The macrosystems around us (energy, health, food, water) are grand in their scale and interrelated at levels that we are still trying to grasp. Despite our little but growing understanding of complex systems, we know that two things happen when they change:
1. The changes are nonlinear and the effects are oftentimes exponential
2. The changes affect more than the individual system we are studying
Agriculture is a system that we know how to deal with since we understand the convergence of its inputs such as seed, land, soil quality, water, human capital etc. In Thinking in Systems: A Primer, Donella Meadows calls ‘a system an interconnected set of elements coherently organized in a way that achieves something . . . consisting of three parts: elements, interconnections, and a function or purpose. The elements (land, seed, water), interconnections (we plant the seeds, we water the seeds, there is a cycle of death before growth, harvest etc.) and the purpose (to feed people with the harvest) are all clear in agriculture. As we’ve industrialized, i.e. made changes to the complex agricultural system, we’ve seen the effects in the other complex systems like the job market, health (diseases from inorganic foods), weather (droughts) at the same time as we’ve seen the benefits. But we have come to realize the interconnectedness of the agricultural system with everything else we pay attention to.
The utility is on the cusp of change, faster than the industry is prepared for or it has ever had to deal with. The utility that delivers our electricity has always favored stability over agility. This has enabled the utility to provide you and I power in a stable, safe and reliable way. There was a time when we valued that unconditionally. We had a contract, both physical and implied, that the utility would supply us with electricity when we needed it and we would pay for that electricity when we got the bill. The government, through policy and regulation, helped to maintain that contract. Things were fine. But that is changing. The utility now has competition from Tesla, Google and telecom companies. The pace of this change is partly due to rapid digitization (another complex system that is having non-linear and exponential effects on other complex systems); smart meters, sensors, the Internet of Things (IoT and IIoT) and intelligent machines in our homes and buildings means there is more two-way flow of information.
The utility is also seeing changes due to competition from the construction industry who are bucking convention and constructing buildings in ways that totally remove the need for a utility’s services. A residential example is the Kasita home being built by a company in Austin (image below), and on the city scale, we have the Songdo Smart city. They are changing the concept of a distant and separate utility provider by incorporating all utility services (water, telecoms and power) as part of the system embedded within their buildings..
If the utility system as a whole is digitizing, the evidence of this is even more apparent in how quickly our homes are going through this rapid digitization. This is playing out in the form of the connected home. The connected home is simply a network that enables the operations and interconnections of multiple devices and products in the home. In laymen’s terms, it’s a home that is computerized. It’s a Jetsons home. Traditional classifications of the devices in the home and use cases for connected devices (connected toothbrush anyone?) miss that consumers want just the basic things in their homes. The devices and their interoperability is currently packaged as networking, media, entertainment, energy usage and efficiency etc. What these terms miss is that the consumer does not talk in terms of ‘I want my home networked’. Rather, the average consumer will say ‘Is the home alarm on?’ as they go to bed. It’s the feeling of safety and security in their abode that they desire. The connection is not as important as the home in this equation.
The connected home is truly, and should really just be, a home that provides safety, comfort and convenience to the homeowner through the use of technology. We’ve lost that point though. Google Home, Nest Protect, Amazon Echo, Ring, August Lock, Leeo, Sonos, Plum, Sevenhugs, Canary, KamarQ, Sentry, Pwety, Latch, Wigwag, Edyn, Ivee, Rachio, Ecovent, Nanit, There, Beddit etc. The list of products that are vying for space in your connected home grows each day. Some absolutely pointless. Actually, most actually pointless. There is no empathy embedded in these products. Just business models. Note: one of those products up there does not exist. But you wouldn’t have known if I didn’t mention it. There are that many random products in the market today.
If we agree the sum of these individual separated parts never equals the whole, why do we still focus on breaking things down into their component parts to get a better understanding of situations, companies and systems? Because we are focused on the short term. Analysis, which is really reductionism, robs us of our ability to critically think about whole systems. The companies building connected products for the home are missing the whole in pursuit of the ‘one’ thing they have to sell. And it’s further eroding the consumer’s ability to consider the bigger picture, especially with the complex and ambiguous systems that we’ve explored above, since it’s the easy thing to do. The signs suggest we won’t be doing much better in our near-term decision and policy making either. So what’s a possible solution?
