Joe Herger: The Future of Electricity—Transforming the Grid Edge



There are three trends that will transform the electric sector in the future and create benefits for consumers and companies alike. Joe Herger, a partner with Bain's Utilities & Renewables practice, outlines how companies can accelerate adoption of technologies in a way that is economically sustainable and cost-effective for consumers.

Read the World Economic Forum report: The Future of ElectricityNew Technologies Transforming the Grid Edge

Read the transcript below.

JOE HERGER: There are three major trends with the potential to dramatically impact the electric sector as we know it today. They are electrification, primarily the electrification of transportation, but also of other parts of the economy like heating, which largely run on other fuel sources today; decentralization, where instead of getting our power from a centralized power plant today, we instead start to source those resources from things like rooftop solar, community solar, distributed storage and demand response; and digitalization through the increased deployment of smart meters, connected devices and automation.

Now in combination, these three trends have the potential to confer huge benefits to society through improved reliability, increased energy asset utilization [and] increased customer choice, all while reducing our total carbon intensity. The challenge, however, is how do we accelerate the deployment and adoption of these technologies while reducing the total cost to serve the customer, instead of increasing it; while reinforcing the grid, instead of taxing it; and engaging the consumer in an effective way.

Bain worked with the World Economic Forum, and came up with four priorities to help accelerate the adoption of these technologies in a way that is more economically sustainable. The first priority was to deploy the enabling infrastructure. And when we talk about that infrastructure, we don't just mean the physical assets that need to go into the grid. We're also talking about the legal, regulatory and economic frameworks that will support those deployments.

So for example, with electric vehicles, obviously the charging station is a critical part of infrastructure. But we also think about things like, who is going to have the right to build those charging stations? How will they be compensated for them? How do you earn a return on those investments that they're going to have to make?

What role should distribution system planners have in dictating where those charging stations should go in, such that they can encourage the charging of vehicles at a time when we're taking advantage of renewable resources? For example, noontime in California, when peak solar is at its height, or overnight, when wind resources are blowing in other parts of the country.

The second priority was to simplify the customer experience. There's a small segment of customers today who are really engaged and interested in their energy usage. But the vast majority of us don't want to spend too much time thinking about electricity. Most consumers still view electricity as an undifferentiated commodity that doesn't really consume too much of their disposable income.

If we acknowledge that and we accept that, how do we design programs and services and devices in a way that they allow customers to opt out, rather than opt in, that allow us to set it and forget it, or even better, are able to learn our patterns automatically and then adjust our energy usage for us?

The third priority was to embrace new business models. These grid edge technologies are going to impact the traditional economics for a regulated utility. And the ways utilities are likely to respond are through increased partnerships and collaboration with manufacturers of equipment, providers of programs and services, and energy retailers. Utilities are also likely to expand the portfolio, products and services that they offer, so that they're not just providing electrons anymore.

And finally, the last priority was for legislators, regulators and utility executives to work together to redefine the regulatory paradigm. You know, as the business model evolves for the utility, and the investments that they make start to change, the way that they're compensated for those investments will also have to evolve. In regulating the market, a move towards encouraging outcomes, rather than subsidizing or mandating specific technologies, is likely to lead to more creative and economic solutions.

Read the World Economic Forum report: The Future of ElectricityNew Technologies Transforming the Grid Edge