Platforms the way to a new world order

Author: Marco C. Janssen, UTInnovation, Netherlands

In the world of Smart Grids one of the major concerns is the return of investment or shareholder value. In the traditional way of thinking we take the costs, calculate the benefits and based on that define whether it makes sense to invest in a technology or solution. This model is based on the principle that money is scarce which was developed centuries ago.

Recently newspaper articles have appeared in which utilities in different parts of the world are complaining about the difficulties to recuperate the investments they have made under the current regime. Very often blame is laid with regulators and governments for not providing the right models and tariffs allowing the utilities to make money. Especially when looking at the development of renewable energy the utilities show negative results. Now one can look at this situation and argue that we need to increase the prices allowing utilities to generate sufficient revenue, however in many markets such a model slows down the economic growth as energy is a prime necessity for people and companies, and thus increasing the cost of energy works counterproductive.

I think we need to look at this situation from an entirely different angle. First of all we should reconsider the traditional financial model. Money is not scarce at all. There is plenty of money even in the utility industry. It is the model that is flawed out, or at least out dated. The reason to believe this, is the recent investment by companies in other industries. For example Facebook invested a staggering 18 billion USD in Whatsapp, which is a huge amount of money for a single software application, which is free for most users above all. How can one justify such an investment? Not by looking at the return on investment or shareholder value for Whatsapp in isolation.

The answer lies in the way of thinking and the business model based on that way of thinking. Facebook when looking at Whatsapp does not see an App, they see an enabling platform. A platform that allows Facebook not only to generate whole new series of social media solutions, but also to reach over 500 million people with these new solutions.

When applying this to the utility industry this way of thinking means that we have to stop thinking that money is scarce but rather focus on the platform benefits of each investment we do. For example, when investing in a telecommunication infrastructure, the return of investment for the architecture itself with its huge infrastructural and maintenance costs is low. However when placing the investment in such an architecture in the context of being the enabler of smart metering, distribution automation, substation automation, asset management, customer service, outage management, energy management, planning, etc., it becomes apparent that the investment in telecommunication architectures has a huge return for the utility not just in isolation, but as the enabler of a platform.

The smart grid as such also has to be viewed as a platform. One that enables smart cities, smart regions and even smart countries. This implies that the investment in Smart Grid should be balanced against all the benefits it generates for the entire society not just for the utility. This however means that we can no longer look at the bottom line of the utility in isolation, but that we have to view it as part of the entire eco system or economy. It also means that beneficiaries of the platform that Smart Grids provide should be contributing their benefits to the utility that enables them to make such profits. This then means that we have to create a whole new way of economic thinking, which will undoubtedly raise eyebrows and create severe resistance from the traditional thinkers.

The issue for the utilities is that they have to be supported by the local governments in cities and regions, national and federal governments as well as the beneficiaries of the Smart Grid platform.  When implemented it will create a new world order with new economic models based on the principle that there is plenty of money, when building platforms. 

Marco C. Janssen graduated the Polytechnic in Arnhem, The Netherlands. He developed further his professional skills through programs and training courses. Marco is President and Chief Commercial Officer of UTInnovation LLC, a company providing consulting & training services in the areas of protection, control, substation automation and data acquisition, and support on the new international standard IEC 61850, advanced metering and power quality. He is a member of WG 10, 17, 18, & 19 of IEC TC57, the IEEE-PES and UCA International Users group.

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BeijingSifang June 2016