Utility Business Model Jiu-Jitsu
Josh Gould, Advanced Research Projects Agency – Energy (ARPA-E)August 25, 2014
Agenda
• Introduction• The Need• Problems and Recommendations
2
Introduction
3
ARPA-E Mission
4
ARPA-E invests in transformational, disruptive technology development
5
cost
/ pe
rform
ance
existing learning curve
new learning curve
tippingpoint
transformational
transformational & disruptive
Steam-powered Cugnot (1769)
Benz Motorwagen (1885)
Ford Model T (1914)
Highly competitive but open, collaborative process
6
Markets and Techno-economics
Stakeholder Engagement
Skills and Resources
(value) (people)(implementation)
Technology-to-Market
Identify White Space
Create Programs
Select Projects
Manage Development
Advanced Technology
Utilities often a close collaborator
7
Over 50 research projects with utilities as partners, co-funders, end-customers, or advisors
Representing over $300M in total research spending
Technologies ranging from carbon capture, to energy storage, to power flow control, software, optimization, even DG
Results from utility collaborations
8
Nevertheless…vast potential, and even greater need, to improve engagement with disruptive technologies
20+ pilot projects$625M in total private sector
investment
30+ companies formed
Hundreds of patents
Wide variety of technologies
deployed, right now, to address real utility
needs
The Need
9
Technology adoption follows patterns
Ado
ptio
n
10
Time
• radio• TV• cable• refrigerator• home
ownership
• telephone• cellular
phone• PC• Internet
1: Michael Raynor, “The Innovator’s Manifesto,” adopted from Everett Rogers, “Diffusion of Innovation”
1
“S-Curve” Adoption:
Example: UK Smartphone Market
11 2: The Guardian, “The Death of the Featurephone in the UK and What’s Next”, April 30, 2014
2
Incumbents follow patternsA
dopt
ion
Time
Dismissal
“There is no reason for any
individual to have a computer in his
home.”
-Ken Olsen, Founder, DEC
Differentiation
PC vs. Operating System: “IBM never imagined Bill Gates would sell DOS to
anyone else”
-CBS 60 Minutes, Triumph of the Nerds
DisplacementDiscount vs. Full Service Retail:
“Sears let arrogance blind it to basic
changes taking place in the American marketplace”
-Forbes
12
DERs resembling familiar pattern
13
Source: Technical Report - NREL/TP-6A20-56290 June 2013
Cumulative U.S. Grid-Connected PV Installations
DERs may reach 33% of US installed capacity by 2020; EIA, DOE, FERC
Source: IREC: 2013 Annual Updates and Trends, October 2013
DG not the only disruptive force
14 5: California Independent System Operator (CAISO)
5
DG not the only disruptive force (cont)
15
DG not the only disruptive force (cont)
16
DG not the only disruptive force (cont)
17
‘All Of The Above’
Scale of challenges in CA alone
18
~50 GW System Peak
GHG requirements to
1990 levels
16+ GWs of load center generation shutdown due to
retirements
Zero Net Energy Building Codes
12 GWs of Distributed Generation
2+ GWs of Storage
3 GWs of Demand
Response
1.5 million Zero Emission Vehicles
But predictability has limits
19
Ado
ptio
n
Time
Traditional (Predicted) S-Curve
First Technology
Second Technology
Third Technology
6: Clayton M. Christensen, ‘Exploring the Limits of the Technology S-Curve. Part I: Component Technologies,’ ‘Production and Operations Management 1, no. 4 (Fall 1992): 340.’
6
Not everything resembles S-Curve
20
Predicts infrastructure adoption less well
Is it a “first”, “second” or “third” technology? (see previous slide)
Does not predict where or if technical improvements intersect with market needs
Fooling with axes can make anything look like an S-Curve
Therefore, we do not know whether – or where – we are on a S-Curve
List of other things we don’t know: Long
21
Therefore, let’s develop a strategy that does not depend on us knowing much!
Mix of centralized vs. decentralized
generation
How much PV will cost in X years
Whether competitive technologies (e.g.,
small CHP, fuel cells, cheap storage, etc.) will
displace incumbents
Who wins elections and the policies/ regulations
winners implement
Good strategies & business models enable optionality
22
Principles Do not rely on clairvoyance or predictions about the future
Minimize costs of adjustment to multiple future scenarios
Maximize potential “upside”
Minimize risk by being well-positioned for rapid adjustment and multiple scenarios
What follows
23
Buying “calls” and “puts” on the future is less expensive and more effective than betting the whole balance sheet
Not a business model or strategy for a specific vision of the future
Rather an attempt to minimize risk by creating structure and processes capable of adapting to multiple visions
Problems & Recommendations
24
Problem #1: Organizational Silos
Corporate
Generation Transmission Distribution Planning
Scope of Technology Benefits
Innovator has contacts in and approaches only
one group
Technology deemed not relevant or not discussed
with other groups
Result: Organizational silos kill
valuable technology
25
Recommendation #1: Assign Responsibility
Corporate
Generation Transmission Distribution Planning
Innovation/New Technology Team
Comprised of, or closely tied to, each part of the organization. Team mandate and metrics based on locating, screening, and evaluating
technologies. NOT “volunteers”
26
Problem #2: Unclear Processes
27
SourcingWhatever walks in
Evaluation
Ask around if time permits; evaluate on limited information and
unclear criteria; unclear who makes final decision
EngageDiscussions in “free time”; involve others in their “free
time”Establish
If budget/pilot site/public funding, is available, establish a pilot project (often w/ different employees or
departments)
ExecuteIssue a press release on the pilot
Incorporate
Adopt the technology if the device doesn’t fail and someone likes it
Recommendation #2: Establish Stage-Gate Process
28
SourcingCross-functional team incented to find the best technologies pro-actively (e.g.,
tradeshows, govt, technical conferences, etc.)
Evaluation
Rigorous evaluation process involving clear metrics established beforehand by technology “wish list”, roadmap, or strategic plan
EngageAppropriate functions and
expertise in front of innovator(s)Establish
Clear pilot establishment criteria; pilot objectives communicated and
agreed to by all before pilot
Execute
Rigorous and consistent measurement against objectives; sourcing/engagement/evaluation team involved
Incorporate
Clear criteria and processes for pilot technologies to enter procurement (if successful)
Problem #3: Lack of Transparency
29
Guidelines for evaluating technologies not communicated externally
Key organizational or technical challenges not communicated externally (it might signal weakness)
Regulators not aware of – and therefore cannot reward – utility efforts to source/evaluate external technology
Recommendation #3: Transparency in Utilities’ Self-interest
30
Tell the world what you want – you’re more likely to get it!
• Builds pipeline of relevant technology• Best/first looks at technology• Regulatory goodwill (provided words are backed by
action)
Transparency can be a competitive advantage:
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