The Global Environment for Electric Utilities Requires More Innovation
Here are my notes from Vijay’s fascinating and compelling presentation.
Three pillars of instability are forcing major change globally:
1. Poverty – desperately poor people who do not have adequate food, shelter, clothing, health care – 2 billion people have no access to modern energy, just open fire, burning noxious, toxic fuels, do not have clean drinking water, have an annual income equivalent of less than $1,000 US.
2. Local environmental impact – pollution of air, water, dwelling, workplace – swamps concerns about global climate change.
3. Energy + Geopolitics – 2/3 of the worlds known oil reserves are held by five small neighboring countries in the Middle East – but the issue is not just oil – most countries, especially China, recognize that their national security is compromised by importing very much oil, gas, coal, nuclear fuels and related technology, hardware and software.
The three most important global trends forcing change are:
1. Urbanization – 50% of global population lives in cities today – 75% within next twenty years - China has nearly 150 cities with population of 1 million or greater
2. Demographics – aging population profoundly affects economics including investment in innovation, infrastructure, improvement in quality of life
3. Rise of the “BRICs” economies – Brazil, Russia, India, China (and S Africa, Korea) - 1 billion people in these countries have been lifted out of poverty in one lifetime, another 1 billion in the next - they are not contrained by the need to protect incumbents in the marketplace
Another crucial reality – telecommunications, the Internet, air travel create a flat world in which global population is in constant contact.
Three false forecasts:
1. Population - “Too many people” - the solution is education and empowerment, not reducing population
2. Resources - “There will be wars over water, oil, etc.” – if resources get scarce enough, ingenuity and innovation plus market forces (more production to meet increased demand) will forestall major conflict
3. Conservation – “We’ve all got to adjust our lifestyle to use less energy” = the solution is increasing energy efficiency while maintaining / improving quality of life and productivity of business - far better than voluntary deprivation at the expense of quality of life and productivity of business
The way forward is innovation – not the same as invention – instead is new thinking that creates value – for example, global salt shortages led to adopting the oil well drilling technology for salt production.
The three principal ingredients of successful innovation are NEED, GREED, SPEED
NEED: The need is clear as already described
GREED: In a good sense – the desire to improve one’s productivity and quality of life – the power of capitalism and entrepreneurship – for example, the way that the Internet has changed the world, growing entirely out of private enterprise
SPEED: Adapting successfully not only to the forces already described herein but, more importantly, to the steady disruption caused by others’ innovation – you snooze, you lose.
Innovation has changed profoundly:
Faster - not repetitive physical trial like Edison’s light bulb, but fast forward based upon IT and software - like the Internet.
Open – goes beyond trade secrets, patents, copyrights, corporations, countries – involve everyone in improving open source – for example, the Netflix competition to improve its movie selection algorithm – thousands of entries worldwide, won by group of seven who met face to face for the first time at the award ceremony.
Riskier – more disruption from more sources with increasing speed – get it going or fail fast and move on to something else
The electric industry is the least innovative of any comparable industry – less the 0.5% of revenues invested in R&D – other industries at least 5% and IT/Software industries >30% - global innovation will pass US innovation if we don’t wake up and get going.
Written by Steve Collier | Jan 18, 2011