An Industry in Transformation
The electricity industry is one of the last to undergo the major transformation required to shift it into the digital economy. The political necessity of keeping electricity prices as low as possible led to severe under-investment in electrical infrastructure and sidelined important issues such as energy efficiency, the integration of renew-able energy sources, and consumer tools to manage home energy use.
Today, all stakeholders realize that the electricity industry must change. It is facing massive disruption to its business model through the requirement to reduce its fossil fuel use and the rise of increasingly viable, technology-based solutions to grid power (such as distributed generation, smart grid devices and electric vehicles).
The development of the smart grid is essential to achieve goals for energy security, economic development and climate change mitigation, Smart grids enable increased demand response and energy efficiency, integration of variable renewable energy resources and electric vehicle recharging services, while reducing peak demand and stabilizing the electricity system.
Globally, utilities have tended to view the required transformation in functional terms, managing incremental change with technology or application releases such as advanced metering infrastructure (AIVII).
Smart Grid 1.0
Such initiatives are the first steps on the transformational journey, often described as Smart Grid 1.0. The "1.0 enterprise" seeks smart grid functionality and sophistication, but tries to isolate the disruptive impact on technology, people and process. What we have learned from Smart Grid I.0 rollouts suggests that it is becoming increasingly difficult to contain new technologies within existing capabilities. There are prohibitive costs associated with such an approach, not least the integration headaches and negative consumer reaction.
Smart Grid 2.0
Smart Grid 2.0 is a vision of a more holistically designed network architecture, interoperable across common standards and with robust security that is agnostic to particular configurations and applications. Such a design centric approach to the electricity grid would alleviate costly integration issues and build consumer engagement as a key focus of development activity.
Smart Grid 2.0 is transformational in that it challenges traditional thinking of the network and the energy value chain. Although many in the industry believe it is inevitable, large-scale, system-wide demonstrations are needed to identify solutions that can integrate the full set of smart grid technologies with existing electricity infrastructure.
Smart Grid 3.0
We believe that there is a third stage, which we have called energy 3.0. In this stage of development, new business models will quickly emerge to take advantage of the changes that are already in place.
The dramatic shift away from fossil fuel energy will be well under way, with the smart grid enabling small-scale producers to provide energy into the grid. The grid itself will be an enabler in a world that creates and markets energy to support new devices and new business models. As in any major transformation, the disruption in the industry will be substantial; there will be winners and losers. We see an environment where new business models will combine products and services in such a way that they are indistinguishable from the energy they rely on.
For example, when you purchase an electrical device in 2020 you might also purchase enough energy to run it and other services such as finance and insurance.