Presentation given to a "future utility business model" conference. Includes strategic and tactical recommendations on how utilities could evolve to take advantage of transitions in the energy sector.

1. Utility Business Model Jiu-Jitsu
Josh Gould, Advanced Research Projects Agency – Energy
(ARPA-E)
August 25, 2014

2. Agenda
• Introduction
• The Need
• Problems and Recommendations
2

3. Introduction
3

4. ARPA-E Mission
4

5. ARPA-E invests in transformational,
disruptive technology development
5
cost/performance
existing learning curve
new learning curve
tipping
point
transformational
transformational & disruptive
Steam-powered Cugnot (1769)
Benz Motorwagen (1885)
Ford Model T
(1914)

6. Highly competitive but open,
collaborative process
6
Markets and
Techno-economics
Stakeholder
Engagement
Skills and
Resources
(value) (people)(implementation)
Technology-to-Market
Identify
White Space
Create
Programs
Select
Projects
Manage
Development
Advanced Technology

7. Utilities often a close collaborator
7
Over 50 research projects with utilities as
partners, co-funders, end-customers, or advisors
Representing over $300M in total research
spending
Technologies ranging from carbon capture, to
energy storage, to power flow control, software,
optimization, even DG

8. Results from utility collaborations
8
Nevertheless…vast potential, and even greater need, to
improve engagement with disruptive technologies
20+ pilot projects
$625M in total
private sector
investment
30+ companies
formed
Hundreds of patents
Wide variety of
technologies
deployed, right now,
to address real utility
needs

9. The Need
9

10. Technology adoption follows
patterns
Adoption
10
Time
• radio
• TV
• cable
• refrigerator
• home
ownership
• telephone
• cellular
phone
• PC
• Internet
1: Michael Raynor, “The Innovator’s Manifesto,” adopted from Everett
Rogers, “Diffusion of Innovation”
1
“S-Curve” Adoption:

11. Example: UK Smartphone Market
11 2: The Guardian, “The Death of the Featurephone in the UK and What’s
Next”, April 30, 2014
2

12. Incumbents follow patterns
Adoption
Time
Dismissal
“There is no
reason for any
individual to have a
computer in his
home.”
-Ken Olsen,
Founder, DEC
Differentiation
PC vs. Operating System:
“IBM never imagined Bill
Gates would sell DOS to
anyone else”
-CBS 60 Minutes, Triumph
of the Nerds
Displacement
Discount vs. Full
Service Retail:
“Sears let arrogance
blind it to basic
changes taking place
in the American
marketplace”
-Forbes
12

13. DERs resembling familiar pattern
13
Source: Technical Report - NREL/TP-6A20-56290 June 2013
Cumulative U.S. Grid-Connected PV Installations
DERs may reach 33% of US installed capacity by 2020; EIA, DOE, FERC
Source: IREC: 2013 Annual Updates and Trends, October 2013

14. DG not the only disruptive force
14 5: California Independent System Operator (CAISO)
5

15. DG not the only disruptive force
(cont)
15

16. DG not the only disruptive force
(cont)
16

17. DG not the only disruptive force
(cont)
17
‘All Of The Above’

18. Scale of challenges in CA alone
18
~50 GW System
Peak
GHG
requirements to
1990 levels
16+ GWs of load
center generation
shutdown due to
retirements
Zero Net Energy
Building Codes
12 GWs of
Distributed
Generation
2+ GWs of
Storage
3 GWs of
Demand
Response
1.5 million Zero
Emission
Vehicles

19. But predictability has limits
19
Adoption
Time
Traditional
(Predicted) S-Curve
First Technology
Second Technology
Third Technology
6: Clayton M. Christensen, ‘Exploring the Limits of the Technology S-Curve. Part I:
Component Technologies,’ ‘Production and Operations Management 1, no. 4 (Fall
1992): 340.’
6

20. Not everything resembles S-Curve
20
Predicts infrastructure adoption less well
Is it a “first”, “second” or “third” technology? (see
previous slide)
Does not predict where or if technical improvements
intersect with market needs
Fooling with axes can make anything look like an S-
Curve
Therefore, we do not know whether – or where – we are
on a S-Curve

21. List of other things we don’t know:
Long
21
Therefore, let’s develop a strategy that does not depend
on us knowing much!
Mix of centralized vs.
decentralized
generation
How much PV will cost
in X years
Whether competitive
technologies (e.g.,
small CHP, fuel cells,
cheap storage, etc.) will
displace incumbents
Who wins elections and
the policies/ regulations
winners implement

22. Good strategies & business models
enable optionality
22
Principles Do not rely on clairvoyance or predictions about the
future
Minimize costs of adjustment to multiple future
scenarios
Maximize potential “upside”
Minimize risk by being well-positioned for rapid
adjustment and multiple scenarios

23. What follows
23
Buying “calls” and “puts” on the future is less expensive and
more effective than betting the whole balance sheet
Not a business model or strategy for a specific
vision of the future
Rather an attempt to minimize risk by creating
structure and processes capable of adapting to
multiple visions

24. Problems & Recommendations
24

25. Problem #1: Organizational Silos
Corporate
Generation Transmission Distribution Planning
Scope of Technology Benefits
Innovator has contacts
in and approaches only
one group
Technology deemed not
relevant or not discussed
with other groups
Result:
Organizational silos kill
valuable technology
25

26. Recommendation #1: Assign
Responsibility
Corporate
Generation Transmission Distribution Planning
Innovation/New Technology Team
Comprised of, or closely tied to, each part of the organization.
Team mandate and metrics based on locating, screening, and evaluating
technologies. NOT “volunteers”
26

27. Problem #2: Unclear Processes
27
SourcingWhatever walks in
Evaluation
Ask around if time permits;
evaluate on limited information and
unclear criteria; unclear who makes
final decision
Engage
Discussions in “free time”;
involve others in their “free
time”Establish
If budget/pilot site/public funding, is
available, establish a pilot project
(often w/ different employees or
departments)
Execute
Issue a press release on the pilot
Incorporate
Adopt the technology if the device
doesn’t fail and someone likes it

28. Recommendation #2: Establish Stage-
Gate Process
28
SourcingCross-functional team incented to find
the best technologies pro-actively (e.g.,
tradeshows, govt, technical conferences,
etc.)
Evaluation
Rigorous evaluation process
involving clear metrics established
beforehand by technology “wish
list”, roadmap, or strategic plan
Engage
Appropriate functions and
expertise in front of
innovator(s)Establish
Clear pilot establishment criteria;
pilot objectives communicated and
agreed to by all before pilot
Execute
Rigorous and consistent measurement against objectives;
sourcing/engagement/evaluation team involved
Incorporate
Clear criteria and processes for pilot technologies
to enter procurement (if successful)

29. Problem #3: Lack of Transparency
29
Guidelines for evaluating technologies not
communicated externally
Key organizational or technical challenges
not communicated externally (it might signal
weakness)
Regulators not aware of – and therefore
cannot reward – utility efforts to
source/evaluate external technology

30. Recommendation #3: Transparency
in Utilities’ Self-interest
30
Tell the world what you want – you’re
more likely to get it!
• Builds pipeline of relevant technology
• Best/first looks at technology
• Regulatory goodwill (provided words are backed by action)
Transparency can be a competitive
advantage: