Utility 2.0: AI-Driven Digital Transformation That Changes Everything …
No matter how you slice it, electricity marketplace around the world is often comprised of generators that sell electricity — and wholesale consumers who purchase it. In Ontario, like in so many other jurisdictions, the electrons must pass through two complex layers of Transmission and Distribution networks — prior to reaching the consumer.
In many cases, Local Distribution Companies (LDCs) are comprised of municipal utilities that oversee generating and collecting monthly bills — linked to consumers’ energy consumption. However, the actual energy rates are pre-set by Ontario Energy Board (OEB) and apply to all customers: large and small.
The complexities of OEB’s rate-setting are many — and will remain outside the scope of this post. Suffices to say, however, that residential and small business pay Time-Of-Use (TOU) rates — which depend on when they use it. Mid-sized and large businesses pay the wholesale price for electricity — determined by matching supply with demand in the real-time market. All rates, however, also incorporate the global adjustment charge set by OEB — that covers the cost of building new electricity infrastructure.
And therein lies the rub:
· Without serious ability to influence OEB’s rate, such policies turn LDCs into nothing more than glorified, pass-through toll-collectors
· Therefore, it’s hardly a surprise, that when the rates go up — LDCs are not winning any popularity contests
Thankfully, recent AI-Driven Digital Transformation of energy sector changes everything. It opens-up unfathomable opportunities to build innovative utilities of the 21st Century and utilize new revenue models by LDCs — not linked to politically-charged OEB’s rate-hikes!
Some of the most successful business models of the last decade can be described with a four-letter word: XaaS. From humble beginnings of cloud computing models such as:
· Software as a Service (SaaS) — which includes Microsoft Office 365 and Salesforce, among thousands of other apps and subscription-based services
· Infrastructure as a Service (IaaS) — offering serious CPU power to run Amazon Web Services (AWS), or Microsoft Azure on Virtual Machines (VMs) hosted in a vendor’s data center, and to manage those VMs — remotely
· Storage as a Service (SaaS) — offering data and backup storage systems in the cloud. And so much more…
In other words, Anything as a Service (XaaS) became a collective term that refers to the delivery of anything as a service, literally. It offers more benefits at lower cost — a true Blue Ocean Strategy (BOS) that I wrote about in the past on numerous occasions:
XaaS’ value proposition is easily understood as it focuses on End Benefits such as:
· Accessibility — 24/7 access from anywhere, anytime
· Agility — without upfront infrastructure investment and costly O&M expense
· Flexibility — without sunk-costs attributed to legacy systems
· Cost Effectiveness — grow and expand, only as needed
· Built-in Security — requiring ongoing investments in fending-off cyber-attacks, and more….
Now, take Real Estate industry for example. As Dror Poleg so elegantly explains: “21st Century Space as a Service (SpaaS) providers, such as WeWork, are already the largest private office tenants in London, the second-largest in New York City. The company is expanding quickly, fueled by the $5.8 billion raised across its different subsidiaries”
And the 21st Century building owners and operators begin to understand that nowadays tenants are expecting much more: a complete solution that addresses their needs and is available on demand. It’s not just the changing nature of work that drives the process. It’s also, the increasing complexity of office space, and the need to manage a variety of IoT devices, energy management systems, etc.
For years, many builders around the world were often preoccupied with CAPEX economics — to the point that lowering construction costs takes precedence over long-term savings offered to tenants and building occupants. In spite of the fact that BOMA estimates the costs of maintenance over 25 years being 3X higher than the construction costs — many builders were just as happy to pass higher maintenance costs to tenants — instead of investing in state-of-the-art energy efficiency solutions and IOTs.
But what if they could do BOTH? As mentioned in my previous post, entitled: Are We All Barking Up The Wrong Trees? — some of the energy efficiency entrepreneurs realized, that it is possible to use dormant real estate asset such as concrete floors — as a low cost, rechargeable thermal energy battery. Using Building as a Battery (BAAB)™ reduces HVAC costs and complexity, and offers multiple streams of social, economic and environmental benefits — without adding cost to construct. Both: builders and occupants win!
I was recently asked to lead Advisory Board of one such company and propel its offerings with in-depth AI analytics. Since my mandate was to reach out to some of the largest CVCs within building materials and IT space — little did I know how quickly one can identify new types of operators that successfully compete within traditional supply chain players.
However, lower CAPEX is just one side of the story. By the time builders can shrink the duct-work and use less insulation — livable space grows with it. Perhaps it’s not such a big deal if you’re building a two-story house in a suburb. But it’s a different value proposition if your 52-story condo has gained 4 extra Floors!
