In a rush to modernize the grid, utilities are finding new ways to innovate
U.S. utilities are working together to rethink the electric grid — but as competition spreads, how long will this model last?
It’s no secret that electric utilities, traditionally, have not been the most innovative companies. Their business model worked for about a century, the technology didn’t change much and most consumers didn’t have options beyond the local power company.
Clearly, this is all changing. But instead of slowly evolving, the electric sector is now caught up in a mad dash to innovate and modernize. As markets become more competitive and consumers have more control, major utilities are pushing the envelope in their grid technology and customer offerings.
“For the first time in probably forever, utilities have to start taking risks in developing new business models, and they have to be prepared to fail,” Navigant Principal Research Analyst Stuart Ravens told Utility Dive. “And then to move on and learn from those failures.
U.S. Utilities Find Multiple Avenues for Innovation
Several states are pressing utilities to innovate with new business models and integration of grid-edge technology. Best-known is New York’s Reforming the Energy Vision, which launched in 2014.
Utilities are investing in companies developing new technologies. It is not always about an immediate financial return so much as gaining insight into the next generation of energy technologies.
Utilities are developing their own technology development centers alone or with others. FirstEnergy’s Center for Advanced Energy Technology can help utilities increase cyber protections.
As a percentage of revenues, Ravens said utility investment in research and development has historically been lower than tech companies. “Up until recently, it’s been a relatively sleepy industry — there wasn’t much call for innovation, and the way utilities are rewarded, it’s usually a good idea to let someone else be the first mover,” he said.
As opposed to gaining an advantage by moving quickly, the utility industry has faced a “first mover disadvantage,” said Ravens. “You can waste a lot of money doing R&D. It’s sometimes better to let someone else do it and make a product out of it.”
States push innovation
Some states are pushing innovation through policy. New York’s Reforming the Energy Vision is the most well-known proceeding, where the state has pressed investor-owned utilities to transform into platform providers enabling new products and businesses. California and Hawaii are also looking at expansive modernization efforts while pursuing aggressive clean energy goals.
But major utility companies are embracing innovation through non-traditional routes as well, taking minority positions in new companies, banding together to invest in research, and building campuses where new equipment and approaches can be tested.
There have been previous periods of innovation in the industry, Energy Impact Partners CEO Hans Kobler told Utility Dive: deregulation in the late 1990s followed by the growth of clean technology.
“But this time it seems different. It’s almost like it’s different for the first time in 100 years,” said Kobler . “The business model is really changing and utilities — the smart ones — are heavily adapting in order to innovate on technology and redefine their business.”
EIP is a venture capital firm backed by more than a dozen major utilities, including Southern Co., National Grid, Xcel Energy, Ameren, Alliant Energy, TransCanada and TEPCO. Each year, the firm recalibrates its focus: Last year, the emphasis was on distributed energy resource management systems, behind-the-meter storage and cybsersecurity. This year, Kobler says the firm is focused on electrification and EV charging.
“Electric vehicles are the biggest opportunity we see right now,” said Kobler, noting that some analysts believe electrified transportation and indoor agriculture could add 20% to 30% to utilities’ EBITDA.
“When the transportation sector is fully electrified, it will result in around $6 trillion in investment,” said Kobler. “Half of that is on the infrastructure side of the utility.” And the other half can benefit utilities as well, he added, through ratebasing charging stations, smart demand management, and ultimately higher kWh sales.
A force multiplier for utility innovation
Energy Impact Partners represents the new ways utilities are seeking to innovate. The vertically-integrated nature of the utility sector means companies can collaborate rather than compete. It is an unusual turn, and one that could change as markets become more competitive.