sábado, diciembre 15, 2007

Market Research Doesn’t Work Yet for Demand Integration

Demand integration is a discontinuous innovation and the reason why the responses of customers are way off with respect to the non-trivial concept of demand response. Politics should NOT continue to play major interventions in regard to betting on outcomes in alternative energy and demand response, as the installation of AMI is developed by 2GRs under competition. Great opportunities are waiting “that promises much more value creation over time” under the EWPC paradigm shift.

Market Research Doesn’t Work Yet for Demand Integration

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. This article is an unedited, an uncorrected, draft material of The EWPC Textbook. Please write to javs@ieee.org to contact the author for any kind of engagement.

In the article Demand Integration is NOT the Province of Politics it is very clear that there are non-trivial aspects of electricity and that there is a need for a paradigm shift of the power industry as a consequence of demand integration. The non-trivial aspects of vertical integration make possible to plan, operate and control by risk management on the supply side without demand integration. It is also clear from the article that according to FERC demand response, the basic element of demand integration also includes demand side energy efficiency.

It is important to see that the old whole power industry paradigm had two separate interdependent markets, the so called vertical integration controlled market up to the customers meters and the demand open market of customer devices beyond the meter that transform electricity into useful energy services (see below a quote of Jamie Wimberly, CEO, EcoAlign, on those services).

The EWPC paradigm restructuring discovery separates the same whole power industry in a different way into two interdependent markets, with also one open, and the other controlled. The controlled transportation utility market retains the non-trivial aspects of the vertical integration controlled market as demand response is executed to bridge the retail and wholesale open markets to produce ultraquality transportation. Those controlled markets are the machines that should be ran by engineers, no politicians, if we want to enable the maximum social welfare from electricity. For more details, please see the articles Free Market and Central Planning, Under R1E2 and Engineers Needed for Lower Prices.

The whole point is that under EWPC it is possible to plan, operate and control by a mix of supply side and demand side risk management to offer high service system (not customers) reliability even without storage. Those concepts are explained in the article An Alternative Business Case for Demand Response that I wrote as a rebuttal to The Business Case for Demand Response, which Jamie co-authored with Thomas Brunetto, Managing Director, Distributed Energy Financial Group. By the way, the analogy with gasoline doesn’t hold because electricity is produced and consumed at the same instant and demand response requires planning with customer supplied information.

Regarding another key view of the paradigm shift, in response to my comments to the article The Future Utility Customer Service Model, Jamie wrote “At my firm, the Distributed Energy Financial Group LLC, we believe the changing utility customer service model is simply one manifestation of a technological revolution akin to the industrial revolution that promises much more value creation over time.” That revolution is precisely fueling the paradigm shift of the power industry by enabling demand integration that “promises much more value creation over time.” Making bets on AMI investments should be avoided and left to competitive customer service model as the utility is restricted to transport the electricity.

Looking at the “green gap” from another angle, in that same article, Jamie wrote “And what do customers want? Most customers are not buying ‘alternative’ or ‘green,’ but are more interested in cheap, reliable energy sources. In fact, I would argue that they are not even buying energy per se, but rather comfort, convenience, light, entertainment, mobility, etc. Greater levels of efficiency allowing for greater levels of consumption of what people desire have the virtuous impact of being ‘cleaner and greener.’ One must be careful to not confuse cause and effect.”

So, educating customers without “greater levels of efficiency” will not necessarily support customers’ efforts and investments in new technology like those suggested by Bob Amorisi. In fact, differentiation in customers’ (not system) reliability is akin to comfort and convenience energy service differentiation that leads to affordable prices for a large segment of any population that can do without full ultraquality transportation.

Such paradigm shift is the reason why market research doesn’t work in this particular initial situation. When disruptive technologies (discontinuous innovations) occur people just don’t have a clue of what is going on. One of the examples given was somehow the very small number of computers that IBM forecasted initially by market research. Another example is that of Henry Ford famous quote “If I had asked people what they wanted, they would have said faster horses.”

That explains why the responses of customers are way off with respect to the non-trivial concept of demand response and not so with the apparently familiar energy efficiency concept. What happens is that customers will discover the value of the technology later on fueling 2GRs business model innovations.

As for who should pay for AMI, under EWPC it is 2GRs that are responsible for their respective (Retailers’) Enterprise Solutions (see K2007 Retailers’ Enterprise Solutions). In addition, Nat Treadway, Managing Partner, Distributed Energy Financial Group, LLC, in the article The Dawn of Electricity Competition: Efficient Prices and Efficient Choices, whose theme is “regulated pricing inhibits efficiency,’ explains how to develop and implement a default service transition, which I suggest makes very easy to implement a complete AMI transformation by 2GRs.

The possibility of such an organized transition gets me back to the article To BE or NOT to BE Smart Metering. From the viewpoint of the individual customer, and not from the political regulator, the Ontario Electricity Coalition seems to understand that installing “smart meters in all homes in the province” is wrong. Since Bob wrote “As far as EWPC, I am very much in favour of less price regulation if it promotes free markets for consumers,” during the transition, customers will be able to freely choose whether or no to stay in default service. The most conservative, like the Ontario Electricity Coalition, will stay on default service waiting for the best deals under competition.

So the job of the politicians at this stage is to adopt very clear market structure and rules. EWPC is such a market architecture and design. As the controlled utility market guarantees ultraquality transportation, the open market becomes a true commodity market of electricity without price controls and under prudential regulations.

Reference and context: The Green Gap in Communications and Messaging, by Jamie Wimberly, CEO, EcoAlign and Andrea Fabbri, COO and Chief Marketing Officer, EcoAlign