Part 5: Putting the Man on the Moon
MG: Is standardization for interoperability going to be conducive to innovation and entry so that we get benefits for consumers?
GA: I think that standards are critical as cost of energy goes up. And it will go up. Consumers are going to be looking for ways to help them conserve energy so they can spend less on energy. Measures such as innovation in terms of new applications and smarter appliances, getting rebates from the utility because they have the ability – maybe through an aggregator – to manage some of the demand on the system, are all going to be necessary. We get the best solutions if we have a competitive market of suppliers who are competing with innovative applications and technologies to achieve this.
MG: Do you think that the conditions and incentives will be there to get sufficient returns on investment for entrants?
AJ: At this stage I think that there is clearly a lot of interest in the start-ups and people like that especially trying to do something. But I think we still need some more things before we start to see a big enough network or a big enough market. The bottom line is that standards are ways to create a market in some shape or form and of course we would not be here had we not this sort of push to create this kind of thing, because the reality is that it doesn’t necessarily have to happen. None of these people have to necessarily talk to each other.
But the reality also is that you need to obtain networks, look at telecoms and the simple upgrade to LTE and other 4th generation technologies. Like George said, if you didn’t do it you would have more cost because the traffic has gone up and something has got to manage it. It’s all about networking needing to be upgraded to handle traffic.
MG: Are there any parallels to mobile networks in terms of risks and opportunities in the Smart Grid space?
GA: I don’t really see it that way because this is an area in which when it comes down to it, you’re really supplying electricity. And energy has to obey the laws of physics and the laws of physics don’t differ from country to country. I really don’t see that standards are going be a real strong competitive advantage for one country.
MG: But still, don’t you think that standards could play a role in terms of creating say a potential for US exports of Smart Grid technology?
GA: I would say that standards enable free trade so that there aren’t barriers to accessing markets and that’s what we’re trying to achieve. I would say the standards create a level playing field which benefits everyone. I think the real competitive advantage is going to come through either lower costs or better performance in systems. Most of the suppliers in this industry are global companies and so it’s to their benefit to have global standards.
MG: Do you agree that if there is a parallel between the internet and the Smart Grid, this could really be a huge business opportunity for US innovative companies?
GA: I could. But it could also be huge opportunity for European, Japanese or Chinese companies.
MG: Do you see this kind of innovation taking place in Europe?
AJ: I don’t see that real top-down push in Europe. There is certainly a lot of talk and a lot of interest. But essentially I don’t see the funding we have seen in the US.
I think in terms of taking the opportunity, yes. Because those European companies are pretty global as well and we have so many names, such as Nokia etc. So I think that shouldn’t stop once you have enough of an open market place then anyone should benefit in the European market.
KD: To me it seems that standards enable things to happen, they don’t make things happen. To take that point and to put it in the context of what is going to make some winners and some losers out of entrants into the Smart Grid space, the fact that we have standards means that all of these entrants can play here, but it doesn’t mean that they necessarily will. There are other rules that control who win or lose in this game.
To give you one example: consider people that are doing in home displays and providing information to the customer. If we close off the access to utility information to those 3rd party providers, they’re not able to send dynamic price signals through their informational display to the consumer, they lose out on a big degree of functionality when it comes to what they can provide to the consumer. This is a way of rigging the game to make them losers, whereas if the utility can provide that information to the customer, they have a competitive advantage. So just because we have standards where equipment and protocols are there so that things can speak to each other, doesn’t to me determine the competitive edge or contours of the playing field.
MG: Can you give us a final thought on why is it motivated to have this kind of special treatment of the Smart Grid and what is it exactly that explains this particular situation?
GA: Let me make two points on that. One, if I think of another infrastructure that is one of the great achievements of the last century, the telephone network, that infrastructure was developed largely by a regulated monopoly; i.e. AT&T. Bell Laboratories was the R&D outfit that did the systems engineering over many decades. When the industry got broken up in a new competitive model and much more fragmented, you had that starting point which provided a cohesive base from which things could evolve.
The same conditions don’t exist in the electric grid because there never was a regulated monopoly that had a cohesive standards based system. With two trillion dollars of investment that is going to have to take place over the next 20 years, we want to make sure that those investments which are going to be made by the private sector – the federal government has only put in around $11 billion in the electric grid – aren’t wasted in a hodgepodge of systems that don’t work together. Alternatively those investments could result in something that really allows us to integrate clean energy and increased efficiency. It’s just too great a priority to hope for the best.
It took us eight years to put a man on the moon. This is as difficult, and it’s going to take several decades.
For the video of the discussion and profiles of discussants see here:
Part 1 of the discussion can be found here:
Part 2 of the discussion can be found here:
Part 3 of the discussion can be found here:
Part 4 of the discussion can be found here: