The U.S. electric utility industry now confronts a new disruptive business reality from China’s announced commitment to source 20 percent of its energy from renewable technologies like solar and wind. This commitment is not a “non-binding charade,” as characterized by Republican Sen. James Inhofe of Oklahoma.
China faces an environmental wall that blocks its continued economic growth. The country must restore the healthiness of its air, water and food or confront a costly degradation in worker health. China has no choice but to shift toward zero-emissions renewable energy.
China’s massive commitment to renewable energy will create economies of scale that will shatter current price levels around the world. Its success will bring to scale the technologies and processes required to integrate renewable energy into an electrical grid. China is on a path that will push the U.S. electric utility industry over a renewable energy cliff.
California + China = Accelerated disruption
The California coastal cities of San Francisco, Los Angeles and San Diego are the recognized global capitals of disruptive technology. These cities are the global headquarters for disruptive technology companies including Apple, Facebook, Qualcomm, Pixar, Tesla and General Atomics (drones). Their serial entrepreneurs, sourced from around the world, are creating the next generation of disruptive technologies.
The state’s political leadership embraces technology disruption most especially in clean tech. California actually has a more ambitious renewable energy goal than China’s. California, the seventh largest economy in the world if it were a separate nation, has the goal of achieving 30 percent of its electricity from renewable energy by 2020. It has also adopted building codes that target achieving zero-net-energy residential buildings by 2020 and zero-net-energy commercial buildings by 2030. The state has the world’s second largest carbon cap-and-trade program that targets the pricing of emissions to achieve a 16 percent reduction by 2020. California’s electric utilities are pioneering new regulatory relationships, technologies and processes to offer their customers cleaner energy and lower electric bills.
The U.S. electric utility industry should take notice that China and California are working together to realize the scaling of renewable energy. The U.S.-China Green Energy Council headquartered in Silicon Valley has as its mission “… to promote and strengthen U.S. and China collaboration in Green Energy by facilitating high impact clean-tech collaborative initiatives and projects between the U.S. and China and serving as a platform for the integration of policy, business, investment, and R&D projects for the two countries.” The electric utility industry’s 21st century strategic issue is that the world’s leading manufacturer and the world’s capital for disruptive technologies are collaborating in the development of renewable energy on a disruptive scale.
Transforming the electric utility industry
For most utility CEOs, the transformative forces impacting their utility are top of mind. The electric utility industry recognizes change is coming, and CEOs are heavily engaged in accessing how to incorporate change into their processes. And that may well be the industry’s Achilles heel.
History points to disruptive change never being a managed and smooth process. It was not for IBM or Nokia or Sears, and it will not be for the electric utility industry. Here are three best practices harvested from observing and participating in disruptive changes while working alongside Silicon Valley entrepreneurs:
1. Disruption is customer focused. A lower electricity bill is the key electric utility customer’s “want.” Distributed solar and battery technology companies, most visibly SolarCity, have as their disruptive mission the sale of technologies that will deliver guaranteed lower electricity bills. The company’s alliance with finance companies to offer zero-down, guaranteed lower electricity bill financing packages has catapulted sales to record levels. Fundamentally, the electric utility industry lacks a business model for offering its customers guaranteed lower electricity bills. Restoring what was once the justification for the creation of an electric utility monopoly is the industry’s mission-critical transformative challenge.
2. Revenue preservation is a strategic error. It seems logical that a professionally managed company with a talented workforce should be able to manage change to preserve revenues, while also incorporating a disruptive technology path that offers new revenue growth. But logic does not win in a disruptive environment. Fierce and singularly-focused competition for the customer is what drives success in a disruptive environment. The U.S. electric utility industry has a huge competitive advantage through its monopoly relationship with customers. But that monopoly position has the potential of being challenged by China’s and California’s pursuit of disruptive electricity technologies that could deliver lower customer bills and reduced emissions, plus higher reliability without a grid connection. Aligning with the disruptive revenue growth opportunity, rather than seeking to preserve revenues, has historically been the successful strategy in a disruptive business environment.
3. Culture is critical. Jack Ma, the founder of Alibaba and the richest man in China, focuses his business culture on the customer first. Steve Jobs had a singular focus on elegant design that wowed the customer. Mark Zuckerberg’s vision is to reorganize the world’s information around people.
My experience within the electric utility industry is: While utilities engage in considerable customer service activities, the culture is heavily focused on itself. The electric utility industry’s culture is still rooted in the 20th century’s scientific management business practices of command and control. The industry’s cultural bias is to create purposeful, not disruptive, change through a process of analysis, consensus and regulatory approval. While the disruptive threat to the electric utility industry is technological, it will be its cultural ability to initiate disruptive change that will shape its role in supplying customers with guaranteed lower bills, reduced emissions and improved reliability supplied through renewable energy.
Image credit: Flickr/our-planet
Bill Roth is an economist and the Founder of Earth 2017. He coaches business owners and leaders on proven best practices in pricing, marketing and operations that make money and create a positive difference. His book, The Secret Green Sauce, profiles business case studies of pioneering best practices that are proven to win customers and grow product revenues. Follow him on Twitter: @earth2017