Comments
Mon, 01/04/2010 - 6:38am
It is not unusual to start a year (and, some argue, a decade) saying we need to do things differently, but there are a lot of things we need to do the same. Do we need to change the prevailing style of management or press for the further evolution of the electric industry and its regulation? Is the same entrepreneurial, risk taking approach that is pressing for innovation in renewable technologies going to be the best approach to keep the lights burning? Will the financial markets going to be confident enough to lend to and invest in the utilities who will be putting up billions for the new generation that is needed for a clean future if its management abandons some of the staid practices that have given the industry generally high credit ratings?
Are we better off leaving the innovation to the innovators and using regulation to "encourage" conservative utilities to implement those innovations? We might be better off playing to strengths where they are beneficial and not moving to hybrid styles that end up being mediocre all around.
Are we better off leaving the innovation to the innovators and using regulation to "encourage" conservative utilities to implement those innovations? We might be better off playing to strengths where they are beneficial and not moving to hybrid styles that end up being mediocre all around.
Utility Insider
Mon, 01/04/2010 - 9:57am
Thank you for an interesting set of questions that enable me to add a lot of value to the article.
Utility Insider (UI): Do we need to change the prevailing style of management or press for the further evolution of the electric industry and its regulation?
José Antonio Vanderhorst-Silverio (JAVS): The reason we need to do things differently by changing the prevailing style of management is to raise productivity in the power industry to a higher plateau. For example, the 100 years old, Investor Owned Utilities Architecture Framework (IOUs-AF) and its incremental extensions have become obsolete, as value creation has shifted from supply to demand.
As you can see in the Electricity Without Price Controls Architecture Framework (EWPC-AF) introductory post "States that Implement a Heterogeneous Grid are Poised to be the Winners (bit.ly/6dZ780 )," the increasingly complex set of the incremental evolution of the IOUs-AF "... homogeneous grid is not longer able to meet the performance requirements of an increasingly share of demand. The apparently 'ridiculous' homogeneous grid disturbance costs, 'of [r]oughly the same as the entire wholesale sector? Half the retail value???,' are for real."
UI: Is the same entrepreneurial, risk taking approach that is pressing for innovation in renewable technologies going to be the best approach to keep the lights burning?
JAVS: As shown above, the homogeneous grid is no longer adding the expected value required in the digital era as they used to do in the old days to keep the lights burning. As shown in a comment under the Energy Pulse article "Tangled Network: Transmission or Meter Investments (http://bit.ly/65x8Lr )," to introduced a differentiated risk taking approach, starting the New Decade with the separation of the low risk utilities delivery investing, restricting utilities "to develop a regulated delivery only Smart Grid, [while] Second Generation Retailers develop the resources of the demand side, which coordinate customer investments while taking on the [high risk] metering infrastructure [investments]."
By the way, the expansion of the integrated transmission and distribution delivery infrastructure will be done at least costs in the EWPC-AF. The best approach then is to keep a low risk approach on delivery and an innovative risk taking approach on the development of the resources of the demand side. In the response to the remaining questions, further insights are revealed that satisfy this question.
IU: Will the financial markets going to be confident enough to lend to and invest in the utilities who will be putting up billions for the new generation that is needed for a clean future if its management abandons some of the staid practices that have given the industry generally high credit ratings?
JAVS: As utilities are restricted to regulated delivery, investment under the EWPC-AF will be in delivery technologies and not be in generation. The best response to the generation investment issue can be found in the September/October EnergyBiz issue Thought Leadership paper, which says:
The long-term future of generation resource development is almost unknowable today. It is possible to speculate that by 2050 coal genera¬tion may be in decline, and it is easy to forecast greater penetration of renewable resources both as central generation and distributed generation. However, by 2050 a va¬riety of new technologies will be available and forecasting what will suc¬ceed where is almost impossible. For this reason, investments in power system and IT technologies that can adapt to a new generation of any technology located anywhere, no matter what its operational characteris¬tics and limitations, is a critical action today. The longevity of the power system assets compared to the rapid pace of technology change in genera¬tion can be looked at as a hedge against an unknowable resource future. This may be the single most important message of this paper.
UI: Are we better off leaving the innovation to the innovators and using regulation to "encourage" conservative utilities to implement those innovations? We might be better off playing to strengths where they are beneficial and not moving to hybrid styles that end up being mediocre all around.
JAVS: We are much better off by letting Second Generation Retailers developing and implement business model innovations, while "using regulation to 'encourage' conservative utilities" to expand the integrate Smart Grid delivery only network at least costs. This way will "be better off playing to strengths where they are beneficial" to all stakeholders by aiming to the purpose of maximum social welfare, with a recurring virtuous circle of least cost regulated delivery and high value added given by the open market, fueled by the Silicon Valley Model. Please take a look at the EWPC-AF article in http://bit.ly/8XJlra that was introduced in my first response.
