Navigant Research Blog

Preparing for Exponential Technology Innovation: Rethinking Utility 2.0

— March 24, 2017

We are living in an era of exponential technology explosion. Since the performance of these exponential technologies increases rapidly relative to cost and size, they have a knack for completely reshaping markets and societies.

To illustrate, just trace the impact on society from the personal computer through the dawn of the Internet to ubiquitous mobile telecommunications. Connectedness, knowledge sharing, and efficiency across societies have all grown exponentially over the last several decades. There are now nearly 2 billion active users on Facebook, or roughly a quarter of the global population. This is up from 1 million users in 2004—just over a decade ago.

Today’s innovations—artificial intelligence, blockchain, 3D printing, and others—represent the current wave of exponential technologies sowing the seeds of disruption across multiple industries. Collectively, these have catapulted the global economy into what Klaus Schwab of the World Economic Forum describes as the Fourth Industrial Revolution.

Combinatorial Platforms

The utility industry is no exception. Exponential energy technologies like solar PV, artificial intelligence, and blockchain have already crossed the critical threshold of acceptance across the energy landscape. At their intersection lies the potential for a complete paradigm shift across the utility industry—what Navigant Research calls the Energy Cloud. Seven Energy Cloud combinatorial platforms are outlined below.

Emerging Exponential Technology Platforms for Utility 2.0

iDER: Integrated distributed energy resources; IoT: Internet of Things

(Source: Navigant Research)

This Fast Company magazine article captures why exponential technologies pose such a unique threat to business-as-usual thinking:

  1. Often benefiting customers by empowering them with more choice and control, exponential technologies fundamentally disrupt the balance of power and reconfigure traditional power structures. This democratization process, in turn, fuels further exponential (not linear) innovation.
  1. They are wildly controversial. This is owed in part to the fact that they are decentralized—or driven forward by a diverse network of individuals working together.
  1. They take transparency to new heights. Exponential technologies are inclined to make patents public (Tesla) or rely on open source code (Bitcoin). This erodes the competitive advantage of incumbent solutions, putting pressure on traditional business models to evolve.
  1. They create exponential potential. This is typically initiated by a groundswell to advance networks among end-use actors. When the aforementioned traits are strung together, conventional value networks in the power industry disintermediate between sources of generation and end consumers.

Utilities are not oblivious to these trends, but galvanizing an integrated organizational response remains challenging for an industry built on a one-way, centralized infrastructure 150 years in the making. As European utilities have shown, balancing necessary investments in new and existing physical assets with the need to diversify business models is not mutually reinforcing—at least in the long run.

Organizational Reboot

Of course, utilities don’t have the luxury of temporarily shutting down for a business model reboot. As one industry expert explains, “It’s like trying to swap the plane’s engine midflight.”

While tapping into new growth opportunities remains vitally important, it’s not always clear which applications or use cases are poised for exponential growth. For each home run, there will be many more failures.

Rather than investing in one-off technologies, focusing on combinatorial platforms will flatten the learning curve for utilities. For example, smart cities offer utilities a test bed for deploying and building value in a quickly evolving landscape—whether across familiar applications (e.g., aggregating load from high performance buildings into a dynamic virtual power plant) or across less familiar ground (e.g., owning and operating fleets of automated EVs).

Regulatory regimes will need to both value and reward utility forays into business model innovation. For their part, utilities should consider implementing an agile investment framework to manage risk in a rapidly evolving technology landscape. By doing so, utilities can minimize their risk exposure while staying ahead of the curve with respect to exponential innovation.

 

The Energy Cloud by the Numbers: Supergrids Go Mainstream

— February 24, 2017

A common misconception around the rise of distributed energy resources (DER) and the Energy Cloud is that investment and innovation in the power sector is focused almost exclusively across the grid edge. While the grid’s center of gravity is shifting downstream, utility-scale generation and bulk transmission remain a key buttress for the grid in the midst of a historic transformation.

The global high voltage transmission network connecting centralized generation sources to the distribution grid is estimated to stretch across 3.5 million km. To put this in context, there is enough high voltage infrastructure deployed globally to wrap around the earth 75 times. Although already extensive, the International Energy Agency (IEA) estimates that an additional $7.2 trillion investment is needed for transmission and distribution (T&D) grids through 2030—40% of which is just to replace existing infrastructure.

High voltage direct current (HVDC) transmission lines, which function as arteries that move large amounts of electricity above and separate from the existing alternating current (AC) grid, are a key focus of this investment. Currently, there is more than 200 GW of HVDC capacity deployed globally.

According to Navigant Research’s Supergrids report, global investment in HVDC infrastructure is expected to increase from $8.3 billion annually in 2016 to $10.2 billion by the end of 2025. An estimated 65 supergrid projects heavily leveraging HVDC are in development or planned around the world. One such project, dubbed the Asia Super Grid, was born out of a memorandum of understanding among Japan, China, South Korea, and Russia in 2011.

Why So Much Fuss Over Expensive Hardware?

Since large-scale renewable energy projects tend to be built in remote areas where resource anomalies exist (such as wind in remote plains, solar in desert regions with high insolation, and geothermal power tapping underground steam located near centers of volcanic activity), bulk transmission is necessary to deliver generated electricity to large population centers, sometimes located thousands of miles away. The largest pools of renewable energy tend to be the farthest from human population centers; supergrids connect these areas of high supply to areas of high demand.

