miércoles, septiembre 26, 2007

2nd Disruptive Technology Crossed Chasm

Distributed generation joins demand response as disruptive technologies keeps penetrating the power industry. It is shown the need to change from an incremental change to a breakthrough pace, and from a VIUs supply orientation to a EWPC customer orientation to integrate active demand into power system planning, operation and control.

2nd Disruptive Technology Crossed Chasm

By José Antonio Vanderhorst-Silverio, Ph.D.

Systemic Consultant: Electricity

Copyright © 2007 José Antonio Vanderhorst-Silverio. All rights reserved. No part of this article may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, without written permission from José Antonio Vanderhorst-Silverio. Please write to javs@ieee.org to contact the author for any kind of engagement.

Dear Mr. Causey,

Once again, you are welcome!

Your observations are very timely and your positive contributions, as a historian in the middle of the action, will make the train wreck even more visible. They are also, as you will see very good news for industry growth and sustainability.

In the post, Take EWPC Lead & Reap Large Benefits, I wrote that “AMI and demand response are getting out from the Bowling Alley and entering the Tornado of Geoffrey Moore’s Technology-Adoption Life Cycle model. To get to Main Street, however, it will be much easier, cheaper, and faster with a paradigm shift to EWPC. What you report “about integrating distributed generation to the grid,” says that they got out of the Early Market and crossed the Chasm to get into the Bowling Alley. However, Mr. Pullins is talking about Main Street. What I am suggesting is not just about the physical integration to the grid, but the institutional one.

Vertically Integrated Utilities (VIUs) decision making is normally done incrementally and under a supply orientation, with close attention to the business model of winning rate case to the regulator. As has been written elsewhere customers’ costs are secondary. That tells loudly that the business model is totally obsolete.

The approach of EWPC is in breakthrough ways and under a customer orientation. I have been writing that one of the key elements of EWPC is the development of the resources of the demand side. As Christensen and Raynor’s The Innovator Solution explains and that I have interpreted, the competitive advantage is in the integration of the (disruptive technologies) resources of demand side, because distributed generation, demand response, energy efficiency, and other technologies are highly interdependent, from the customers costs point of view. So, different business models under competition are required for taking into account customers’ costs and enabling choice.

While distributed generation has been around for quite some time, it is a very recent phenomenon to interconnect them to the grid as you report. Demand response has also been around, but not the systems to fulfill the integration of retail and wholesale markets. There are important interdependencies between the two technologies to fulfill system services. Even more important is energy efficiency interdependency with demand response, as can be seen from the above post.

The need for the development of business model innovations to integrate those disruptive technologies is the reason that I have recommended and identified Second Generation Retailer - 2GR to perform that job under competition.

Power industry “leaders” of the past decade concentrated their attention on wholesale competition, but it is known since the 80s that system efficiency improvements were to come from the retail side, which is where information, telecommunication, and control technology could be deployed to replace supply side system coordination mechanism, that were non-trivial to outsiders.

As I explained, at a conference at Carnegie Mellon University this march (see slide 7 of the presentation), the death of Fred C. Schweppe [of MIT] in 1998 and a misunderstanding by William Hogan [of Harvard] in 1992 of Schweppe’s work on the [regulated] energy marketplace were “small chance events early in the history of deregulation that tilt[ed] the competitive balance, to an inferior solution path…” Recently I learned to characterize Hogan’s misunderstanding as the lack of knowledge of the non-trivial VUIs paradigm, even though he is a very intelligent and important economist.

On the second point, I agree with you that “this is a fascinating time-period,” that I envisioned very clearly in 1996, because I am a non-trivial insider. In the introduction of the whitepaper, financed with fund from American tax payers, I wrote “From time to time the local government utility retained consultants to develop expansion plans, which analyzed and articulated the strategies to be followed. In practice, however, because of exaggerated political influence, instead of professional advice, the explicit strategies resulted in general intuitive and faulty.”

Best regards,

José Antonio Vanderhorst-Silverio, Ph.D.

Reference: All the issues crux of the matter, by Warren Causey.

P.D: If you want use just one of my lastnames, please use Vanderhorst. I know this is a culture specific item that is confusing.