Dec 20, 2010
Kevin Dasso, senior director of smart grid and technology integration at Pacific Gas and Electric Company, regularly works with entrepreneurs on ideas to layer a smart infrastructure on top of PG&E’s existing grid. As one of the leading utilities in the US, the rollout of smart grid is a high priority for PG&E. Dasso discussed his views on smart grid and entrepreneurship surrounding this opportunity with MITER, and shared the most common misconceptions he encounters.
Misconception 1: Managing energy use will be the main customer benefit of the smart grid.
Energy management software for residential customers – such as Opower, Microsoft Hohm, and Google Power Meter – has recently emerged as the biggest consumer-facing benefit of smart grid. By presenting consumers with relevant data about their energy use, the aim of these products is to help customers make better decisions about their energy use, reducing their energy bill and their carbon footprint.
Dasso believes the customer value proposition of smart grid will be much broader. “The value of the smart grid depends on the person,” he said. “A lot of residential customers think that smart grid is only aimed at helping them reduce their bill and that they’ll also need to learn a lot of new gadgets to do that.”
Managing energy use to minimize their bill would be the primary benefit for customers in extreme temperature geographies. For customers in regions with a high frequency of power outages, the increased reliability would be the greatest benefit. Residential customers who want to install solar generation will most value the smart grid for allowing them to sell the excess power they generate. Finally, the most environmentally conscious customers would primarily want the choice to buy only energy from renewable sources.
Identifying the features customers are willing to pay for will drive the initial infrastructure PG&E invests in, and this is a major challenge for Dasso and his team. “What you want to light up drives what you decide to invest in and your road map to get there,” Dasso said. “Right now the biggest challenge is figuring out the features and benefits we want.”
Misconception 2: Utilities are eager to invest in smart grid infrastructure; they are only waiting for the technological capability to develop.
Unlike internet startups, whose early adopters are willing to tolerate a developing product, utilities have notoriously high standards for proven product performance before they are willing to invest. Reliability over time is essential, since equipment is logistically challenging to maintain, and most equipment will be used for decades. Therefore, utilities will wait for convincing demonstrations of reliability before investing, beyond demonstrations of mere technological capability.
Being risk averse, utilities tend to be extremely thorough with their research before making investment decisions, so the initial sale is considerably more difficult for the entrepreneur than in other industries. “Utilities are a very difficult customer group,” said Dasso. “If you’re an entrepreneur and your target is to sell to utilities, you’d better have deep pockets and a lot of patience because it’s a tough market.”
Utilities’ requirement of demonstrated reliability presents a chicken-and-egg problem for smart grid entrepreneurs. Utilities want to see a reliable working demonstration before deploying new infrastructure, but the entrepreneur must first deploy its systems to demonstrate reliability. This means entrepreneurs must participate in a large number of pilot projects. Echelon Corp., based in San Jose, CA participates in as many as 90 pilot projects.[i]
“Utilities are looking for proven, field-hardened, field-tested technologies,” Dasso added. “We want to invest in technology that is low risk and very reliable. We are very unforgiving of equipment that doesn’t work or needs to get developed.”
Misconception 3: Once the smart grid gets turned on, the benefits will follow quickly.
A lot of observers expect the benefits of the smart grid – reliability, distributed generation, choice of power supply, and electric vehicle integration – to follow shortly after the smart grid infrastructure is installed. In reality, the rollout of these features will take time and represents a major opportunity for entrepreneurs. “A common misconception people have about the smart grid is that it’s magic – that we’ll just declare we have a smart grid and all the benefits will immediately get turned on,” Dasso said.
Like internet applications, Dasso expects smart grid applications to increase in functionality over time. Infrastructure capability will initially drive application development, but application needs will also influence investment in infrastructure, creating a reinforcing loop. “Ten years from now we won’t recognize what we’re doing,” he said. “We’ll look back on what we’re doing and say ‘How could we have been so dumb?’”
Where is there an overlooked opportunity for entrepreneurs to create high-value smart grid applications? In the small and medium businesses segment, according to Dasso. “The large industrial and commercial sides are already fairly tech savvy. They already have very advanced systems that are operated by a staff of building managers, and these have been available for a long time. Lots of startups targeted commercial customers first because residential customers are so hard to reach.”
While developers have recently turned more attention to smart grid applications for residential customers, Dasso believes the competition in the small and medium business segment is more open. “People aren’t paying attention to small and medium sized businesses,” he said. “This segment would benefit greatly from scaled-down versions of the systems that larger customers already have.”
[i] EE Times, March 2009. “Switching on the Smart Grid,” Rick Merritt, p. 20.