Confidenal	  and	  Proprietary	  Informaon	  -­‐	  This	  presenta,on	  is	  subject	  to	  proprietary	  informa,on	  righ...
2So where is your mind?The Deregulation of the Utility Industry will  not be unlike the process of making Oil.ORNeil Armst...
Common Issues  Data Overload  Lots to do, Little time to do it  Complexity Increasing  Significant Trust Issues  Lega...
4    Looming crisis:    Energy & Electricity    Grid (Economic    recession only    delayed the    inevitable)        US E...
5THE PROBLEM: Typical Daily Load Profile         6	  a.m.	     12	  noon	     6	  p.m.	  
6Application to Energy IndustryLoad Duration Curve – Part I
7Application to Energy IndustryLoad Duration Curve – Part II                1% HRS = 14,000 MW                10% HRS = 4,...
8                               Rates /                               Returns                                             ...
9What Model works for all 4?                                    Rates /                                    Returns        ...
10   Energy Economics FoundationThe laws of supply anddemand state that theequilibrium market priceand quantity of acommod...
11 Regulatory Economics & Utility Business Principles  Rate    of Return Regulation       Revenue Rqmnt = [Rate Base*ROR%...
12THE SOLUTION: Change the Shape!       6	  a.m.	     12	  noon	     6	  p.m.	  
13What if . . .  Theload duration curve could be flattened,  eliminating the last 3-8% of the  unmanageable shape?       ...
14Evolution of Load                                                 Fully automated,                                      ...
15Evolution of Load                                                 Fully automated,                                      ...
16Why hasn’t it been done?  Costeffective technology unavailable until  10-15 years ago       Pervasive Comm and low cost...
17TheUtility/CustomerInteraction
18   Business Approach:   The utility AND customer must win.Crossing	  the	  Chasm	  between	  ulity	  and	  consumer	  re...
How to Innovate the Model?Create a New Starting Point    Recognize the gravity of our situation          Electricity is n...
FACT  Technology does      NOT solve   problems People         DO!
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Chris Hickman Smart Grid Lecture 3-7-2011

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Chris Hickman
President, Innovari Energy

Business Model Innovation: Utility-Friendly, Consumer Valued, Regulator Accepted Solutions for the Future of Energy

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Chris Hickman Smart Grid Lecture 3-7-2011

