Innovation needed for infrastructure – but not only in technology

screen-shot-2016-10-07-at-11-43-10-am“General equilibrium”, an economics colleague explained, “is like a bowl of marbles, move one and we have to reckon with a change in every other one. Depending on the location of the original marble, the change will be large or small, but there will be always be a change.”

Thinking now of energy, a breakthrough in battery storage development would be the equivalent of moving a marble at the very bottom of the bowl. Anyone following the technical developments in batteries, and the vast resources now being devoted to this exercise, would expect to see this happening within the next five years (and probably sooner rather than later).  In other words a breakthrough in the length of life and the economics of solar energy (and wind energy) storage is an almost certainty.  But what then?

As important as technological innovations are, they are not the end of the story.  In fact they are just the beginning.  When battery storage possibilities improve, here are some of the impacts we can expect to see – a change in social attitudes towards energy usage; changes in manufacturing to take advantage of this; a great increase in the demand for solar panels; an increase in the willingness of some to go completely off grid; but also an interest of many more in adapting the present distribution network to serve localised production and sharing of power.  Localised power production and distribution will enable greater security from events such as the recent power outage in South Australia and future impacts from climate change, as well as attacks on our critical infrastructure.

However, the change in demand for distribution networks will present a business model challenge for network owners which is why ‘economic innovation’ is now needed.  No change will take place unless a profit can be made from it.  Profit is not a dirty word.  It is essential to good resource allocation.

So my question today is: what do we know of research into new business models that can promote and support the adaptation to distributed production and distribution that solar and wind power combined with good battery storage can make possible?

2 Thoughts on “Innovation needed for infrastructure – but not only in technology

  1. Chris Adam on October 9, 2016 at 10:25 pm said:

    A great piece (as always)!! It got me thinking about the future of infrastructure and also how the past can inform that future. I have just three quick points that I wish to add.

    The first is on the issue of “equilibrium”. To me, the word “equilibrium” implies a placid condition; a state of balance (harmony even). Yet, what industry today would claim to have experienced such a state of balance over the last 30 years? It seems that the reality for many has been a continual state of flux with major influences including:
    * the 1980s “downsizing”;
    * 90s “commercialisation” and privatisation of public sector services (especially electricity, telecommunications and water services);
    *2000-now characterised by major technological change AND changes in community attitudes (and awareness)
    This is not to undermine the relevance of the term “equilibrium” – just an observation that “equilibrium” only ever seems to apply in the moment (just before it changes). The marbles are always “on the move”.

    And I agree that, to cope with this flux we need to develop new business models. Just as the models that “worked” in the past are hopelessly ill suited to the present challenges, we must adapt. So here I look to the past and recall how changes in the telecommunications industry initially saw the rise of many entrepreneurial businesses (and business structures) yet the industry tended to re-consolidate back to scale. Im no energy expert but wonder if scale economies wont lead to a similar situation with an initial expansion of players consolidating back to a few large operators over time. The water industry is likely to undergo a similar change but I suggest that the public health aspect of that industry may constrain some of the entrepreneurial elements. In each case, I suggest that we may see a state of flux over a decade or more before the emergence of a more stable industry structure yet one that is very different to what we have now. yet how may that difference manifest?

    Perhaps a more obvious business model is increased collaboration and application of networked skills and expertise. This may be characterised by the rise of medium-large scale “single purpose expert businesses” being created through the collation (and collaboration) of specialist skill sets. Such skill sets may apply across industry, thereby offering new insights into “old” challenges. Such a framework may be challenging to manage but has the advantage of flexibility as well as leveraging scale economies (the main difference being that the benefits of scale apply at the level of a specialist skill set rather than the traditional concept of “scale economies” as a fixed conglomerate). Asset Management itself could be the pilot as the skill set can be transferable across industries (in fact there may be distinct advantages in having a collaboration of industry specific and non-specific skilled personnel approaching an issue. in this model, it may not be the asset that is the focal point of the AM process but the business outcomes (of which the assets contribution may be secondary).

    Anyway, just a few quick ideas – Id really like to see other peoples thoughts on this

  2. I see Demand Management as the key phrase in electrical energy innovation and hence emerging business models.

    On a macro scale Ausgrid have trialed battery installations as a method for reducing peak demand to basically enable existing infrastructure to meet growing needs for energy. They found that battery systems “…viable solution to managing network demand once the product matures and energy storage prices lower”. Ausgrid are now working to “better understand customer attitudes towards investment in battery storage systems and the willingness of customers to partner with networks to reduce peak demand.”

    Ausnet, Citipower, Ergon and Transgrid are all trailing various battery systems.

    All very promising.

    Bottom line, this technology coupled with cheap and efficient battery systems reduces infrastructure need and energy expense and research into business models that support it is under way.

    The micro scale is more exciting. The Internet of Things (IoT) is going to change the world lots. The media is struggling to understand IoT and often confuses it with industrial automation and the old “Internet Fridge”. But the future will be a world where everything can be controlled from everywhere, and the state of everything known. The fridge knows the time and how long it was opened, the TV knows it’s on and showing football, the lights know they are off, the house knows whom is in it and their lifestyle patterns, the watch and phone know the amount and type of activity being done, the TV or Games console is watching the room… and Google deduce that the fridge has one less beer. What is also known is that energy demand for the house is going to be minimal for the rest of the evening and the energy in the house’s storage systems can be exported to more active neighbours.

    This type of (unsettling?) analytics is only available when lots and lots of devices are all sensing the world and chatting to each other and huge external data centres. What holds this back is supplying energy to the IoT devices – giving them power now is costly because the energy system has to have power run to it or has a storage system that requires maintenance. Cheap, reliable and efficient batteries change this. Devices can generate and store energy to meet their own energy demand cheaply, no wires, nothing to maintain. The house that knows where appliances are, how many dishes there are to clean, how much laundry, how much hot water, heating and cooling is needed, the position of doors and windows, etc. The potential for energy and cost saving is enormous, and the possibilities for business are staggering.

    The major software giants are already entrenching themselves for this new world, Microsoft, Google, Amazon and Apple are all readying software and infrastructure to meet the demands of IoT. A huge opportunity exists for 3rd party developers to innovate, probably in preparation for acquisition and consolidation.

    The impact on government and other infrastructure managers will be huge. Current initiatives for Smart Cities will likely be overtaken by cheap IoT devices and sophisticated software. When sensors are on-line, cheap and very low maintenance they will be stuck on everything. We will know for our public infrastructure, whom uses it, how they use it, how long they use it and the degree to which it met their needs. For say playgrounds, bins, benches, bubblers, BBQs we will have cheap data. The same for sporting stands, theatres, galleries, etc. Someone has to write the software to interpret this avalanche of data – a new business model.

    The bigger impact on Government will be discovering that all the information needed for forecasting road network use, detecting traffic impediments and the location of potholes, is held by Google and Apple.

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