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Utility industry disrupters to keep your eye on

Mark V. Burlingame, CPA, PMP's picture
Managing Director Energy Guidance Group

Mark Burlingame is an international energy and utility professional with a proven track record of leadership in energy procurement and marketing, market analysis, strategic business planning,...

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  • Dec 4, 2015
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Clayton M. Christensen, the Kim B. Clark Professor of Business Administration at the Harvard Business School, is one of the world's top experts on innovation and growth. In his book, “The Innovator’s Dilemma,” he argues that when businesses fail, often it is not because their executives made poor decisions. They actually may have made good decisions, the same kind of decisions that made them successful for decades. As he sees it, failure is primarily about missed opportunities; failure to innovate.

Healthy business disrupters, on the other hand, challenge present-day conventions to offer better options. They constantly push boundaries to uproot how others think, approach customers, compete, learn and measure success. Their desire to build businesses, products and services that are superior to what is currently available is their binding purpose.

For the first time, Energy Guidance Group has compiled a list of 10 of the utility industry’s most influential disrupters, which are organizations varying in size, scope and purpose.

This list of contenders may be surprising in terms of those included and/or excluded. But then, one might argue that predictable disruption is not really disruptive. Disruption not only comes from new technologies, but new ways of doing business, new ways of structuring organizations, new markets and new methods of financing. Criteria considered for inclusion as one of the utility industry’s most influential disrupters, included the following:

  • Offer or implemented disruptive services, products, business methods, organizational structures, capital structures or risk management methods
  • Offer products and services to utility companies or to utility customers.
  • Demonstrate significant growth which validates the impact of their disruptive offerings

The list includes two consulting firms with innovative offerings, two traditional organizations who have embraced and advanced disruptive technologies, one firm with a unique innovative combination of capital structure and organization, and five innovative technology firms. Each in its own way is moving forward with healthy innovative disruption.

Utility Industry’s Most Influential Disrupters

Enbala Power Networks

Presenting at the GCPA Fall Conference was Shane O’Quinn of Enbala Power Networks. Enbala’s systems “…integrate and optimize a wide variety of flexible DERs [distributed energy resources] such as energy storage, demand response, smart inverters, distributed generation and electric vehicle chargers into real-time operations,” he said.

Enbala makes this list because it is one of the first companies to understand and implement the concept that load management/shifting are not the same as demand response. Demand response is a 20th century concept. Load management/shifting are 21st century disruptive concepts. Load management/shifting incorporate several aspects of our evolving grid – distributed resources, energy storage, commercial building management systems, smart grid management systems and wholesale power market pricing – into a cohesive efficient energy management system. Enbala’s solutions are among the first to unite many existing components into a holistic system for commercial customers.

Hunt Consolidated

Hunt Consolidated’'s August 10 proposal to place the assets of Oncor in a Real Estate Investment Trust (REIT) has opened the eyes of many in the industry to a time tested capital structure, yet it is relatively new to the utility industry. Structuring fixed long-term assets in utility scale REITs may soon be a common method for organizing projects.

REIT’s were first created by an act of Congress in 1960. They must meet certain criteria. Among other requirements, a REIT must:

  • Invest at least 75 percent of its total assets in real estate and derive at least 75 percent of gross income from rents from real property.
  • Pay at least 90 percent of its taxable income in the form of shareholder dividends each year.

REITs can deduct these dividends and avoid most or all tax liabilities, though investors still pay income tax on the payouts they receive.

Why would a 55 year old capital structure be considered disruptive? The (IRS) Section 48 utility scale solar renewable tax credit of 30 percent is set to expire at the end of 2016. This is a one-time tax credit, meaning that a taxpayer receives the credit based on the capital cost, but no reduction of annual income taxes once it has been used up. Therefore, if a utility scale solar project is set up in a REIT with no Section 48 tax credit—assuming a 30 percent effective tax rate on income—then over a 30-year life, without a credit, a utility scale solar REIT would have equal economics to that of a solar project structured traditionally. Thus, watch for more companies to explore placing utility scale renewable projects in REITs.