  1. 1. Confidenal  and  Proprietary  Informaon  -­‐  This  presenta,on  is  subject  to  proprietary  informa,on  rights  and  confiden,ality  provisions.    Do  not  copy  or  distribute  this  document  without  the  express  wri>en  permission  of  Innovari. BUSINESS MODEL INNOVATION: Utility-Friendly, Consumer Valued, Regulator Accepted Solutions for the Future of Energy Innovations in Business Models that can work Energy for everyone – Not just for some 1
  2. 2. 2So where is your mind?The Deregulation of the Utility Industry will not be unlike the process of making Oil.ORNeil Armstrong awarded the single biggest technology achievement for the last century to . . . ???
  3. 3. Common Issues  Data Overload  Lots to do, Little time to do it  Complexity Increasing  Significant Trust Issues  Legal Issues driving instead of common sense  Process to change getting longer not shorter, technology changing faster not slower – Policy/ Regulation cannot keep up  Industry losing many experts for a variety of reasons  Consultants are not incented to solve problems  Experts who are not experts  Vocal minority driving instead of silent majority  Misconception of Utilities/Regulators/Consumers wants, needs and potential desires.  American Entitlement. 3
  4. 4. 4 Looming crisis: Energy & Electricity Grid (Economic recession only delayed the inevitable)   US Electric Grid Capacity 760 GW   New Generation Required 135 GW   New Generation “Planned” 57 GW
  5. 5. 5THE PROBLEM: Typical Daily Load Profile 6  a.m.   12  noon   6  p.m.  
  6. 6. 6Application to Energy IndustryLoad Duration Curve – Part I
  7. 7. 7Application to Energy IndustryLoad Duration Curve – Part II 1% HRS = 14,000 MW 10% HRS = 4,000 MW 10,000 MW @ $2000/kW $20 Billion for 100 hours Site Efficiency Makes Grid “PEAKIER” Need System Efficiency & Peak Load Management
  8. 8. 8 Rates / Returns Ageing Smart Grid Infrastructure What isRenewables / Alternatives Shaping Economic Conditions the Power Access to Capital Conservation/ Efficiency Markets? Commodity Conventional Prices Emissions
  9. 9. 9What Model works for all 4? Rates / Returns Consumers Ageing Smart Grid Infrastructure Economic Renewables / Vendors Alternatives Conditions Utilities Access to Conservation/ Capital Efficiency RegulatorsPrices Conventional Commodity Emissions
  10. 10. 10 Energy Economics FoundationThe laws of supply anddemand state that theequilibrium market priceand quantity of acommodity is at theintersection of consumerdemand and producersupply. However, whendemand exceeds supply,significant shifts in price willoccur.Unfortunately, withelectricity, blackoutoccurs versus just anescalation or high prices.
  11. 11. 11 Regulatory Economics & Utility Business Principles  Rate of Return Regulation   Revenue Rqmnt = [Rate Base*ROR%] + Expenses  IOU’s and their investors only make money on things in Rate Base  MOU/COOP – Muni Bonds and RUS Financing - CapEx more efficient than OpEx  Fight the model or Use it?   Chasing regulatory change is dangerous/costly
  12. 12. 12THE SOLUTION: Change the Shape! 6  a.m.   12  noon   6  p.m.  
  13. 13. 13What if . . .  Theload duration curve could be flattened, eliminating the last 3-8% of the unmanageable shape?   Is there a need for TOU? Therefore AMI?   Is there a need for billions of upgrades to T&D if we can increase utilization from 53% to 75%?   Is there a need for billions of central station generation and peakers and their emissions?   Is there a business model that works for utilities AND consumers and keeps regulators happy?
  14. 14. 14Evolution of Load Fully automated, Looks, acts and is Management trusted as a utility five-second resource if response owned by utility intelligently taps embedded responsive load in most buildings Open ADR Two-way, verifiable load management with dynamic attributes that allow the grid toValue be served and consumer not to Previously known be uncomfortable as curtailment Most Existing and resurfaced in“dispatchable load” residential as Looks, acts and isdriven by manual Comverge trusted as a utilitymeasures or one-way resource if Fully automated,communications owned by utility five second response intelligently taps embedded responsive load in most buildings Utility Equivalent & Trusted Resource/Product
  15. 15. 15Evolution of Load Fully automated, Looks, acts and is Management trusted as a utility five-second resource if response owned by utility intelligently taps embedded responsive load in most buildings Open ADR Two-way, verifiable load management with dynamic attributes that allow the grid to Site & GridValue be served and automoted consumer not to negotiation Previously known be uncomfortable based on local as curtailment rules & Most Existing and resurfaced in conditions“dispatchable load” residential as manages loaddriven by manual Comverge to create ameasures or one-way “portfolio”communications Utility Equivalent & Trusted Resource/Product
  16. 16. 16Why hasn’t it been done?  Costeffective technology unavailable until 10-15 years ago   Pervasive Comm and low cost hardware exist now  Business model does not work   Business model has to provide value to utilities   Utilities pay lip service to Demand Response, but the business model does NOT work for them since they pay customer to erode their own revenue.   DR must evolve  Lack of understanding of the energy business   Need Intelligent Power Products not DR  Chasm between Utility and their Consumer
  17. 17. 17TheUtility/CustomerInteraction
  18. 18. 18 Business Approach: The utility AND customer must win.Crossing  the  Chasm  between  ulity  and  consumer  requires  a  model  that  allows  the  ulity  AND  the  consumer  to  win!   U,li,es  have  the  money,  the  volume  and  the  need   for  this  solu,on   Less  than  5%  of  end  use  consumers  care  today   If  the  U,li,es  can  solve  the  problem  in  the  next   5-­‐10  years,  consumers  will  care  even  less.      
  19. 19. How to Innovate the Model?Create a New Starting Point  Recognize the gravity of our situation   Electricity is not a political football, it’s our way of life  Allow common sense a seat at the table  Establish Trust & Accountability  Make a conscious decision to make it better   Bury the hatchet, it’s time to move forward  Focus on how to actually accomplish something versus how to kill everything  Give the microphone to the vocal minority to speak, but don’t let them keep it  Recognize the silent majority – 10% adoption rates mean 90% weren’t interested  Beware the “Experts”
  20. 20. FACT Technology does NOT solve problems People DO!

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