Why the utility industry is ripe for disruption

[Editor's note: Peter Kelly-Detwiler will be a featured speaker at the upcoming VERGE Boston event on May 13-14.]

In March, the Harvard Business Review came out with a new piece on innovation by Larry Downes and Paul F. Nunes that may become an instant classic.

They posit that disruptor innovators often now come from entrants who aren’t even from the industry, that products can enter the market quickly, and masses of customers can switch in extremely short timeframes, resulting in what they call “Big Bang” disruption.

Many of these new disruptive products do well in an information technology world, with the advent of pervasive computing and mobile phones. The eBays, the Amazons, the IOSs and Androids thrive while everybody else struggles to understand how they build their apps to fit this new and evolving world.

Downes and Nunez warn, “Big bang disrupters may not even see you as the competition. They don’t share your approach to solving customer needs. And they’re not sizing up your product line and figuring out ways to offer slightly better price or performance with hopes of gaining a short-term advantage. Usually, they’re just tossing something shiny in the direction of your customers hoping to attract them…” If your competition is not gunning for you, but simply creating something new to see how it goes, how do you compete?

In the world of electricity, it could be argued that the landscape is different, that this paradigm does not apply. After all, generators still must produce electrons and regulated utilities still must deliver the electricity to ratepayers (even if competitive suppliers offer different prices for the electrons delivered). And utility investments still are approved by public utility commissions for a fixed rate of return.

And yet the innovative forces that have driven change in other industries are hard at work in the electric energy industry as well, and they are coming at it from all angles.

Most of the potentially disruptive innovation is coming from behind the meter, from new entrants – companies funded by angel investors and venture capitalists. The solar space alone is crowded with dozens of technologies and actors. Other companies focus on cost-effective storage, small wind, high efficiency on-site generators, electric vehicles and smart thermostats. We may well be watching the beginnings of a new – and very complicated – electric ecosystem evolving.

With the continued and rapid march of technology, it’s probably only a matter of time.

Next page: The incumbent electric utilities need to pay attention