[BETA] Fortnightly

R & D for

a Competitive Power Industry

The secret lies in gaining exclusive-use rights to protect your product or process from your competitors.

The electric utility industry is inherently a high-technology business. Those who ignore this fact for long will fall behind (em not only in using the technology, but also in contending against their higher-tech competitors. This prospect demands the same close scrutiny for research and development (R&D) as is now visited on every other aspect of the electric utility business.

Some utilities have probably gone too far in downsizing their R&D functions. Their more progressive peers have recognized their dependence on identifying, evaluating, and using innovative new technology. Most of these utilities are now working to define their R&D priorities and set up an internal organization that can manage technology programs in the future.

Changing Business Priorities

How will industry leaders define their priorities? Although we can only speculate, the list will likely read something like this:

1) Solve today's crises

2) Trim costs in current operations

3) Boost market share in existing businesses

4) Expand into naturally allied businesses

5) Expand into wholly new businesses

6) Manage new opportunities.

Many utilities wonder how their R&D investments will differentiate their company from their emerging competitors. A major factor is the period of exclusive use offered by an R&D provider as part of its request for funding. Exclusive use means that one company or a small group of companies secures a significant period of time to work with project results before they become available to others. Equity agreements can support exclusive use, but often prove insufficient in and of themselves.

Of course, new priorities imply winners and losers. Thus, several traditional R&D areas stand as likely candidates for deemphasis in a competitive environment.

1. Demand-side Management. DSM technologies flourished in the past largely because of political pressures. In time, utility

supported R&D for DSM will diminish and may essentially disappear, because for a competitive business, a willing reduction in sales of the organization's principle product is an unnatural act. In a competitive environment, any use of stakeholder funds to shrink sales will prove increasingly difficult to justify. Exceptions may exist where political pressures remain high and related funding can be passed through to the utility's customers without jeopardizing the competitive position of the funding organization.

2. Mass-produced Products. Many of the products that come from R&D must be mass-produced to succeed commercially. Examples include power electronics, efficient transformers, and more efficient current limiters (em to name but a few. In such cases, all utilities will receive the benefits of these products at about the same time. Accordingly, relatively little value will accrue to companies who invest scarce funds in the related R&D, because they cannot obtain any differential advantage in doing so. Exceptions may exist where utilities find opportunities to make attractive venture capital investments, whose purpose is a payoff independent of the main business of the utility.

3. Electrotechnologies. In the past it was easy to justify

developing new technologies to promote the shift to electricity from other sources