They have a saying here: “Everything is bigger in Texas.” And perhaps nowhere is this more true than at the Henry B. Gonzalez convention center in San Antonio, Texas, the location of this year’s DistribuTECH show. The sheer size of the exhibitor’s hall alone, filled with large vendor's booths and shiny multi-media displays, is breathtaking.
“There’s a lot out there,” Jack Azagury, Global Managing Director at Accenture's Smart Grid Services, noted wryly to me. I sat down with Azagury and Greg Bolino, Managing Director of Resources, to parse through everything at DistribuTECH 2014.
Based on our conversations and my time at the show, here are the three biggest trends I saw.
The biggest disruptors: Rooftop solar and energy storage
It’s an old tune. We talk about it everyday -- and as a journalist, I'm guilty as anyone -- but electric utilities are facing disruption on multiple fronts. But the award for the biggest disruptors goes to rooftop solar and energy storage.
“Solar is the biggest disruptor in the industry right now,” said Azagury. “It’s growing exponentially faster than any utility had anticipated a few years ago.”
The problem is that “solar drives a certain amount of self-generation and disintermediation from the utility, but solar plus storage really takes that to a new level,” Azagury said, also noting that “storage is a few years away from being price-competitive with the grid.”
But there is already movement on that front: SolarCity announced last year they would bundle solar with batteries from Tesla cars for commercial customers. SunPower followed suit, saying they were planning to couple solar and storage for residential customers.
“Utilities have to figure out how to play in that market,” said Bolino. “The thinking – even a year or two ago – was that solar is a ways off before it actually has an impact on the electric utility business. Today, there’s way more evidence that it’s happening much faster than projected.”
“I think for the first time the industry will start to divide,” added Bolino. “Are you going to be in the business of a dumb pipe or services that go substantially beyond that?”
Disruptive technologies like storage and solar are forcing utilities to make decisions on their business models, Bolino said. “Will they facilitate solutions, will they partner, will they stay on the other side and let the market emerge? It’s a big set of strategic choices.”
But these technologies are not only causing problems for utility business models.
“These technologies – operationally – are disruptive,” said Azagury. But “in the U.S., I think the operational impacts of solar and storage are underestimated. We asked utilities: Is solar going to drive operational disruption on the grid? In Europe, 63% said yes. In the North America, only about 35% said yes.”
“It’s because there’s less penetration,” Azagury posited. “If you ask California utilities, you will probably get a much higher number. My prediction is that the 35% will be 63% in two years.”
Whichever business model approach utilities take, they will still feel the disruptive impacts of solar and storage as customers continue to adopt distributed energy resources.
The biggest opportunity: The smart home
The smart home is another potential disruptor to utilities, but it’s also a massive opportunity. For the last 100 years, electric utilities have quietly and reliably delivered power to their customers. But today, as information technology makes customized solutions possible at scale, the electricity business is coming out from behind the meter.
Look at Google’s acquisition of intelligent thermostat-maker Nest or Comcast’s plan to bundle electricity with phone, cable and wireless in Pennsylvania. These are all opportunities emerging around the idea of the smart home.
“It’s really taken this industry a while to mature, but I think we’re at the tipping point,” observed Azagury. But “this is not about energy. This is a home control and automation play of which energy is a component.”
As with solar and storage, there will be some utilities who choose to remain network operators only. But others will make a play at bringing these types of services to their customers.
“I get services for my home from ADT,” said Bolino. “The big ADT service is based on a company called iControl Gateway's control system. I get access to my thermostat and all the zones of my house. Comcast, Time Warner Cable and AT&T are all offering the same thing. But, interestingly, not a single utility in North America is offering it.”
Utilities have a big advantage in that they already have the customer relationship.
“I think a partnering strategy is going to be critical,” said Azagury. “Some utilities will try to go at the full end-to-end set of solutions, but I believe that the more prevalent strategy is going to be one of partnering with the right players.”
“There are some utilities here using the smart home devices, but in a very sub-scale way – one-tenth of 1% of their customers,” said Bolino. “That ought to be one-third.”
The problem is that “the utility interaction model is built around calls, faxes and letters,” Bolino continued. “We think that’s a breakthrough that has to be attacked – both for customers’ preferences and for the economics of it.”
The biggest shift: From gear to the cloud
“Distributech has now become a tech trade show,” Azagury noted. “A few years ago, it was gear everywhere. Today, there’s only a few booths with gear.”
The digital – from data analytics to cloud-based platforms for the grid network – was prevalent at Distributech 2014. As I walked through the hall, most vendors were showing off their products on computer screens, not on utility poles.
“If you asked utilities 10 years or even five years ago, they were frankly nervous about the hundreds of millions of dollars that were piling into smart grid,” said Azagury. “That has now changed. Companies are seeing the value of the data.”
“Some studies show the value of a meter is $40-$70 per year, which is a significant value proposition,” Azagury continued. But that is just “the tip of the iceberg for smart grid. North American utilities have been doing a lot of pilots. Now they’re focusing on a number of use cases and saying let’s deploy them at scale.”
This shift is changing how utilities operate.
“Take, for example, the average distribution planning engineer, who takes a snapshot of peak load twice a year and plans his area once every five years,” said Bolino. “This someone who is used to looking at this system, in terms of optimization of capital, reliability, load, voltage factors, on a five-year basis. But they can now have real-time information on a daily basis. It must and it will transform that role – but that’s a role that been performed roughly the same way for 85 years!”
“Getting the data together is not nearly as hard as actually moving the roles,” added Bolino. It’s about getting to the point where utilities can make an operational change that makes a result happen.
There’s no question that the data is accessible, but the industry will need to leverage it with new operational models.