Megatrends and black swans of the intelligent utility
- Posted on December 2, 2010
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There is little doubt that change is accelerating within the electric utility industry. With the advent of the smart grid, utilities are advancing new technologies, innovating the way they do business with their customers and automating parts of the electricity grid in order to better manage usage, outages and overall awareness.
According to Mark Gabriel, Halcrow's North American senior vice president-power, author of Visions for a Sustainable Energy Future, industries (not only our own) historically follow the market as opposed to looking at the broad visions of what's ahead. "Very often, companies plan for yesterday's model," he told a webcast audience yesterday.
Gabriel says in his book that there won't be one technological Holy Grail that responds to all our energy needs to get us through the 21st century. He discussed his thoughts yesterday, along with John Wilson, Siemens Energy's vice president, fossil power generation, in a webcast entitled "The Future of Energy: Siemens Tackles the Uncertainty."
Gabriel and Wilson both spoke about the megatrends they see influencing our industry. "By my definition," Gabriel said, "a megatrend is occurring regardless of efforts to change its outcome. No amount of personal, corporate or governmental `will or desire' is going to change it. It can be nudged in certain directions, but not changed."
The two thought leaders concurred pretty closely on what they see as the megatrends, though Gabriel's list was slightly longer. These are: the carbon/capacity conflict, intelligent infrastructure (required to drive increased energy efficiency), demographics, customer engagement (which will be driven by utility customers), business models (which are going to have to change, and are being driven by the financial industry) and the water/energy nexus.
The two that intrigued me the most were the demographics factor and the water/energy nexus, because these are the least considered in electric utility discussions, yet both will greatly impact our sustainable energy future.
With regard to demographics, our aging population is moving. "Where they're moving and how they're moving is really different (than in the past)," Gabriel noted. Power quality and power demands are going to change, as a result.
And water? Well, that's one issue that's utilities either have front-of-mind or they're not mindful of it at all. But think about it: we can't have power without water, and we can't have water without power. It's a Gordian knot of sorts -- the two are inextricably tied. "Water usage for energy is one of the questions utilities in particular are either really attuned to or they've ignored it completely," Gabriel said.
Wilson noted that it's easy to confuse market trends with megatrends, and it's megatrends that are going to determine our industry's future.
As if that's not enough to send analysts and business modelers scurrying, there's the "Black Swan" phenomenon. First raised by author Nassim Nicholas Taleb in his book The Black Swan: The Impact of the Highly Improbable, it refers to the disproportionate role of high-impact, hard-to-predict and rare events that are beyond the realm of normal expectations. We're "psychologically blind to them," Gabriel said.
As examples, Gabriel pointed to five points in our industry's history: The New York Blackout of 1968, which pushed the industry to form its own research and development organization, EPRI, rather than have one legislated upon them; Three Mile Island, which effectively killed the nuclear business in the United States for the past 30 years; Enron, which wiped out the trading business for many utilities in the U.S. and around the world; the California Crisis, which resulted in the ousting of California Governor Gray Davis after energy shortages in the state in the winter of 1999 and again in 2000; and deregulation, which effectively killed research and development for the industry as the business models changed.
As for potential, future black swan events? Gabriel thinks that it'll be demand spikes coupled with either a hot summer or a cold winter. Wilson said, "Out there, we don't know what the next black swan event will be, but we believe natural gas is going to be a part of it."
In an intelligent utility world, other black swan events could easily include a major cyber attack on the smart grid or a solar flare disruption of communications systems. Either one could be devastating.
In the meantime, Wilson said, quoting computer scientist Alan Kay, co-founder of Viewpoints Research Institute, "The best way to predict the future is to invent it." To many utilities, that will mean a close examination of "what can I do with what I have to make it better?"
An on-demand version of this webcast will be available later today.
A few months back, I asked our readers for BHAGs (Big Hairy Audacious Goals). Now, let's talk megatrends and black swans. What do you think the future of our industry holds? Do you have any megatrends to add to Gabriel's and Wilson's?
Kate Rowland 720.331.3555
Intelligent Utility magazine