Is the Power Sector Ready for a New Phase of ‘Complementary Disruption’?

Industry leaders weigh in on how to tap opportunities at the edge of the grid, at Grid Edge Live 2015.

As you may have heard, the electrical grid is evolving. It’s becoming more decentralized, more consumer-oriented and more data-driven. At the same time, it’s becoming more complex and competitive.

But that isn’t necessarily a bad thing, according to a panel of industry leaders from across the power sector who spoke this week at Grid Edge Live in San Diego.

“Business-as-usual cannot continue, so it’s about recognizing that disruption is actually an opportunity. It’s actually a good thing,” said Elisabeth Brinton, vice president of corporate strategy at Pacific Gas & Electric.

The growth of new technologies and services at the grid edge, combined with increasing acceptance that the current regulatory model was not designed to cope with this change, presents an incredible opportunity for technology providers, customers and utilities, she said.

For Brinton, the most transformative trend over the next decade will be recognizing and enhancing the value of the utility distribution grid. It’s the acknowledgement that the distribution grid is designed to ensure stability and serve all customers, but that it can also enable the more efficient and low-carbon technologies that exist today, as well as some “we can’t even imagine yet,” she said.

According to Steve McBee, CEO of NRG Home, the most important industry trend over the next decade is the “consumerization of everything.” The energy industry is on the brink of a shift toward new technologies that optimize customer choice, like rooftop solar, portable power and electric vehicles -- much in the same way the transport, entertainment and music industries have been upended by user-oriented services like Uber, YouTube and Spotify.

McBee agreed that utilities have a vital role to play in this interconnected system, but noted that they’re taking up the opportunity far too slowly.

“I think there are some very progressive utilities that want to get in the game in a meaningful way and are thinking about the future in a different way, but are handcuffed by the regulatory reality in which they live,” said McBee. “Having said that, I think there are a whole lot of utilities with a strategy of hope -- maybe this won't happen so fast. Maybe it won’t even happen at all.”

From McBee’s perspective, ignoring consumer trends doesn’t help anybody. According to NRG research, around 18 percent of U.S. energy consumers, around 50 million people, say they want more control over their energy, and are willing to pay slightly more for tailored products and services. In three to five years, as millennials become the dominant consumer group, that 18 percent figure could easily grow to 50 percent. 

“To me, we’re in an environment where you’re much better off being aggressive and getting out on the edge of change and dealing with the consequences of being too early, than waiting and trying to hedge against it and dealing with change once it’s already on top of you, at which point it’s too late,” said McBee.

As utilities increasingly adopt grid-edge technologies like solar, smart meters and electric vehicles, data will be key to optimizing those assets, said Bradley Williams, vice president of industry strategy at Oracle Utilities.

“For utilities to be a provider of a platform for interconnecting all of those energy technologies, it will require new ways of looking at planning, operations, and market transactions,” he said. “It involves a lot of data and being able to provide more complex models of those.”

By building big data into their core business processes, analysts can easily find out how to support the growth of grid-edge technologies without digging through mounds of data. They can find out how EV charging will affect a local transformer, or how different levels of solar penetration will affect their overall network, said Williams. Utilities can also use this information to support rate cases and find new business opportunities.

“We are really just scratching the surface of what’s possible,” said Raiford Smith, vice president of corporate development and planning at CPS Energy of San Antonio, Texas.

The average family of four in the U.S. spends just 3 percent of their disposable income on products and services that utilities provide; however, they spend 31 percent of their disposable income on things that use electricity, said Smith. Using meter data, third-party data and social media, utilities can grow that 3 percent, but the real value is in how to attach to and grow the 31 percent.

“We would love to be part of that broader mix,” he said. “Data, in general, across all platforms, across all silos -- data is the way we can actually drive value and start to get into that 31 percent we really need to be in.”

Electric vehicles are one new area where utilities can play, but EVs alone won’t improve the utility business model as consumers become more efficient and increasingly generate their own electricity.

“If every one of our customers got an EV, our revenue collection would only go up 3 percent,” said Smith. “That’s not going to save us, not even close.”

“What will save us is going beyond the traditional cost-based model,” he added. “What we can do is find new ways to do channel partnerships and white-label. Basically, where we work with another company that has an existing product or service, or they work through us. Either way, it’s finding those value propositions and putting them together.”

Partnering with other companies to reach more customers and provide them with more products is core to NRG Home’s business strategy, said McBee. For instance, NRG has a white-label deal with Alarm.com and a solar lighting bundle with General Electric. And while investor-owned utilities may be moving more slowly on this front, “there is a huge opportunity here,” he said.

“There is a window...where there’s a trust advantage that the energy industry has to be that provider of home services. The question is, can industry be flexible enough to seize it? Or will there be independent providers that get to critical mass [first and] run right into the pocket of that advantage?” said McBee. “The way I look at it right now, the industry isn’t moving nearly fast enough to exploit that advantage, but the window is still open.”

PG&E’s Brinton said her utility is very open to white-label deals and partnerships, which will ultimately transform the electricity sector. 

“It’s always been a zero-sum type of mindset,” she said. “A really important new trend is how we’re thinking about this as an energy ecosystem, how we’re thinking about our roles as collaborators and partners.”

“What you’re hearing, I think, is a complementary disruption.”