As Fernando Suarez found in his Harvard study on first mover advantage, it is more than a myth but far less than a sure thing.
Those investing in new energy over the past five years would no doubt agree. Indeed, every utility magazine, seminar, conference agenda and boardroom discussion since 2012 has focused on the transformation of the sector, my own articles included. And even in the two years since I wrote my first piece cautioning against irrational over exuberance in the sector: “Uber Electricity, not so fast”, a great deal of technological progress has occurred.
Virtual power plant trials abound, targeting the ever present arbitrage presented by the enormous amount of capital expenditure invested each year in the distribution network peak. Andcustomers are starting to view choice, partnership and electricity as a private good.
Yet despite so much progress, we are still surprisingly without unicorns. There have been no Google's or Facebook's in electricity and no one company setting the scene and defining the market.
Despite this, over the last two years, around USD$750M has been invested into series A and B investments in new energy (primary EY research), all of it looking for returns now impossible in conventional poles, wires and generation. When will the rubber hit the road?
Do early birds always get the worm?
There is no doubt the industry is transforming, and that much value will be gained and lost over the next 15 years. As I wrote in Towards System 2.0, we see a 2030 grid dominated by renewables with battery and gas turbine reliability support, a new era for point to point transmission services, a peakless network supported by batteries in transformers and substations, and new retail models enabled by 7m plus customer scale competing on digital platforms rather than risk management and margin.
The implications of this model are clear and well understood by most in the industry. The time for asset based thinking is coming to an end, as system solutions become the only way for companies to understand where they fit in the new market.
It is of course, easy to hypothesize and far more difficult to invest ahead of a curve which has not yet drawn itself. This is the dilemma in which utilities currently find themselves, a double edged sword of moving too slowly or too fast.
Enabling versus disrupting – different sports
The technologies impacting the new electricity system of the future come in two categories – enabling technologies and disruptive technologies. The distinction between them is curiously slim.
- Enabling technologies are those that enable the current participants in the system to execute their core functions with greater efficiency and lower costs; for example robots which inspect transmission lines or augmented reality glasses which aid generation maintenance.
- Disruptive technologies, by contrast, are such because they have all of the process improvement possibility of enabling technologies but do so in a way which disrupts current commercial models. Virtual power plants, for example, discharge electricity into the system in a manner which could be extremely helpful for distribution systems to manage the peak at lower cost. Introducing them when owned by a third party, however, would see the savings reduced and capital expenditure transferred away from the network companies, impacting the mechanisms which provide return on asset growth in the regulated environment.