Paying less for maintenance costs is a no-brainer. Especially, when you consider limited life-cycle of HVAC equipment and replacement costs after 8–10 years.
However, if your offerings end-up improving air quality in the building and raise occupants’ comfort level by offering inexpensive radiant heating and cooling — “may the odds be ever in your favor” and let The Hunger Games begin ….
But it’s not just about conventional economics. With adoption of 2019 Building Energy Efficiency Standards by California Energy Commissions — all new residential structures in California are to be ‘Zero Net Zero’ (ZNZ) by 2020, and that it will be extended to government building by 2025 and commercial structures by 2030. Other jurisdictions are quick to follow.
Moreover, California’s greenhouse gas pollution levels fell below 1990 levels — several years before the target date of 2020. And many states and even municipalities — are taking notice. Therefore, I wouldn’t be surprised to see NY taking more power into their own hands and passing NZE laws and by-laws mandating all builders within state/city limits to take energy efficiency, seriously!
Many additional states and provinces will follow a similar path. Perhaps Florida, is not as aggressive as NY. It’s possible. However, the vast numbers of retiring baby boomers and active retirees who chose Florida as their retirement destination — are eco-friendly. As such, they pay significant attention to improved indoor air quality, better thermal comfort — and most of all: lower operating costs.
While ZNZ can be implemented with relatively small cost at residential buildings, it will be much more difficult to do the same at larger industrial/commercial buildings — a truly compelling argument for using BAAB™!
The same way emerging AI technologies enable SpaaS operators, such as WeWork, to monetize physical space in new and creative ways through data collection & complex analytics — ZNZ compliance may also require introduction of new & innovative business models.
Instead of charging straight-up rates, LDC may consider generating streams of revenues linked to advertising, affiliate programs, membership packages, etc.
After all, if advertising pays well for free TV programs, why not offer free electricity supply in exchange for advertising of energy efficiency products and platforms? And if you don’t like the ads? Netflix-like subscriptions come to the rescue….
In addition, aggregating ZNZ generation opens previously untapped distributed energy revenue stream to LDCs, too. Such are linked to Virtual Power Plants (VPP) and Distributed Energy Resource Management systems (DERMS). And as aggregated capacity grows — it’s Network Effect becomes even more valuable with the addition of each new VPP site.
As any other Peaker Plant on a grid, LDC’s VPP may collect: demand response, stand-by, load-balancing, and many other ancillary service revenues. This may also bring to LDCs spot market energy trading revenues — at a wholesale level.
In addition, let’s not forget, that nothing facilitates LDC’s adoption of AI more than its SCADA (Supervisory Control And Data Acquisition) systems. Since SCADA continuously collects the data from various electrical substations and grid components — it’s ideally suited to generate vast amounts of highly accurate training data — for Supervised Learning systems.
Supervised Learning is the machine learning task of learning a function that maps an input to an output — based on example input-output pairs. It infers a function from labeled training data consisting of a set of training examples — hence the importance of consistent labels. SCADA offers such unique consistency and generates reliable training data — thousands of times, each second.
While in other AI applications, reliable labelling of training data may be time consuming and labour intensive — it’s the exact opposite for using SCADA data sets.
The same way WeWork does its homework before investing in SpaaS real estate — LDCs can do the same before offering Energy as a Service (EaaS) to its customers.
VPP/DERM, AI/Analytics, Renewable Energy, Energy Efficiency, IOT/IOE, and more — are all necessary to build a strong foundation for EaaS — a true Factor Endowment of the 21st Century LDCs.
My message to innovative utilities: “Carpe Diem” — seize the day! Either you’re going to do it, or someone else will do it for you — and eat your lunch while at it!
Oleg Feldgajer is President & CEO of Canada Green ESCO Inc. Oleg is positioning the company to become a leader in financing AI enhanced green energy projects and ventures. CGE’s mission is to guide DISRUPTIVE businesses in ENERGY & TRANSPORTATION toward profitable business models. Oleg is passionate about such mission, and firmly believes that without AI based innovation, we will all prematurely choke on polluted air and dirty water. CGE delivers 100% financing (levered and unlevered) to its clients — and utilizes large equity pools, and non-recourse debt. Oleg offers creative, fresh ideas to open-minded businesses — that embrace both: logic AND opportunistic intuition. CGE stands against mediocrity & its modus operandi is quite simple: If CGE is not invited to join your BOD, or Advisory Board — we failed!