Changing energy landscape and new competition require rapid utility digitization
image credit: Photo 66543479 © Altinosmanaj -
"The big disruption that's coming is to power utilities. There are trillions of dollars of bonds, of capital expenditure, of value sitting inside the energy-generation infrastructure of the world that is gonna go upside down. When that goes pear-shaped, Tesla will double and triple again."
That’s a recent quote from Billionaire investor Chamath Palihapitiya. For those of you unfamiliar with him, Palihapitiya played a big role in FaceBook’s rise in the 2000’s before leaving in 2011. He basically wrote the book on how to reach and hook users into digital social networks. Since leaving facebook, he’s had an enormously successful career as a venture capitalist. He has a stellar record of market predictions: He foresaw the rise of bitcoin in 2012, Amazon’s retail dominance, and Tesla's meteoric stock climb this year.
Whether or not Palihapitiya’s bullish take on Tesla’s stock proves correct longterm, it seems clear that the energy landscape is in the middle of a massive transformation. The world is electrifying. Plumitting battery costs and changing public opinion have consumers and legislators/city planners alike ditching gas powered appliances and vehicles. The inevitability of wide electrification was detailed in a Alliance to Save Energy (ASE) report last month.
Assuming human behavior holds steady, a big transition to electricity will send demand skyrocketing. Making matters worse, this will all be happening as we transition away from easily scaled fossil fuel sources to more finicky renewables.
So, how will we handle the rise in demand? One option is to decelerate our adoption of renewables. This is already happening in some places. For example, The Colorado Air Quality Control Commision recently halted a plan to close three coal plants ahead of schedule for feasibility reasons.
However, I expect, and hope, that such reversals will not become the norm. The Democrats’ victories in Georgia, giving them control of the senate, have sent renewable stocks soaring the past few days. What’s more, the recent stimulus package proved that a sizable minority of Republican lawmakers are open to promoting renewables. And anyway, regardless of what’s happening at the federal level, localities around the country will march towards renewables because it’s what their constituencies are demanding.
So what options are left without a backward march towards fossil fuels? I believe utilities will have to outfit the grid with new technologies to make it smart and flexible enough to absorb bigger demand. Our cities need smart lights that don’t turn on unless they have to. Despite initial lackluster results, our utilities must continue to rollout smart meters: Data will be crucial in understanding new energy consumption patterns and facilitating smart demand-response programs. Digital switches should finally be deployed in mass, seamlessly saving energy and money without bothering the consumer. Smart thermostats, too, need to be in every home. If regulations complicate the adoption of these devices, the regulations need to be ripped up and thrown out.
Energy demand and generation is changing rapidly. Companies like tesla are simultaneously driving the change and preparing to capitalize on it. If utilities stand flat footed now, they will be doomed to playing catchup in the near future. Very few entities ever catch up after failing to foresee seismic shifts in their industries: Blockbuster, taxis. Utilities must act now to avoid a similar fate.