Larry Downes and Paul Nunes, in their book, suggest that ‘Big Bang Disruptions’ differ from more traditional innovations not just in degree, but in kind. These disruptions are more inventive, better integrated with other services and products (for example taking a platform instead of a product approach) and that these disruptions take advantage of the customer’s access to more information about the product and their ability to share and contribute to the utilization of that product. This sounds exactly like some of the technologies that will be discussed later in this article and most especially sounds like the current state with Distributed Energy Resources (DERs), which I will not discuss in much detail. The changes caused by the big bang disruption might not be full replacements, as there will still be a need for a generation source, but the disruption might come in the form of engagement with the physical assets — e.g. a user managing their Powerwall electricity usage with the aid of Artificial Intelligence and selling excess power through the blockchain.
How do big bang disruptions happen? They tend to follow a path of
1. Unencumbered development by the disruptor: where the work is going on outside of the current constraints, e.g. regulatory, of the incumbents.
2. Unconstrained growth: where the traditional product life cycle is shortened. The adoption curve looks different from the traditional early adopter, early majority, late majority to laggard curve. The new adoption path looks more like a straight line which heads up and then drops off once the market is saturated.
3. Undisciplined strategy: unlike the stepwise strategic approach of the incumbent, an approach that would normally work, the disruptor tends to take a more undisciplined approach to product development. This enables the disruptor to bypass the more traditional approach of picking one of lower cost, constant innovation or customized offerings and try to implement all three strategies from the launch of their product; a better performing product customized to the customer need and sold at a lower price. This causes strategic confusion for the incumbent, or in our case the utility, who does not know how to respond to this competitive threat.
Since the utility is my main focus, and since the work of the utility is now converging with the sustainable built environment movement, how do we get back to the system approach to thinking about the future of this industry? And in particular, directing our utilities and resources a little bit more (shall we say) towards a long-term focus? It’s actually quite simple. Like the natural systems it mimics, a sustainable farm is always a polyculture and depends on the synergies between its various components from soil microbes to animals. It’s by the utilities becoming learning organizations, or a concept I’m calling it the anti-fragile grid.
Borrowing from the transportation industry (Tesla in particular): The main news about Autonomous EVs is the amount of electricity they’ll consume — 2,701 terawatt-hours, or an 8 percent increase to global annual electricity demand by 2040. What the pundits miss is the anti-fragile system capacity that comes as a result of many autonomous vehicles operating and gathering data, data that becomes valuable for improving the whole system. This concept is called swarming. In laymen’s terms; every autonomous vehicle that is driving thousands of the miles on the road is gaining knowledge, through machine learning, that improves the collective knowledge of every autonomous vehicle out there. When one autonomous vehicle experiences a shock, say an accident, even though the vehicle might have a little damage, the collective whole (the autonomous vehicle knowledge database) learns and improves. One vehicle, a node in the system, might have failed, but the whole system (adaptive system) has grown stronger from the shock to that node. Now replace the ‘autonomous vehicle’ node in the transport system with a ‘Tesla roadster/Tesla Powerwall/Solarcity panel’ node on an anti-fragile grid. The same antifragility can be achieved, where a shock to one Tesla/Solarcity node does not cause the whole system, or electric grid, to fail. In fact, the whole grid learns from the failure of that node and grows stronger by learning to allocate resources dynamically.
Another part of this change should be in the utility’s approach to building capacity. Due to a design flaw in the utility system, the industry currently overbuilds. Generation projections are made years in advance to cater to expected customer demand and a best guesstimate about what utility costs and subsequent customer rates will be for electricity during peak periods in the future. While this is long-term thinking, it takes 5–6 years to plan and build a power plant, missing all the signals required when you are thinking in systems. This is siloed thinking focused on just the business requirements of the utility. Instead, the utility can benefit by becoming a platform provider that enables all the product providers (that long list at the start of this article) to provide system flexibility, while using the utility’s platform. The way the platform works is that, like agriculture, it forces the utility to focus on the purpose of the system; to enable the consumer to live comfortably and safely in their homes using energy.
Until there is a clear role for the utility (and whatever it chooses as its product) within this converging new system, consumers will continue to lose. The utility industry is about to get its lunch eaten by the most unexpected of competitors, as it is the nature of big bang disruptions, because of this unwillingness to think well beyond its current fat balance sheet. Heeding this warning and doing something about it now will determine the long term (and even midterm) existence of most of the utilities that we see around us today.
My team and I provide product marketing to energy and tech companies through Harper Jacobs & utility consulting at Asha Labs. And buy 40 Semi-Obvious (Startup) Lessons. Sign up for my Polymathic Monthly Newsletter here, I guarantee you’ll love it.
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