There is a new breed of Startups in town. Who are they? Your friendly neighborhood hundred-year-old dinosau…ahem…electric utility, of course! Let me explain.
Three times in the last year, I have sat across a room from different C-Level executives of the Electric Utility industry talking about the future. Among other things, a common unifying thread in their talks was the following (paraphrased) –
Electricity consumption (revenue) is going down. The prices of everything we use to generate that electricity (costs) are going up.
Do you see the problem?
The current business model that has served Energy and Utility companies so well for so long is dying. What is even more interesting is that the same companies, who stand to lose huge amounts of money from it, have to participate in the murder. Why? Because while some customers want lower electric bills and others are concerned about the environment, the bottom line is that they are demanding a new technology market that is all about using less to do more. As the Vice President of Engineering at the Indiana Michigan Power company and a veteran of the industry, Thomas Kratt states, “We are probably the only industry that encourages our customers to use less of our product.” And he is right. Today, you can’t throw a stone in a utility company conference without denting someone’s shiny new energy efficiency program.
“We are probably the only industry that encourages our customers to use less of our product.”
Now, let’s be very clear. I love a good energy efficiency program as much as the next guy. In fact, my job depends on it. However, as shown above, using my complex Harvard Business School-esque analytical prowess, if the energy industry decides to go down this path, something has got to give. Most likely, that something will be the very definition of a utility company in the 21st-century economic landscape. The new utility company will no longer be an energy provider; it will be a lifestyle provider. Technologies like smart lighting, household appliances, electric cars, IoT (internet of things) enabled personalized service, and Behind The Meter energy storage and generation are already here – big time. Right now, there are companies that are doing these way better than the established industry players. Then there are other services (like solar roads, drone assisted customer service, and fuel cell energy storage) being invented in labs, garages, and incubators right now across the country that will, one day, be ubiquitous and synonymous with energy services. If the big boys in the utility space want to live to see even another ten years of market dominance, they’d have to throw out all the stale strategies in the fridge and go shopping. Remember that in the new marketplace they are not billion dollar companies; they are Startups.
If the big boys want to live to see another ten years of market dominance, they’d have to throw out all the stale strategies in the fridge and go shopping. Remember that in the new marketplace they are not billion dollar companies; they are start-ups.
At this year’s Distributech event (the leading annual smart grid conference) I heard Senior Editor-at-Large of Fortune Magazine (and personal guru), Geoff Colvin, speak to representatives of 326 utilities from 78 countries. He made it clear that he was an industry outsider and that he had very little experience of the technical operations of a utility. He then proceeded to softly, gently, and with his characteristic wit, completely eviscerate the prediction models utilities have been using to run their businesses for the last hundred years or so. It was swift, decisive, and a work of art. I was left breathing a little heavily at the end of his talk.
Using the story of Uber as an example, Geoff made it clear that it is prudent to have a healthy respect for disruption in any industry. The transport industry back then faced the same issues confronting traditional utilities today. Utilities are not used to personalizing their product for customers. Instead, they have operated in a stagnant, monopolized market where no effort had to be made to get, retain, or market to customers. Utilities have also not had to innovate their product or pair it with continually updated and relevant services because they have largely focused on selling one product.
With the advent of the new generation of customers who have grown up taking technology, democracy, and environmental consciousness for granted, utilities have to realize that the customer is the king once again and Choice is the preferred consort. Having a Startup mentality allows them to discard status-quo dead-weight and focus on maintaining a competitive advantage. A lot of the bigger companies are already waking up to this new reality. Phrases like Smart Grid, Grid Modernization, and Energy Efficiency are being thrown around in boardrooms across the country. It is exciting to see seasoned professionals roll up their sleeves and re-ignite the innovative spirit that drew them to this industry in the first place. A senior engineer who has been working for over twenty-five years recently confided “I feel like a recent graduate again (laughs); every day at work I deal with something different, something new.”
Phrases like Smart Grid and Grid Modernization and Energy Efficiency are being thrown around in boardrooms across the country.
All said and done, it is an exciting time to be in the Energy business. It is a time when questions like “who is going to be the next Uber of the utility industry?” makes sense. It is a time when technologies like Artificial Intelligence, Virtual Reality, and Drones are being paired up with what was essentially a “wires and poles” business. It is a time when everyone gets a seat at the table and all the players get equal rights to the future.