Megatrends and black swans of the intelligent utility

Halcrow's Mark Gabriel and Siemens Energy's John Wilson talk about the industry's future

Kate Rowland | Dec 02, 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
Editor-in-chief
Intelligent Utility magazine
krowland@energycentral.com

720.331.3555 
Twitter: @katerowland2


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Comments

A Potential Smart Grid Black Swan

Hello Kate,

 

My response to your questions is the post Does the Future Holds a Homogeneous Smart Grid Black Swan? Said response starts with:

 

The modernization of the power industry that is being called the "smart grid" is one of the megatrends that we will witness. However, the current homogeneous end-to-end "smart grid" is bound sooner or later to experience a black swan for the lack of the needed restructuring of the industry into a heterogeneous “smart grid,” which will be friendly to the development of microgrids.

 

Best regards,

José Antonio Vanderhorst-Silverio, PhD
Creator of the EWPC-AF



Megatrends and black swans

I believe there is now ample evidence that a megatrend that is now well underway is the movement toward distributed generation. Just as everyone want to have a computer on their desk, on their lap, or in their hand, individuals and businesses want the reliability and economic advantages of generating their own power and, when appropriate, utilizing the recovered waste heat from the generating units.

What started with PURPA in 1978 and was nurtured by restructuring moves during the 1990s, is now blooming in the form of rooftop solar PV installations and a spreading interest in microgrids. Some utilities have resisted the trend, but some - like Public Service Electric & Gas in New Jersey, have embraced it. This utility has begun a program to lease solar PV systems to customers, and under a separate initiative has already installed more than 200,000 panels on its own utility and street light poles. In New England, National Grid has been promoting the use of 1-kW residential micro-CHP systems that provide both heat and electricity. Efforts to develop economical micro-CHP systems began and are being aggressively pursued overseas in Japan and Europe. To-date, this effort mostly uses IC reciprocating and micro-turbine engines, but will transition to fuel cells as that technology becomes more economic. Electricity generated within load centers via distributed generation eliminates the construction of new multi-billion-dollar transmission lines to bring power from large central plants located hundreds of miles away. A small portion of this unneeded investment can be better be spent to support efforts to reduce electricity requirements (i.e., energy efficiency "negwatts") and continue the promotion of distributed generation. Utilities that do this should be permitted to earn a return on funds invested in these more cost-effective solutions.

William Steigelmann

Megatrends and Black Swans

I've been reading a collection of Samuel Insull's speeches (available for free as an eBook).  It's interesting to see how some of the same problems Insull grappled with remain unsolved today (poor load factors), how he invited regulation as a way to deal with potentially ruinous competition, and some of the reasons he advocated for utility monopolies.

The Black Swan for utility managers is going to be the end of their monopolies.  It's reasonable to limit the number of distribution wires that run down a street.  Social and economic conditions, and new technology make many of Insull's other arguments moot, and that means transmission, generation and retailing are and should be competitive.

Jack Ellis, Tahoe City, CA

Samuel Insull

Jack,

Thank you for your thoughtful comment. I will be tracking down the Samuel Insull eBook to add to my reading collection later today. From what you've noted, his thoughts will provide excellent historical background for the issues still facing the industry today.

Best regards, Kate