As discussed in the Navigating the Energy Transformation white paper, the emergence of the Energy Cloud will mean an expansion of traditional grid boundaries to integrate local networks of DER—microgrids, virtual power plants (VPPs), and others—as well as expand internationally to tap far-flung pools of renewable resources.

The Expansion of Traditional Grid Boundaries in the Energy Cloud

Source: Navigant Research

China is currently the world leader in the development and deployment of HVDC infrastructure. This is partly out of necessity; not only is China playing catchup with domestic demand for electricity, but the majority of its population of 1.3 billion lives in the east of the country, 2,000 km or more from its most concentrated energy resources. According to an Economist analysis, three-quarters of China’s coal is in the far north and northwest of the country, for example. Meanwhile, four-fifths of its hydroelectric power is in the southwest.

China’s state-owned utility, State Grid, is halfway through its 10-year plan to spend $88 billion on HVDC lines between 2009 and 2020. As investments continue, we expect the prospect of a global grid to come more sharply into focus—though obstacles related to cost, standards harmonization, consensus around rules of free trade of electricity, and geopolitical hurdles will first need to be more firmly settled.

 

Are We Approaching the Energy Singularity? Point

— June 27, 2016

CodeElon Musk, doing his best Elon Musk, offered the provocative statement recently at the Code Conference that our existence is actually just a simulation being run by a highly advanced civilization. While a fringe theory, behind the statement is actually a rich vein of academic and philosophical thinking suggesting that we are approaching a point in human history at which the innovation that will occur in the next 5 minutes will outpace everything invented in the last 5 million years. Futurists like Ray Kurzweil describe this point in human history as the singularity.

The energy industry is no exception to this phenomenon. With the pace and scale of innovation accelerating across the energy landscape, grid 2.0 will be unrecognizable from the one we know today. More importantly, the inevitability of significant industry transformation is becoming increasingly difficult to ignore (see my colleague Jan Vrins’ Industry Megatrends blog series), begging the question whether we are approaching an energy singularity. This post suggests we are very likely catapulting toward such an event. In a companion post, my colleague Neil Strother argues a more skeptical approach.

The Energy Cloud and the Energy Singularity

As the end result of rapid innovation, much of which lies beyond our immediate purview, the Energy Cloud describes the confluence of many concurrent disruptions wreaking havoc on conventional ways of doing business. The full realization of the Energy Cloud’s potential as a highly networked grid ecosystem would only be accelerated by such an event.

The future grid will be cleaner, more distributed, and increasingly intelligent. These trends are expected to penetrate all corners of the industry: customers, regulation and policy, technology, business models, and grid operations. These advances will come in fits and starts and evolve differently in accordance with on-the-ground realities across various markets. That being said, the propensity for innovation and change is undeniable; the prolific (and sudden) rise of distributed energy resources (DER) server as a reminder of the destabilizing impact of innovation.

We cannot predict or anticipate all the disruptions that will be triggered by emerging technologies within the Energy Cloud and beyond. However, if you start with a potential endpoint—an autonomous, self-healing, and artificially intelligent grid emerging within the next several decades—we can begin to understand the far-reaching implications of the energy singularity.

The Neural Grid

While today’s grid is a highly transformative machine that has done a fine job powering innovation across the global economy, the crank of history has come full circle as a perfect storm of significant technological leaps that are beginning to take root and transform the industry in dramatic ways.

There is an inevitability to innovation that cannot be ignored. Consider that it was just 2013 when the Edison Electric Institute predicted in its oft-cited Disruptive Challenges paper that DER adoption, fueled by economic trends and policy, would likely cause a disruption of the utility industry, even suggesting the traditional utility could go the way of Kodak, the U.S. Postal Service, or telephone companies if they failed to adapt. Just last year, Energy Secretary Ernest Moniz noted that we are in the [energy] revolution today.

Fast forward to 2016, and the World Economic Forum is predicting that we are in the throes of the Fourth Industrial Revolution, in which the pace, scale, and impact of innovation will rapidly outpace anything we’ve seen in the past. The Fourth Industrial Revolution suggests that human intervention across the grid as we know it today will be mostly a relic of the past. It’s not far-fetched, for example, to consider Siri, Alexa, and Viv as the primary customer contact points for utilities behind the meter. Taking this a step further, a “conscious” grid could obviate the need for regulators or system operators altogether.

With artificial intelligence attracting $17 billion in investments since 2009 (and $2 billion in 2015 alone), machine learning innovation is on the march. Increasingly, this development is going open-source, which is the equivalent of putting innovation on steroids.

  • DARPA sponsored a driverless car challenge in 2004 that resulted in the winning car traveling 7.2 miles. In 2007, the winning entry went 60 miles driving under city conditions. Fast forward to 2015, where you have individuals building self-driving cars in their own garage.
  • Google’s self-driving car logged 1.5 million driving miles in 6 years; Tesla’s autopilot feature has logged 47 million miles in 6 months.
  • Google search processes 12.1 billion queries per day; each provides multiple data points to help understand what makes us human.

If you take these trends to their logical conclusion, grid learning could propel us toward an energy singularity event within the next several decades. Such an event would mark the dawn of the neural grid, with the potential to be far more transformative to human civilization than the dawn of the light bulb.

 

Agile Innovation in the Energy Cloud

— May 2, 2016

Energy CloudOne 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.

Holistic Planning

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.

 

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