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Future Imperfect: Managing Strategic Risk In an Age of Uncertainty

Part 1 of a 2-part article explores new technologies most likely to influence competitive success.

Fortnightly Magazine - January 2007

and vehicular electric systems will offer special challenges to the utility business model through their ready adaptability for distributed generation.

Take automotive, for example: Each fuel cell must deliver between 75 kW and 100 kW to compete with the internal combustion engine on performance; and, it must cost under $100/kW for the vehicles to compete on price. But once these goals are achieved, possibly within 15 or so years, significant numbers of fuel-cell vehicles will enter the world marketplace. 3 In the United States, about 235 million vehicles are registered for use. Even the lower figure of 75 kW per vehicle would eventually yield about 18 TW 4 of vehicular generating capacity—capacity that spends about 88 percent of the time sitting around parking lots and garages waiting to go somewhere. Generating electricity at the marginal cost of the fuel, the parked fleet could provide formidable competition for backup power systems—also termed uninterruptible power systems (UPS)—where the standard is now set by the noisy, polluting, and somewhat dangerous gasoline generator.

Whether these UPS installations eventually could compete with the conventional fleet of large-scale, utility-owned power plants will depend on a key enabling technology. An “enabling technology” provides a service essential to the disrupting technology, but one that remains quite independent of it. Think, for example, about the overthrow of the manufactured ice industry, enabled by the electric utilities. The disruptive technology that penetrated the home refrigeration market in the 1930s and 1940s included compact refrigeration cycles and small, efficient electric motors—all packaged as the home refrigerator. But mechanical refrigerators would have penetrated nothing without the widespread availability of electric energy, so electricity became the enabling technology that allowed home refrigerators to displace the ice industry in its chief market.

For massively distributed generation (perhaps through parked vehicular fuel cells) to compete with central generation, the electric grid must become capable of absorbing and distributing the energy. Thus, a grid that can operate as a network of a very large number of nodes, any of which might alternatively serve as a source of electric energy or as a sink for electric energy would serve as an enabling technology for these distributed generators. This will require digital grid control—switching devices, computers, and software—that is not available right now. But if it were to develop, the effects on the business model of the incumbent electric utility could be profound. Thus, we must include digital grid control among the high-potential technologies that could attack the current business model. Indeed, this set of technologies could treat the business model of the integrated electric utility as roughly as VOIP treats the business model of the incumbent telecom.

Paradise Gained. If paradise can be lost, so too can it be gained. Some of the high potential technologies that could reinforce the electric utility business model appear in the southeast quadrant of Figure 2. Note that several technologies can either reinforce or attack the business model, depending upon how they enter the market. Fuel cells, for example, might be deployed by a utility company to improve grid reliability and lower peak