Huge States’ Costs as Utilities are Unable to Cross the Home Energy Management Chasm

There is a consensus that only high tech firms are able to cross the Home Energy Management chasm. While utilities still “owned their markets,” by state regulatory fiat and while state governments take those very costly risks, it is very doubful that the consumer will be the king of home energy management, even if the Federal Communication Commission fully implements interoperability standards and open networks. Huge value destruction will remain in the power industry under the status quo.

Huge States’ Costs as Utilities are Unable to Cross the Home Energy Management Chasm

By José Antonio Vanderhorst-Silverio, Ph.D.
Creator of the EWPC-AF

Systemic Consultant: Electricity

First posted in the GMH Blog [1], on January 24^th 2010.

Copyright © 2010 José Antonio Vanderhorst-Silverio. All rights reserved. No part of this article may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, without written permission from José Antonio Vanderhorst-Silverio. This article is an unedited, an uncorrected, draft material of The EWPC Textbook [2]. Please write to javs@ieee.org [3] to contact the author for any kind of engagement.

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Katie Fehrenbacher [13] keeps writing valuable articles in Earth2Tech.com, about the very important and timely state of the art issues of the high tech Smart Grid. This time I will question her article Why The Consumer Will Be King of Home Energy Management in 2010 [14], while also quoting and integrating other articles by Katie mentioned below.

From the reasons introduced through the EWPC post “The Electric Power Industry is Missing a Vibrant Retail Market [15]” and what is also added in here, I strongly doubt that the Consumer Will Be King of Home Energy Management (HEM) in 2010. Take for example the Technology Adoption Life Cycle (TALC) and follow Geoffrey Moore’s insights on his book Crossing the Chasm into the process of travelling the Bell curve that has a crack after early adoption. As Pike Research Managing Director Clint Wheelock explained, “the retail channel may become an important channel for these devices in 3 to 5 years,” but that "the early market will be driven by utilities."

Those two Katie’s quotes originated in Katie’s article Smart Grid Will Generate $200B of Global Investment [16], under which I posted two comments. The first paragraph of my first long post says:

It is interesting to note that Pike’s smart grid forecast do not include investments beyond the meter in accordance with the obsolete Investor Owned Utilities Architecture Framework (IOUs-AF) and its incremental extensions, such as the homogeneous smart grid. As you will see below, “…the impact of new technologies will be minimal in generation, moderate in transmission, important in distribution, and revolutionary beyond the meter. That means that predictions need to be based on the migration of value creation from supply to demand.”

Returning to Katie’s first article, in an email that she received from CEO Peter Porteous, he ratified the decision by Blue Line Innovations to shift, from their “primary focus since its 2003 launch” to the utility, to an emergent“primary focus to the consumer.” That signal should tell utilities that they will reached the dead end of the crack, which is called the Chasm, which high tech marketing companies know how to cross under the TALC. This is also confirmed by Katie, when she wrote that “As Gartner analyst Zarco Sumic told us, in the long run, “The vendors that will dominate will be the ones who know how to market, sell and meet the needs of the consumer space. It is a consumer technology play. It is not a utility play.”

But correct me if I am wrong, that in addition to the Chasm, there is still the huge regulatory barrier of the obsolete IOUs-AF, and its incremental extensions, like the regulated architecture Smart Grid. That barrier needs to be taken down to let customers freely choose the HEM they need. It will be very costly mistake by state governments to keep regulators making highly risky bets that result in a huge value destruction on HEMs tied to utilities offerings that will not be able to cross the Chasm.

I guess then the question is how long will it take state governments to change the rules of the game to open the power industry to the TALK, so that the consumer may be king? The problem is that state governments have let essential elements of the retail market, like energy sales and/or the metering infrastructure, continue to be “owned” by utilities, which is a barrier for HEMs to be whole product offerings that customers are able to choose to invest freely in said HEMs as well as the needed complementary product and services.