Ohmconnect

Now, imagine voluntary residential customers responding in real time to market prices. This next step is being offered by Ohmconnect. It is reminiscent of a concept first brought to market by EcoTronyx, LLC in Texas two years ago. In combination with Schneider Electric, Ohmconnect is piloting a program in California in which aggregated groups of residential customers will be paid LMP prices at 15 minute intervals for automated control of their thermostats. Residential customers can expect to receive $200 or more over the course of a year or two to directly participate in wholesale power markets for the first time anywhere in the United States. Customers will be offered contracts that allow local utilities to manage home energy usage based on market conditions. Ohmconnect is also thermostat agnostic. Similar to WeatherBug, this is much more than a mere demand response. If the concept proves out, ISOs will have a revolutionary tool to improve reliability and hold down wholesale prices.

Resources Global Professionals

As Peters and Waterman Jr. wrote in the classic “In Search of Excellence,” ensure your firm does the daily things well and strategy execution will succeed. Many times, staff can be overwhelmed with daily responsibilities and necessary strategic change fails.

Resources Global Professionals (RGP) offers a unique disruptive approach to consulting which ensures daily operations run smoothly and change projects are successfully and cost effectively implemented. Unlike traditional Big 4 consulting firms, RGP staffs projects with accomplished subject matter experts. Each consultant has 10-20 years of experience. RGP uses a collaborative approach at a fraction of the cost of the Big 4. This is due to its lean organizational structure with flexibility unseen in other traditional consulting firms.

Spun off from Deloitte 19 years ago, with strong utility practices on the East and West Coast; RGP is aggressively expanding its utility industry practice in the rest of the US. RGP offers services aimed improving firms’ internal accounting, human resources, supply chain, project management, legal and financial organizations.

Space-Time Insight

Founded in 2003, Space-Time Insight is pushing the boundaries of data analytics in asset management. The organization provides real-time analysis and visualization of all data, including big data and streaming data from Internet of Things (IoT) devices, to illuminate the what, where, when, why and how of every asset and situation through a big picture view, literally. It has partnerships with leading companies around the world, including eight of the twenty largest utilities in the U.S.

In 2013, Space-Time Insight doubled sales and achieved similar growth in 2014. The company’s customers include eight of the twenty largest utilities in the US. The steady pace of awards from industry-leading organizations further illustrates Space-Time Insight’s successful disruption including winning the Fierce Innovation Awards in 2013 and 2014.  

Temporal Power

Founded in 2010, Temporal Power creates high performance energy storage systems using flywheel technology for grid stabilization and energy balancing. Temporal Power made the list by using a magnetic bearing invention conceived in a garage and is now able to offer flywheels at a fraction of the price of competitor flywheels. Temporal’s flywheel technology stores 50 times more energy than traditional flywheel technology. They are manufactured out of steel rather than more expensive carbon fiber. It was chosen as Canada’s first grid-connected 2 MW commercial flywheel facility. Temporal has raised $25 million in funding, usually a good indicator of potential success.

TMG Consulting

Re-introduced to the utility industry in April 2014 (after splitting off from Five Point Partners when it was purchased by E&Y) TMG Consulting merged with Langham Consulting to offer Advisory Services, Client-Side Delivery Support, Utility Market Connections and most recently Research Studies. As a utility industry consultancy that bridges the gap between business and technology, it has doubled its staff and increased contracts and revenue by a factor of five only 18 months.

In addition to noteworthy growth, it is pushing the limits of traditional consultancies – rather significantly. Most recently, it acquired another disrupter in and of itself; RIM Solutions. RIM, which is now a wholly owned subsidiary of TMG, offers deep dive research into utility pain points for utilities and solution providers. RIM Solutions had grown steadily since the company’s founding in December of 2013—with quarter-over-quarter revenue growth averaging 32 percent—before being acquired by TMG. Now in addition to offering consulting services, TMG Consulting, can get answers to any question plaguing the industry.

United States Marine Corps and the US Department of Defense

History clearly demonstrates the effect that military technological advances have on our everyday lives. For the latest example of how military innovation is affecting our everyday lives, you need only think of drones.

