of residential energy management company Quby, told me his company’s offering was gaining traction as a dashboard for the home, and that Netherlands-based utility Eneco would be installing 1 million units over 2 years. Indeed, Eneco has embraced Quby’s solution so much that it acquired the firm just ahead of the trade show. Eneco’s move demonstrates it is no longer business as usual for some utilities.

Other discussions included the outsiders, or non-utility companies like Google (or Alphabet, Google’s parent company), and how these firms might alter the utility game. Might Google, or perhaps Apple, or an unknown startup move aggressively with a customer-centric and data-driven business model to disrupt the utility status quo? Possibly, but others were not so sure, saying it would be hard to disrupt the incumbents, especially for smaller players. Still, the question about potential disruption sparked debate.

Beyond these change and innovation issues, several other themes played out at the show. The smart cities concept is gaining wider attention (as my colleague Eric Woods so aptly demonstrated in sessions he moderated), with companies like Itron and Sensus touting their capabilities in this area. And, of course, the Internet of Things (IoT) concept seemed to be on just about everyone’s lips. In that vein, one company that stood out was Sigfox, a French firm promoting its unique cellular communications technology that is designed for low-throughput connectivity among IoT devices. Very buzzy.

But for all the talk about innovation and change, there was an interesting poll conducted among attendees that revealed an Achilles heel for the utility business: an ongoing lack of innovation. The poll asked “What is the biggest threat to the utilities?” The results of the unscientific survey among about 400 people were:

  • Falling/flat demand: 6%
  • Revenue loss/distributed solar: 12%
  • Challenge Renewable/Integration: 12%
  • Regulatory/Policy uncertainty: 23%
  • Lack of “innovation culture”: 46%

So a key takeaway for me from the Vienna conference was that while there is a welcome mat set out for change and plenty of talk, true innovation is still some ways off. And the staid utility culture in Europe is ripe for a shake-up, internally, externally, or from both perspectives.

 

A Scenario for Managing the Transition to Autonomous Vehicles

— November 25, 2015

Transportation is all about moving people and things from here to there safely, conveniently, and efficiently. However, as we continue to develop new automation technologies and business models, we now have a plethora of new questions to answer about how we are going to move the transportation ecosystem from here to there. At the recent Automotive Tech.AD conference in Detroit, people from many aspects of the industry came together to discuss the future of mobility. While the horizon is still mired in fog, some interesting ideas did emerge.

As development of autonomous vehicles has intensified over the past several years, the problem of how human- and computer-driven vehicles can safely coexist on the road has been among the most vexing. During the development of the Autonomous Vehicles report, Navigant Research interviewed many of the companies involved in developing this technology. Among incumbent OEMs, the most common strategy has been a gradual progression of deploying more sophisticated automation in new vehicles. This would enable customers to get accustomed to the technology while at the same time allowing OEMs, suppliers, and regulators to validate its reliability and robustness.

However, it is becoming increasingly clear that the need for a hand-off between automation and a human driver when the automation encounters a situation it cannot cope with might be unmanageable. Testing by Audi has shown that transition typically takes 3 to 7 seconds, and in some cases as much as 10 seconds. In an emergency scenario, that is far too long. Companies like Google and Ford are instead focusing on developing fully autonomous vehicles with no human control.

This brings us back to the transition from more than 1 billion vehicles on the road globally to self-driving vehicles. One potential scenario builds on trends that we’re already seeing today in large urban environments. Over the past several decades, cities such as London, Singapore, Stockholm, and Oslo have imposed congestion charges on drivers wishing to access crowded city centers. In other densely populated areas such as Manhattan, an unusually large proportion of the population don’t own cars because the cost of parking is so high. They instead rely on public transport, taxis, and ride-sharing services like Uber.

The Early Years

In the early years of deploying autonomy, the vehicles will likely have limited capability and difficulty dealing with weather and predicting the behavior of human drivers. They will also likely be reliant on highly detailed maps and communication infrastructure. Imagine a scenario where cities like London or Singapore convert traffic congestion zones into autonomous zones.

Rather than tolls, drivers may park their vehicles and take an autonomous pod to their final destination. They could subscribe to any of several services that could be operated by companies like Uber, Google, or Apple or even by incumbent automakers. Pricing for the services could be set by the operators based on factors like availability and amenities in the vehicle. Since these vehicles would be operating in an urban area, they could be restricted to lower speeds for added safety.

As people become comfortable with the technology, the autonomous zones could expand and be added to more cities. Much of the central parking could be redeveloped or replaced by charging facilities for what would likely be electric vehicles (EVs). This would also provide a built-in market for OEMs to absorb the EVs required to meet future emissions and efficiency standards.

This approach could work well for areas with high population density, while outlying and rural areas could continue to use human-driven vehicles with various levels of driver assistance for improved safety. The horizon is still foggy, but the haze is starting to lift.

 

Detroit Versus Silicon Valley

— November 24, 2015

October 29, Keith Naughton of Bloomberg Businessweek described how the established auto industry of Detroit is competing against the fast emerging auto industry of Silicon Valley (SV). Naughton’s article focuses on autonomous vehicle (AV) systems and examines the different R&D strategies of General Motors and Google, which essentially amounts to a comparison between gradual adoption and rapid innovation strategies to automotive technology. Naughton’s AV focus provides interesting insights, but it’s impossible to ignore the relevance of his comparisons beyond just AVs. For instance, Detroit and SV (the latter including Tesla and perhaps Apple) are each pursuing a different approach to that other disruptive force in the auto industry: electricity.