Katie’s article Why A French Regulator Is Bullying A Smart Grid Startup [17] (please read the comments under the article, especially the historic lesson of the “Law of the Situation: the railroads did not understand”) has a remarkable example of my whole product reservations, that resulted in “a spat between a disgruntled utility that was losing revenues through an energy efficiency program and a smart grid tech startup that was helping utility customers save energy.” In fact, as Regis Mackenna stated about “owning a market,” in the foreword of Crossing the Chasm, “Customers do not like to be “owned,” if that implies lack of choice or freedom.”

That barrier was also described from another angle in a recent comment under Katie’s article How the FCC Will Promote Open Smart Grid Networks & Real Time Energy Data [18], as follows (with minor editing):

There is no guarantee that by only promoting open standards and commercial networks the power industry will be open to innovation. The power industry itself will need to be open. To do it, an understanding of the required architecture of the emergent power industry whole is also needed.

In order to actually open the power industry to innovation, as call by Mr. Nick Sinai, when he said “we must aspire for policies that facilitate the ferocious competition that drives innovation,” there is a need to change away from the obsolete and exceedingly complex (as a result of a large series of incremental extensions) Investor Owned Utilities Architecture Framework.

The change is to the emergent, simplified, and holistic Electricity Without Price Controls Architecture Framework, which is introduced in the post “States that Implement a Heterogeneous Grid are Poised to be the Winners [19].”

Thus, to enable the TALC, I suggest that a shift in energy policy is required away from the IOUs-AF to the technology neutral EWPC-AF. States governments are the responsible entities to change the policy, while the federal government should lead them in the process of enabling a uniform and effective change that enable customers’ to freely choose.

Blog Author Name:

Jose Antonio Vanderhorst-Silverio

Blog Url:

http://www.energyblogs.com/ewpc/index.cfm/2010/1/24/Huge-States-Costs-as-Utilities-are-Unable-to-Cross-the-Home-Energy-Management-Chasm [20]

Author Blog Url:

http://www.energyblogs.com/ewpc/bio.cfm [21]

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Links:
[1] http://grupomillenium.blogspot.com/
[2] http://www.energyblogs.com/ewpc/index.cfm/2007/11/12/The-EWPC-Textbook
[3] mailto:javs@ieee.org
[4] http://www.energyblogs.com/ewpc/index.cfm/2007/9/30/The-Sixth-Disruptive-Technology
[5] http://www.energyblogs.com/ewpc/index.cfm/2007/12/6/Demand-Integration-is-NOT-the-Province-of-Politics
[6] http://www.energyblogs.com/ewpc/index.cfm/2007/12/19/Nanosolar-Breakthrough-and-the-Old-Paradigm
[7] http://www.energyblogs.com/ewpc/index.cfm/2007/10/28/Response-to-Professor-Banks
[8] http://www.energyblogs.com/ewpc/index.cfm/2008/5/13/Can-the-Power-Industry-Eliminate-its-Price-Controls-to-the-End-Customer
[9] http://www.energyblogs.com/ewpc/index.cfm/2008/10/3/The-Next-Energy-Secretary
[10] http://www.energyblogs.com/ewpc/index.cfm/2008/3/30/EWPCs-Tipping-Point
[11] http://www.energyblogs.com/ewpc/index.cfm/2008/3/28/IMEUC-False-Facts
[12] http://www.energyblogs.com/ewpc/index.cfm/2008/7/6/Campaign-for-Fair-Electricity-Rates
[13] http://earth2tech.com/author/katiefehren/
[14] http://earth2tech.com/2010/01/22/why-the-consumer-will-be-king-of-home-energy-management-in-2010/
[15] http://bit.ly/7o2f8u
[16] http://earth2tech.com/2009/12/27/smart-grid-will-generate-200b-of-global-investment/
[17] http://earth2tech.com/2009/07/24/the-voltalis-case-another-reason-why-utilities-need-new-biz-models/
[18] http://earth2tech.com/2010/01/21/how-the-fcc-will-promote-open-smart-grid-networks-real-time-energy-data/
[19] http://bit.ly/6R5tDP
[20] http://www.energyblogs.com/ewpc/index.cfm/2010/1/24/Huge-States-Costs-as-Utilities-are-Unable-to-Cross-the-Home-Energy-Management-Chasm
[21] http://www.energyblogs.com/ewpc/bio.cfm