The Time Is Ripe For Energy Industry Disruption—Who's Going To Do It?

And: what can we learn about all this from Dan Brown's books?

Towards the end of Dan Brown’s thriller, Inferno, readers are treated to an apocalyptic theory that human population growth, spiking now at a near 75-degree angle after its gradual incline these past few millennia, threatens to swallow up all of the planet’s resources. The novel’s villain, Bertrand Zobrist, a Swiss biogenetic engineer who knows his Dante, endeavors to save humanity by launching a massive bioweapon to drastically curb the ascent of mankind.

Spoiler alert: Robert Langdon saves the day. The bad news, however, is that the catastrophic predictions about runaway population growth, first hypothesized by Thomas Malthus in 1798, are very real. The United Nations, for example, continues to sound the Malthusian alarm on a host of issues, including food supply.
How to feed all of these people is a question to be answered in another column. Besides, producing more food will require us to produce more energy. The question of how to provide an ample supply of energy for these billions of new consumers on Earth is an equally important matter.

Where exactly will all of this new energy come from, say, by 2030, if there is no Zobrist to save us all from disaster?

Solar panels. Lots of them.

PricewaterhouseCoopers released a kind of sleeper cell report last week, tantamount to a Robert Langdon-style discovery for utility providers: If they don’t evolve their business models, they might not have much of a business come 2030.

“Today’s power utilities market is facing major disruption,” the report states. The traditional utility model is doomed, it goes on to say, "if these companies fail to solve for how to produce more energy, at cheaper prices, amid uncertain regulatory schemas (sometimes none at all), their revenues are cannibalized by a mortal threat to the industry: decentralized generation.”

Disruption, often an overused term these days, is applied injudiciously to any new toy that seems to make the incumbent seem, well, not that cool. But decentralized power generation—when a few homeowners go rogue, go off the grid with homegrown energy—is a legitimate disruption. Think about people installing solar panels on their rooftops, tapping into the base load of the energy grid for a little “hit” of power when it’s cloudy, and you will get the idea about how exactly, say, Southern Company, might be just a little freaked out about it.

This kind of grassroots disruption “could shrink the role of unwary power utility companies to operators of back-up infrastructure,” according to PWC.

Capitalism’s beauty is its lethal wariness of protectionism, the wide-open door it gives to ruthless competition, casting out bad products and weak businesses. Society, it can be argued, benefited when iTunes upended the music industry and equipped us all with just a bit more choice in our daily lives over what songs we wanted to hear, when we wanted to hear them. Disruption is lovely, unless of course you are a large monopoly shielded from competition by the government.

Judging by the fact that 94% of respondents to the PWC report expect the utility industry's status quo to be completely shaken up in less than 20 years, the executives at utilities must realize change is coming. While they are not exactly monopolies, they have greatly succeeded from a lack of competition (not unlike phone companies before cell phones) and certainly haven’t had to trouble themselves with too much innovation along the way.

Whether utility companies will ride this disruption tidal wave to new heights or lobby for its postponement, is the question. Will they, for example, push for ill-advised taxes on users of solar panels in sunny states like Arizona and California as a way to deter the spread of decentralized generation?

The weak-dollared, deficit-laden, politically paralyzed America of our time badly needs another tax-generating crown jewel industry besides the tech and biotech sectors to power us into the future. We do not invent much else in America anymore or even build the things we dream up (even iPhones are made in China).

During President Bush’s second term, Boone Pickens, the Texas oilman and billionaire, promoted a grandiose vision to revitalize our national energy production with his all-of-the-above elixir of mid-West wind, offshore oil, some solar here, and a natural gas over there. Sure, it would have benefited some of his companies, like Clean Energy Fuels, a natural gas distributor. And although there were some profit motives underneath the Pickens plan—at least he offered a plan.

Given the trench warfare standoff afflicting our national energy debate—the conservative motto of “Drill, baby, drill!” versus the amateur-hour venture capitalism of liberals (remember Solyndra?)—we should not expect much from Congress anytime soon.

America today is living in regulatory pants it outgrew years ago, trying to run alongside countries wearing the better-size policies. Our tax and energy policies, designed when we were competing against the Soviets and we had pegged the Chinese as communist farmers, are badly outmoded.

As much as this country needs to be refitted with a future-oriented energy policy, its leadership, gridlocked, cannot agree on the size.

So what to do in the absence of a larger, comprehensive policy agenda?

The private sector, of course, is leading the way. Google just plunked down a $103 million investment in solar farm that will ship energy to homes in San Diego starting in 2014. There is also the reliably disruptive Elon Musk, as Chairman of SolarCity, making big bets on rooftop, homegrown energy.

As the face of Tesla, Musk also knows that an energy revolution will not come easy. If you are willing to drop $100,000 on a electric-powered, iPad on wheels, a Tesla is tempting. Plug it in to power it up while you sleep, and, probably 100 miles away, a power plant burns some coal to make electricity for the outlet in your garage.

Yet, we are always, it seems, one more Thomas Friedman op-ed away from making sense of our national energy future. If the world, as Friedman claims, is hot, flat, and crowded, it is also still run by incumbents. These days, they remain the custodians of America’s energy grid, negotiating prices with local bureaucrats, cordoned off from competition, and, for now at least, raising rates with inflation and happy to receive the Malthusian future like sugar barons greeting ants.

Eric Bovim is‎ managing director at McBee Strategic Consulting. Follow him on Twitter at @Bovim.

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4 Comments

  • Sceptnick

    When they were young my children had a book of trivia and one of the entries caught my eye. The entire world's population could fit inside the confines of the Grand Canyon. Not comfortably, but that's beside the point. Pull out the calculator. I know who wants to do that, takes all the steam out of your smug, righteous, bloviating. One mile deep, one mile across, triangular cross section, ten miles long, 3' by 3' by 6' for each. All 7 billion of us would fit in just over half of the canyon. Picture that in your mind's eye. That's not too many people, IMHO. Drive through Wyoming. So what is the real problem? Inequitable distribution of resources? wealth? control? The earth is not too hot (ACC is BOOOOGUUUUSSSS!!), flat or crowded.

    Never Look a Polar Bear in the Eye by Zac Unger

    Climate Confusion by Roy W.Spencer

    The Mad, Mad, Mad World of Climatism by Steve Gorham

    Unstoppable Global Warming: Every 1,500 Years by Dennis
    Avery and Fred Singer

  • VovixLDR

    It's sad to see the overpopulation myth PRed by such an author as Dan Brown. The truth is, population growth is going down, google Hans Rosling. And our energy issues have nothing with the myth of overpopulation — there is no lack of energy resources, their is still lack of innovation in taming CO2.

    Besides, did you ever think that Zobrist's "solution" would actually be a disaster for human capital, provoking wars and social tragedies and thus slowing down humanity's abilities to innovate, the only ulimate solution for our current and future problems? For example in less developed societies those who stayed fertile would be forced into more reproduction, and that would be justified by public morals as "saving the nation from extinction" and turn such societies back in history like Afghanistan? Infertile children there might be just killed in mass like in Sparta. And in developed nations (who already make almost no growth at all) that would also bring troubles for women and education and actually would increase the number of children born because many of those having a child from 1/3 would wish to have another one who would be fertile and bring them grandchildren? In short, that just wouldn't work.