Utility Insider (UI): Do we need to change the prevailing style of management or press for the further evolution of the electric industry and its regulation?
José Antonio Vanderhorst-Silverio (JAVS): The reason we need to do things differently by changing the prevailing style of management is to raise productivity in the power industry to a higher plateau. For example, the 100 years old, Investor Owned Utilities Architecture Framework (IOUs-AF) and its incremental extensions have become obsolete, as value creation has shifted from supply to demand.
As you can see in the Electricity Without Price Controls Architecture Framework (EWPC-AF) introductory post "States that Implement a Heterogeneous Grid are Poised to be the Winners (bit.ly/6dZ780 )," the increasingly complex set of the incremental evolution of the IOUs-AF "... homogeneous grid is not longer able to meet the performance requirements of an increasingly share of demand. The apparently 'ridiculous' homogeneous grid disturbance costs, 'of [r]oughly the same as the entire wholesale sector? Half the retail value???,' are for real."
UI: Is the same entrepreneurial, risk taking approach that is pressing for innovation in renewable technologies going to be the best approach to keep the lights burning?
JAVS: As shown above, the homogeneous grid is no longer adding the expected value required in the digital era as they used to do in the old days to keep the lights burning. As shown in a comment under the Energy Pulse article "Tangled Network: Transmission or Meter Investments (http://bit.ly/65x8Lr )," to introduced a differentiated risk taking approach, starting the New Decade with the separation of the low risk utilities delivery investing, restricting utilities "to develop a regulated delivery only Smart Grid, [while] Second Generation Retailers develop the resources of the demand side, which coordinate customer investments while taking on the [high risk] metering infrastructure [investments]."
By the way, the expansion of the integrated transmission and distribution delivery infrastructure will be done at least costs in the EWPC-AF. The best approach then is to keep a low risk approach on delivery and an innovative risk taking approach on the development of the resources of the demand side. In the response to the remaining questions, further insights are revealed that satisfy this question.
IU: Will the financial markets going to be confident enough to lend to and invest in the utilities who will be putting up billions for the new generation that is needed for a clean future if its management abandons some of the staid practices that have given the industry generally high credit ratings?
JAVS: As utilities are restricted to regulated delivery, investment under the EWPC-AF will be in delivery technologies and not be in generation. The best response to the generation investment issue can be found in the September/October EnergyBiz issue Thought Leadership paper, which says:
The long-term future of generation resource development is almost unknowable today. It is possible to speculate that by 2050 coal genera¬tion may be in decline, and it is easy to forecast greater penetration of renewable resources both as central generation and distributed generation. However, by 2050 a va¬riety of new technologies will be available and forecasting what will suc¬ceed where is almost impossible. For this reason, investments in power system and IT technologies that can adapt to a new generation of any technology located anywhere, no matter what its operational characteris¬tics and limitations, is a critical action today. The longevity of the power system assets compared to the rapid pace of technology change in genera¬tion can be looked at as a hedge against an unknowable resource future. This may be the single most important message of this paper.
UI: Are we better off leaving the innovation to the innovators and using regulation to "encourage" conservative utilities to implement those innovations? We might be better off playing to strengths where they are beneficial and not moving to hybrid styles that end up being mediocre all around.
JAVS: We are much better off by letting Second Generation Retailers developing and implement business model innovations, while "using regulation to 'encourage' conservative utilities" to expand the integrate Smart Grid delivery only network at least costs. This way will "be better off playing to strengths where they are beneficial" to all stakeholders by aiming to the purpose of maximum social welfare, with a recurring virtuous circle of least cost regulated delivery and high value added given by the open market, fueled by the Silicon Valley Model. Please take a look at the EWPC-AF article in http://bit.ly/8XJlra that was introduced in my first response.
Jose Antonio Vanderhorst-Silverio
-----------------------------
As suggested by W. Edwards Deming, the main barrier to basic innovations, like the EWPC-AF, and an increased standard of living, is the prevailing style of management. A better decade is thus dependent on the adoption of Deming’s System of Profound Knowledge.
A Better Decade Require the End of the Prevailing Style of Management
By José Antonio Vanderhorst-Silverio, Ph.D.
Creator of the EWPC-AF
Systemic Consultant: Electricity
First posted in the GMH Blog, on January 2nd 2010.
Copyright © 2010 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.
