Back in 2013, the Edison Electric Institute published a paper entitled Disruptive Challenges: Financial Implications and Strategic Responses to a Changing Retail Electric Business. And while it wasn’t the first time serious concerns had been raised relative to the changing dynamics of the business, it was following this paper’s release that the “Utility Death Spiral” conversation began to be had in earnest. How would utilities survive burgeoning solar and wind deployments while simultaneously maintaining and upgrading the grid as load demand and customer bases shrank? One cautionary example raised in the study was the devastating impact that cell phones had on the legacy monopoly of the landline telephone industry.
In the years since, during which time Navigant Research has tracked the evolving industry and published hundreds of reports on its many segments – smart grid, electric vehicles, energy storage, distributed energy resources (DER), smart cities, and others – we have arrived at a different conclusion. In fact, we believe the ongoing evolution and convergence of advanced technologies, applications, and business models will present an opportunity to energy industry stakeholders which could very well deliver dramatically expanded market influence and economic growth.
The neural grid pathway
The neural grid describes an autonomous grid leveraging artificial intelligence (AI), connectivity, and sensing technologies throughout the transmission and distribution grids to support ubiquitous automation, self-healing, seamless DER integration, customer engagement and involvement, and the ultimate integration of dispersed markets for transactive energy.
The neural grid is one of several platforms identified by Navigant as underpinning the Energy Cloud future. Picture a highly distributed, networked, and dynamic grid in which performance and customer choice command a premium. Platforms managed by network orchestrators connect utility customers to a rich tapestry of products and services with the electron but one source of value. At Navigant, we call this the Energy Cloud. [Figure 1]
The Energy Cloud is already forming, fueled by technological advancement and falling costs. At least $1.3 trillion in new revenue opportunities will be created in the Energy Cloud by 2030, according to Navigant Research estimates. Most of these transactions will flow through multiple customer-centric growth platforms such as integrated DER (iDER), building-to-grid (B2G), transportation-to-grid (T2G), the Internet of Energy (IoE), transactive energy (TE), neural grids, and smart cities. [Figure 2]
But even as progressive utilities and regulators embark on the grid modernization initiatives necessary to form these platforms, it’s still sometimes difficult to see the pathway from here to the Energy Cloud and the neural grid platform.
Importantly, however, it’s also sometimes difficult to fathom just how rapidly change can occur, once the necessary components of industry disruption all fall into place. The mobile phone industry, and the radical change it’s caused over the last 10 years, provides, if not a road map, a useful example.
The mobile example
Given our collective dependence upon smartphones today, it can be easy to forget that the wireless device as we know it, with a plethora of capabilities and applications and data at your fingertips, is less than a decade old. As cellular telephone usage grew in the late 1990s, no one could have foreseen the massive expansion that was to come, with the mobile platform literally replacing watches, books, credit cards, gaming devices, PCs, and so much more – not to mention plain old telephone service.
There were many who predicted the rise of the mobile data industry. Investors, engineers, and entrepreneurs started companies and gave talks at conferences.
Throughout the ‘90s; it was, for at least a decade, a “Zero Billion Dollar” business, as I entitled one article. Many of those investors and entrepreneurs failed miserably – they were too early to market with ideas dependent upon technology that wasn’t yet mature.
Around 2007, however, a perfect storm of technology, pricing, and market conditions began forming, which ultimately resulted in exponential growth of mobile industry revenue. The four key factors in that perfect storm were price, network, user interface, and applications.
Price: While it was considered revolutionary when AT&T boldly did away with roaming fees in 1997, average monthly revenue per user (ARPU) for cellular service began to counterintuitively climb after this point, following years of declines, despite the fact that monthly service plans got cheaper on a per minute basis. As the carriers consolidated and the FCC opened more spectrum over the next decade, network operators were eventually able to offer unlimited voice and data plans, prompting their subscribers to spend double or triple the $40 they had been spending on a monthly basis. This ultimately led to the cut-the-cord landline replacement trend that has eviscerated legacy telephone companies.
Network: It’s been just seven years since Verizon launched the first 4G LTE network in the US, bringing to market data speeds that truly supported applications like music and video streaming on phones.
Wireless data was already growing on the 3G network, as texting, email, and web browsing grew in popularity, but it was the widespread availability of 4G data speeds that really catalyzed today’s all-day all-night smartphone fixation.
User interface: The release of the first-generation iPhone was truly a transformative event in the evolution of the mobile platform. Steve Jobs nailed it with a sleek, elegant interface and user experience that virtually every handset manufacturer has emulated ever since.
Open applications for third-party developers: Along with the iPhone came the App Store. The iPhone was great on day one, but its greatness grew exponentially as an amazing variety of applications, games, and other tools were created for the platform.
Today, there are nearly 8 billion mobile devices in use worldwide – more than one for every human on the planet. In contrast, penetration in the U.S. was just 20 percent in 1997.
In Western Europe, between 10 and 15 percent of people had a wireless device, while in other global regions, penetration was in the low single digits. Notably, penetration in 2017 far exceeds 100 percent in many developing regions of the world, and electrification in rural villages is often driven first and foremost by the demand for phone charging.
The neural grid ecosystem
The four key factors outlined above – price, network, user interface, and third-party applications – prompted the explosion of the mobile industry. They also have parallels in the energy industry.
There are also four legs of the neural grid platform necessary for a mobile-like perfect storm to develop in the electric power industry: infrastructure and markets, user interfaces, enabling technologies, and services and applications. Price is not independent, but it plays a critical role in the adoption rates for enabling technologies, user interfaces, and applications; price affects all four sectors of the ecosystem and could well be the determining factor as to just how soon the neural grid platform achieves its potential.
The Neural Grid Ecosystem: A Platform for Exponential Growth
It’s important to note that not all the elements necessary for the hockey-stick growth curve envisioned are yet mature. Blockchain, machine learning, edge computing, TE markets, data management platforms, and ubiquitous connectivity are all elements that are relatively immature today, but road maps are in place that could bring them fully into play over the next decade.
There are bound to be some bleeding-edge casualties among actors in this ecosystem before the neural grid platform is fully formed. That said, these emerging areas are where the greatest growth opportunities will be found.
For example, who will build the equivalent of eTrade for TE markets? Will it be a utility or a startup currently operating out of a garage? Or will it be Google or Amazon? Just think: “Alexa, sell 50 MWh out of storage, at the market price.”
Imagine the possibilities
The perfect storm of price, interface, easy-to-use applications, interoperability, and ubiquitous connectivity hasn’t fully developed in the electric power industry. But it is coming, and with it the opportunity to dramatically expand services and revenue streams – to expand the neural grid platform – such that it encompasses not only the energy-related services and products envisioned today, but also many yet-to-be-imagined applications.
Once the necessary combination of utility, affordability, and value fall into place, an acceleration in revenue and value growth is likely to take place. The mobile industry in the U.S. today generates nearly $200 billion in annual revenue – more than 10 times what it did in the mid- ’90s – and it’s only been seven years since all the critical components came together.
Utilities in the U.S. generate nearly $400 billion in annual revenue today; the solar industry is worth another $200 billion in annual sales. The possibility of even a fivefold order of magnitude market expansion over the next 20 years presents some massive opportunities – but mind the bleeding edge.
1 Navigating the Energy Transformation: Building a Competitive Advantage for Energy Cloud 2.0.
Richelle Elberg is a principal research analyst with Navigant Research, the research arm of global energy consultancy Navigant. Her white paper on the neural grid ecosystem was published in 4Q 2017.