Utility sector to meet its Kodak moment?

The United Nations has made 2012 the Year of Sustainable Energy for All, but MURRAY HOGARTH* thinks it can be the year when electricity in Australia is changed forever**. 

Business schools will explore the latest ‘Kodak moment’ for decades to come. For the purposes of this post, it’s that elusive point in time when digital technology transformation either condemns a company or sector to decline, even death, or drives it to successful reinvention. Who knew, I imagine insiders at Eastman Kodak still muttering, as their once-great photographical corporation faded into the red.

Let’s postulate that a Kodak moment is stalking the traditional energy utility sector, as the convergence of electricity, electronics and information and communications technologies gathers pace. Utilities were kings when energy was boring. Now it’s becoming edge-of-your-seat exciting and the old order is on notice. It’s what happens when capitalism goes Darwinian, weeding out those unfit to survive change in the operating environment.

The commentary here is not the product of disinterested observation

The author has paid lots of energy bills to many retailers (customer loyalty is not a big factor here); has advised energy utilities on sustainability and climate strategy; has worked with an early energy services innovator; currently advises Total Environment Centre’s Green Capital program, which will deliver a groundbreaking 10-Year Report Card on the National Electricity Market in February; holds a stake in an emerging energy technology company; and follows hundreds of energy experts on Twitter.

Disclosures made, here are five mega factors confronting the once sleepy world of the energy utility, with 2012 a pivotal year.

Technology – While most of Australia has prevaricated about rolling out smart meters, with the publicly controversial exception of nearly a million units in Victoria, technology has shifted dramatically. Gone is the expensive notion of utility-controlled wide area networks (WANs), essentially broadband dedicated to electricity data, because we have this thing called the Internet – with the National Broadband Network coming soon as its high-capacity gateway into the home. In the US, new Internet-based ‘smart grid’ solutions are emerging almost daily, WiFi is proliferating in smart appliances, electric vehicles are on the rise, and micro-grid options are gaining traction.

Information – Just this month major utilities in the US are offering a ‘green button’ to consumers – starting in California, with White House backing – to share real-time energy data with households. That’s progress, given that Australia has just spent years arguing about what energy use ‘benchmarking data’ to include on quarterly paper bills for customers. But seeing accurate real-time usage data is just the start. Such data is hugely helpful for running networks, yet its greatest value is for money saving by consumers (with network benefits too) through using less energy at the right times i.e. could mean less income for utilities, unless they reinvent themselves.

Regulation – To their credit Australia’s big utilities mostly wanted the certainty of a carbon price, and should take the July start of the Clean Energy Future Scheme in their stride. Sooner or later, and pressure will mount this year, the rules of the National Electricity Market will change to echo California’s enlightened combination of economic and environmental priorities. There’ll also be a crackdown on ‘gold-plating’ of network infrastructure – over-investment in the polls, wires and sub-stations – by distribution utilities seeking to underwrite their futures courtesy of consumers. This has to be restrained, or higher electricity prices will be embedded for decades.

Reputation – Big power utilities in Australia face the vertically integrated oil company challenge, like a BP or an Exxon Mobil, which own both the wells and consumer-facing service stations (even if Mobil has beat a retail retreat down under). Some have big exposure to brown coal generation, while others are exposed to waning environmentalist support for natural gas as a ‘transition fuel’ and widespread community antagonism towards coal seam methane. Emerging pure-play energy retailers may well gain a reputation advantage, especially if they make energy saving core to their business models.

Curved balls – The economy has long run on the assumption of continuing economic growth matched by greater energy use. More decentralised, more renewable generation challenges that. So does energy efficiency that actually achieves real cuts. Plus, we may end up with more supply than expected, as big manufacturing and mineral processing, like energy-intensive aluminium, declines and ends once and for all the notions of building more big traditional coal-fired power stations in Australia. And who’d lend the money to finance those anyway?

US-based Eastman Kodak didn’t survive its self-titled moment. Its Japanese-domiciled archrival Fujifilm has successfully adapted and prospers on. How will players in our traditional utility sector fare?

*Murray Hogarth is Senior Adviser to Green Capital, the business sustainability arm of the Total Environment Centre, and is Director of Sustainability and Community for Wattwatchers Pty. Ltd. Opinions expressed here are his own.

**This is an amended version of an opinion column published by the WME Business Environment Network on January 25th, 2012.