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This is the time of informed predictions on the New Year. As can be seen below, I was led to concentrate myself not just on the New Year, but on the New Decade to predict the widespread adoption of the Electricity Without Price Control Architecture Framework (EWPC-AF), which I designed as a basic innovation.
In order to get introduced to the emergent holistic EWPC-AF, please take a look at the post States that Implement a Heterogeneous Grid are Poised to be the Winners. Similarly, the article EWPC as a Timely Basic Innovation “…involve not just a single new technology but a collection of new inventions, practices, distribution networks, businesses and business models, and shifts in personal and organizational thinking.”
In his post Systemic failure requires new holistic cure, Mark Montgomery clearly summarizes the barrier to the adoption of a the EWPC-AF: “The current system so protects the status quo that it all but assures that new systems will not be adopted, particularly any system that is effective, thus either killing innovations or neutralizing functionality in the adoption process.” So as W. Edwards Deming suggested we need to change the prevailing style of management to allow for the development of the EWPC-AF basic innovation in the New Decade.
This article expands on the EWPC post The Electric Power Industry is Missing a Vibrant Retail Market, which was posted under the blog post On the Evolution of Technology, by Jason Pontin, the Editor in Chief and Publisher of Technology Review. The text of this post has evidence that the missing retail market is in fact due to the prevailing style of management, which is based on obsolete mechanical thinking instead of on systemic thinking that leads to a superior solution path.
Further evidence is given in the EWPC article Think Deming to Enable Much More than Just Freedom, whose summary says “Deming’s economics replaces the prevailing system [I learned that is better to keep the word style, because the system might be already destroyed] of management with a system of profound knowledge to push economies onto a higher productivity plateau. With the new economics, EWPC will enable a superior solution path.”
In one paragraph of that EWPC article I wrote that “… to lead the transformation of the prevailing system [style] of management to get the world to begin ‘pulling the whole group of core economies onto that higher productivity plateau,’ as Carlota Pérez, describes in her book ‘Technological Revolutions and Financial Capital.’ That is the way to get capitalism back to its roots, as the American forefathers wished.”
That said, this article was triggered by the post Natural technology evolution vs. failed innovation?,bylilykim on 12/29/2009, that was also posted under Pontin’s blog post. The reader will see that lilykim said that “This piece reminded me of an article I read earlier this year by Michael Mandel of Business Week on "The Failed Promise of Innovation in the US"… Mandel claims that failed technological innovation has contributed to the slow economy... I'm curious what others think of Mandel's ideas, especially in the context of Arthur's theories on technology evolution.
Without loss of generality, the needed context on Arthur’s theories on the EWPC-AF can be restricted from what Pontin writes:
Arthur makes a distinction between bodies of technology, or "domains," such as electronics, photonics, and microfluidics, and their individual technologies. Domains emerge "piece by piece." Technologies within domains may be adopted quickly, but only after those domains have been encountered first by users who are bewildered. What are these technologies? How are they used? What do they allow people to do that could not be done before, or at least not as efficiently? Always, new domains betray "missing pieces" that technologists must develop before useful applications can be successfully commercialized. All this, says Arthur, "normally takes decades. It is a very, very slow process."
In the EWPC post about the retail markets, I also mentioned Demand Response, as “missing pieces” to successfully commercialize the modern power systems. However, the reason why the retail markets are missing has taken decades is not technological, but government intervention I mentioned that are also based on the prevailing style of management.
The New Decade was framed by what Mandel asks at the beginning of his article: “… What if outside of a few high-profile areas, the past decade has seen far too few commercial innovations that can transform lives and move the economy forward? What if, rather than being an era of rapid innovation, this has been an era of innovation interrupted? And if that's true, is there any reason to expect the next decade to be any better?” The New Decade will be better if Deming’s system of profound knowledge is adopted.
Just as I mentioned under Pontin’s post, the EWPC-AF as a basic innovation results “when all required technologies became available, and were tightly integrated.” In the same light, Mendel writes that “Of course, no industrial revolution in the past has been based on a single technology. A combination of radio, television, flight, antibiotics, synthetic materials, and automobiles drove the productivity surge of the early and mid-20th century. The Industrial Revolution of the second half of the 19th century combined railroads, electricity, and the telegraph and telephone.”
He adds, “Similarly, for sustainable economic growth, the U.S. needs breakthrough innovations outside of core IT. Some technologies weren't ready for prime time 10 years ago but have matured.” The author says that organogenesis and MEMS have matured, but adds that “The imponderables are biotech and alternative energy… the potential for innovation in alternative energy is enormous, but it's hard to know which approach will pay off.” Alternative energy especially that involved as distributed demand resources need to be approached under the EWPC-AF.
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