In June of this year, the Marines held their annual “Experimental Forward Operating Base” technology demonstration with the purpose of accelerating energy and water efficiency, thus extending the Marines operational reach. Private companies and government agencies attended the event at their own expense bringing prototypes and new technologies to demonstrate.

Technologies evaluated during the event included:

  • Hybrid/Electric All-Terrain Vehicles,
  • Advanced Batteries and Energy Storage Technology, and
  • Fuel Cells (up to 10 kilowatts).

Perhaps the most interesting and innovative concept is “The Joint Infantry Company Prototype (JIC-P)”, which is a group of systems (e.g., backpacks, knee braces) that harvests kinetic energy from Marines on patrol. How might this affect the average person? When the day arrives that you can generate power for your smart phone while walking or on a run, thank the Marines.

The US Department of Defense (DOD) is a leader in the development of large-scale operating micro grids. According to Pike Research, “The Marines show the fastest initial capacity growth spurt…” Currently the DOD currently operates 29 microgrids (23 percent of the US total) and will eventually establish a network of microgrids at more than 40 military bases, with three currently under construction:

  • Joint Base Pearl Harbor-Hickam (Hawaii),
  • Fort Carson (Colorado), and
  • Camp Smith (Hawaii).

The US military’s implementation of microgrids is expected to grow at a rate of by 375 percent to $1.6 billion annually by 2020.

Clearly, the US military is a leader in developing, operating and improving microgrids as a disruptive technology. Be assured that many of the lessons learned on these implementations will reach the marketplace.

WeatherBug

Earth Networks Inc.’'s  WeatherBug Home solution makes the list for tying together home energy management with weather forecasts, demand response and smart grid in an entirely unique manner. Additionally, WeatherBug has had 200 percent compound growth of thermostats under management for the past five years. WeatherBug’s solution is the most advanced weather-based Internet of Things residential solution available on the market.

Importantly, its system is energy management system agnostic. That is, WeatherBug Home communicates with and manages residential energy usage through several different companies’ thermostats, including Ecobee, Honeywell and Emerson.

WeatherBug’s system forecasts a unique load shape for each home under management using each house’s:

  • Size & location,
  • Historical energy consumption,
  • Historical weather observations,
  • Peak AC patterns,
  • Thermal signature, and
  • Propensity to opt-out.

Each residence’s characteristics are aggregated into groups for demand response purposes.

Xcel Energy

Xcel Energy makes the disrupter list because it has demonstrated that one of the industry’s answers “…is blowing in the wind.” For example, on October 2 of this year, Xcel’s Colorado utility generated 54 percent of its power from wind. According to the American Wind Energy Association, for 11 years, Xcel has been the United States’ number one utility provider of wind-generated power. And what about solar power? Xcel is among the top 10 U.S. utilities for solar power capacity, according to the Solar Electric Power Association. And in the future, “Xcel Energy has proposed or is implementing plans that will grow the use of wind and solar power more than 50 percent by 2020.”

Many in the industry are concerned about grid reliability. Germany’s rapid expansion of wind and solar power has threatened the reliability of its grid. However, using state of the art wind forecasting systems, Xcel has maintained grid reliability, while maintaining retail prices lower than the national average.

Finally, Xcel is on track to meet the EPA’s proposed Clean Power Plan goals 10 years early. Xcel has clearly cracked the code on reliable competitively priced renewable power. These facts demonstrate Xcel’s forward thinking strategy. Clearly, forward-thinking utilities such as Xcel will be among the leading utilities implementing products and organizational structures like those discussed previously in this article.

Conclusions

The electric power industry is facing changes unlike any since the fits and starts of deregulation of 15-20 years ago. We are beginning to experience a convergence of technology catching up with ideas and innovative uses of capital to finance those ideas. This convergence includes renewable power, storage, the Internet of Things and free market economics all coming together in a unique manner heretofore unknown in the power industry. Pay attention to the organizations discussed in this article. They are leading disrupters in the future path in which the industry is moving. We will all soon feel the effects of their disruptive leadership.

Reference:
http://www.xcelenergy.com/staticfiles/xe/Corporate/Corporate%20PDFs/2014...

Mark V. Burlingame, CPA, PMP's picture
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