Rouse on Transformation

Most people seem to agree that we need to be more conservative when it comes to energy.  We need to conserve our stocks of fossil fuels while also investing in renewable energy sources.  Our electrical grid is rife with inefficiencies, ranging from transmission losses to power-hungry devices in our homes.  The notion of a Smart Grid has emerged, premised on smart sensing technologies and intelligent control devices.  Numerous TV ads, from a range of companies, show us being able to remotely control everything in our homes from our smart phones.

The EE Times has estimated that it will require a $0.5 trillion dollar investment to bring this vision to reality.  Who will make this investment?  Various studies have shown that consumers would be willing to pay for energy management capabilities that would save them $50 per month or more on utility bills.  However, someone else will have to make the initial investments to bring these capabilities to market.

Electric utilities might be the obvious investors.  Greater efficiencies would enable them to meet increased demand with less capital investment.  States’ public service commissions usually approve utilities rates based on operating and investment costs.  Thus, decreased capital investment, relative to what it might have been, will effectively reduce rates, thereby reducing revenue.  This may be a significant disincentive.

Utilities are usually monopolies in their service areas.  They can set rates at whatever they can get public service commissions to agree.  For companies born and bred in a capitally intensive environment, why would they limit investments and decrease revenues?  Such decisions would not be natural acts for utilities.  Instead, their regulated monopoly mentality is likely to keep them making larger and larger capital investments, securing steadily increasing rates and revenue, and making profits that are safe within this reigning paradigm.

So who will invest and innovate?  My guess is that it will be a non-traditional player, probably a new player.  The impact of Apple on mobile telecommunications offers an interesting example.  The iPod was their first mobile device and the mainstream phone service providers did not see this device as a threat.  Then came the iPhone and the smart phone market mushroomed.  Who will play this role for Smart Grid?  IBM, Microsoft, and Oracle aspire to put the smart in the grid.  Google might be a better game changer.  Or, quite possibly, it could be someone completely unexpected.