Detroit’s philosophy regarding electricity is similar to its approach to AV systems. The city has been gradually electrifying existing vehicle platforms, and this is evidenced by the fact that most of the plug-in vehicles Detroit has put on the market have been plug-in hybrids, and the fully electrified vehicles are mostly limited to markets where states have zero emissions vehicle mandates. Alternatively, the SV mantra has been the aggressive pursuit of a fully electrified alternative requiring no customer sacrifices in terms of range or convenience.

Regional Rivalry

The differing approaches have bred a regional rivalry that is demonstrated by occasional quips from industry leaders. Elon Musk often makes headlines with statements that imply Tesla may one day be bigger than GM and that Detroit needs to have a more aggressive electrification strategy. In response, Detroit calls out SV for naivete—when rumors first started to leak that Apple may be developing an electric vehicle, former GM executives Bob Lutz and Dan Akerson both publicly cautioned Apple on the struggles of entering the car business. Additionally, Lutz has continually critiqued Tesla’s business and sales model, assessing a high probability of Tesla’s ultimate downfall despite high praise of the product.

To be fair, these critiques have a strong foundation in reality. Detroit has been historically slow to adopt and produce fuel efficient or alternative fuel vehicles, creating opportunities for other global players like Toyota and Honda to grab significant chunks of the market through hybrids. Arguably, Detroit is likely to lose market share on fully electrified vehicles to other more aggressive global automakers (Nissan, BMW, BYD, and now Tesla).

Meanwhile, SV’s aggressive approach has led to challenges regarding market regulations. Tesla’s struggles with state dealership laws are well known, but Tesla has also run into trouble on software upgrades and referral programs. Additionally, though Tesla’s stock quote is impressive, its record with profits and deadlines is not. The end Lutz has assessed for Tesla has also been well played out by other California automaker startups.

Regardless of the different approaches these two regions characterize, the future U.S. auto industry is not going to exist without Detroit or SV. Detroit needs SV’s tech innovations and probably a little more SV chutzpah when it comes to investing in a new vehicle technology, and SV needs Detroit’s extensive supply chain, manufacturing expertise, and 100 plus years of market knowledge. Notably, however, SV does not need Detroit’s internal combustion engine.

 

Negawatt Leadership in the Pacific Northwest

— November 24, 2015

In the Northwest, one of the most important and influential energy stakeholders is the Northwest Power Conservation Council (NWPCC). The 1980 Northwest Power Act authorized Idaho, Montana, Oregon, and Washington to develop a regional power plan and fish and wildlife program to balance the Northwest’s environment and energy needs. The heart of the NWPCC’s mission is to preserve the benefits of the Columbia River—which is home to more than 40% of total U.S. hydroelectricity—for future generations. The NWPCC develops a plan, updated every 5 years, to ensure the region’s power supply and to acquire cost-effective energy efficiency. The process relies on broad public participation to inform the plan and build consensus on its recommendations. While not statutorily obligated to comply directly with the plan, utilities generally follow its spirit, which is often in the public’s interest financially and is also a key enabler for utilities to meet their renewable portfolio targets.

Excerpts from the Plan

It is frequently pointed out that energy efficiency is almost always the lowest cost option for procuring new power, and the NWPCC upholds this with the release of each power plan. Take, for example, the following two excerpts from the most recently released Draft Seventh Power Plan. The first highlights exactly how cost-effective energy efficiency is in the Northwest and emphasizes why the region has flourishing energy efficiency solutions providers:

 “In more than 90 percent of future conditions, cost-effective efficiency met all electricity load growth through 2035. It’s not only the single largest contributor to meeting the region’s future electricity needs, it’s also the single largest source of new winter peaking capacity.”

The second excerpt illustrates the powerful combination of natural gas displacing coal and energy efficiency:

“A key question for the plan was how the region could lower power system carbon dioxide emissions and at what costs. The Council’s modeling found that without additional carbon control policies, carbon dioxide emissions from the Northwest power system are forecast to decrease from about 55 million metric tons in 2015 to around 34 million metric tons in 2035, the result of retiring the Centralia, Boardman, and North Valmy coal plants by 2026; using existing natural gas-fired generation to replace them; and developing about 4,500 average megawatts of energy efficiency by 2035, which should meet all forecast load growth over that time frame.”

The following chart is from the Draft Seventh Power Plan showing new resource development for Oregon, Washington, Idaho, and Montana.

Seventh Power Plan Resource Portfolio

Dexter Blog(Source: Northwest Power & Conservation Council)

The 5-year plan is not a cure-all, and is not even technically enforceable, but it does highlight the unique attributes of the Pacific Northwest, not only from a natural resource perspective, but also from a cultural perspective. Though maybe not as flashy as its regional counterparts in California, the network of negawatt providers in the region (ranging from the NWPCC down to the actual implementers) have done a remarkable job at realizing the potential of energy efficiency today and at embedding these solutions into the future.

 

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