Advancing technologies and their swift adoption are upending traditional business models. As a result, senior executives need to think strategically about how to prepare their organizations for the challenging new environment.
Investing in Energy Efficiency
The smart grid—an electricity grid that uses two-way digital technology to create greater equilibrium in the supply-and-demand relationship—has long been an aspiration of energy experts and system managers. Its approaching implementation promises improved reliability, fewer outages, and greater customer awareness of energy usage and costs. The smart grid is also expected to advance the adoption of socially beneficial technologies such as renewable generation sources and electric vehicles. The stakes are substantial. In the United States alone, successful deployment of smart grid technologies could yield savings to society of one hundred billion dollars annually by the end of this decade. The accelerating adoption of global automated metering infrastructure (AMI), which could soon be deployed in nearly forty million US locations, has created a platform for utilities to add intelligence to the grid. The project has gathered additional momentum from stimulus spending on infrastructure, including smart grids, renewable energy, and electric vehicles.
The course of worldwide smart grid adoption has been halting and complex with progress varying from country to country. Underlying technologies remain expensive, and the smart grid business case assumes significant changes in customer behavior. A business model is emerging, especially for customer applications, while regulators, utilities, and third-party service providers define their roles and set technology standards. Many core systems remain unproven, and as we go to press, not a single full-featured AMI system has been stably and fully deployed in the United States at scale. The smart grid is facing the near-term disruptions characteristic of the introduction of any truly transformative technology. For the actors in the electric power industry, the course forward is uncertain, and the likelihood of early missteps is high. Yet smart grid momentum is growing, and the biggest risk would be in waiting to see how others surmount the barriers.
Policy makers and the public at large should be realistic about the ability of any short-term spending program, no matter how well conceived, to transform a large, complex sector in a fundamental way. The task before companies now is to develop careful, coherent plans for dealing with the government as a new shaping force in the energy sector. Two obvious steps are establishing or enhancing regulatory affairs efforts and hiring new salespeople in key places around the country. And while large international energy companies and regulated utilities are used to having governments play a significant role, it represents a novelty for many technology firms and emerging global players. Their executives must decide where to put the federal, state, and local governments in their account lists, and they must learn how to compete for and do business with these new customers.
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