Preparing for Exponential Technology Innovation: Rethinking Utility 2.0

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 Guidehouse Insights 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: Guidehouse Insights)

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.