NRG, IDEO on 3 mega-forces that will shape the future of energy

NRG, IDEO on 3 mega-forces that will shape the future of energy

Evolving utility business models and renewed focus on energy-related "hard technologies" are two factors driving change in how people and businesses procure electricity.

David Crane is banking on a fragile balancing act to see his company, power giant NRG Energy, through what he predicts will be an upheaval in the way electricity is generated, stored and purchased.

The key is balancing the "slow death" of utilities' core business — the centralized electrical grid, which may be poised to become "the backup system it should be" — with agressive expansion into renewable energy, distributed generation and related technologies, Crane explained at a recent event in San Francisco hosted by The Atlantic.

The chief executive of NRG recalled telecom giants forced to adapt to regulatory breakups during the 1980s and subsequently to the advent of the Internet, as an analogy for the turmoil that utilities soon could face.

David Crane NRG Energy
</p><p></p><p></p><p></p><p></p><p></p><p></p><p></p><p></p><p></p><p></p><p></p><p></p><p></p><p></p><p></p><p></p><p></p><p>David Crane, chief executive of NRG Energy.</p>

"Almost every company out there faces some sort of existential threat," Crane said, invoking talk about disruption by tech icons such as Google's Eric Schmidt to help sell NRG's reinvention plan.

While the vast majority of NRG's portfolio still comprises coal, oil and natural gas, the company has stated a goal of cutting carbon dioxide emissions 90 percent by 2050. That's 10 percentage points deeper than the 80 percent power emissions reduction ordered by the United Nations during the same period to avoid catastrophic impacts of climate change.

Add to the urgency of climate issues other macro trends such as tech-enabled efficiency gains that could slash utility profit margins, or the potential for broader shifts in consumer demand, and today's dominant model of power companies "who have been granted, by various states, a monopoly" becomes much murkier, Crane said.

Although the oil price slump has kept things interesting while renewable energy costs continue to fall, a combination of market fragmentation and agressive new upstarts in the business of power — some backed by deep-pocketed institutions or investors  — are starting to reveal what a new type of energy industry might look like.

Here are key trends identified by Crane and others jockeying for position in the evolving power sector:

1. The rise of purpose-driven consumption

The energy industry is already rife with opportunities to realize significant sustainability gains by cracking down on wasted power, thanks to inventions such as smart meters and other automated monitoring systems — features that are good for reducing the footprint of the power industry, but which also cut into the bottom line of electricity companies.

Where efficiency and power use could get much more interesting (or much scarier, if you're an incumbent provider) is behavior change that further reduces per capita energy consumption.

Crane posits a future where millennial consumers in particular gravitate toward "purpose-driven energy consumption."

Just as incumbents in sectors such as fast food and apparel are attempting supply chain improvements or revamping marketing campaigns in response to consumer demands for transparency and ethical production of goods, Crane sees climate change as a force that could mobilize new buying patterns in energy.

"The best hope we have for climate change is for millennials to basically vote with their purse or their wallet,” Crane said. "The fundamental issue we have is an issue of caring."

Kate Lydon, public sector portfolio director at design firm IDEO, said at the Atlantic event that energy conservation and climate advocates are increasingly focused on behavioral research and overhauling yesterday's turn-off-the-lights campaigns to capitalize on the sentiment that "where things come from matters to people.”

The key challenge for her: “How can we create meaningful connections between people and energy? For most people, it’s abstract. You don’t see it. It’s cheap."

One example of how to combat that sense of apathy is making evolving smart building technology more transparent. IDEO has worked with the U.S. Green Building Council, for example, to reinvent familiar LEED plaques as more dynamic digital screens that provide information about the building's footprint and the impact of its occupants' behavior.

Crane also sees energy as a matter of political framing. While positive messaging about environmental sustainability may not resonate all that widely, other incentives such as cost savings or long-term predictability could help.

"The battle that we have to win, that no one has figured out, is the 70 percent in the middle — the pragmatic environmentalist," he said, setting up a comparison to another well-known social movement: "I grew up during the Vietnam War. It was called the silent majority."

2. A return to 'hard technology'

As in other lucrative markets, such as the automotive sector, incumbent energy providers historically have retained their foothold through a combination of favorable regulatory policies and high barriers to entry for would-be competitors.

Underlying those dynamics is that investors haven't been inherently interested in shelling out money to change the current bloated power delivery system.

"To suddenly think that fund managers themselves will get fossil fuel companies to act on their own is never going to happen," Crane said.

While regulators in Europe and activist shareholders in the U.S. continue to debate other potential financial mechanisms — accounting for the potential of "stranded assets," putting a price on carbon — a slew of new entrants also is looking to jump into the mix.

The federally funded Lawrence Berkeley National Labratory in Berkeley, Calif., for instance, is making its facilities (supported by an $820 million annual budget) available to startups through multiple programs related to energy.

renewable energy storage
</p><p></p><p></p><p></p><p></p><p></p><p>Energy storage is a hotspot in the field of power technology.</p>
CalCharge, a public-private partnership focused on energy storage, fosters startups working in the field and also has enlisted companies such as Volkswagen and Duracell to help accelerate development and commercialization of new battery technologies.

Meanwhile, the lab also supports "industrial energy" incubator Cyclotron Road, formed in response to declining early stage investment in capital-intensive energy startups.

Cyclotron Road Director Ilan Gur said that his program's focus is on "hard technologies" rooted in scientific fields such as physics, electrochemistry or materials engineering.

 “You do need some phenomenal resources," Gur said. “Going to a venture capitalist, it’s not clear you can get the amount of capital and time that you need."

Still, there are also examples of individual energy startups working to raise capital and get their programs to market through private investors.

LightSail Energy, a startup backed by $42 million from investors including Bill Gates and Silicon Valley venture capitalist Vinod Khosla, is working on commercializing a compressed air energy storage technology.

Danielle Fong, a 27-year-old thermodynamicist* who dropped out of both middle school and a Ph.D program before co-founding LightSail, said that climate change raises the stakes for finding grid-scale energy storage solutions to help grow renewable energy.

"We have to solve this problem within our generation,” she said.

On the other end of the energy delivery spectrum are companies such as uBeam, which closed a $10 million funding round in late 2014 to help manufacture and scale a wireless power technology that could erase the need for snarls of different types of power cords.

Whether the energy provider at hand is a venture-backed startup, a university spin off or a utility looking to diversify, Gur said one enduring question is if current economic forces will help or hinder efforts to make the generation and consumption of power more sustainable.

"Is capitalism the strong agent for change?" he asked at the event. "I think that’s going to come to a head around energy."

3. Defining grid 2.0

Sure, pockets of promising startup activity and one incumbent energy executive talking frankly about climate change are interesting, but how might all of these disparate efforts come together to change the power industry as a whole?

Grid integration of new electricity sources and a need for better energy management long have been considered imperatives for increasing adoption of renewable energy and increasing power efficiency.

"People will tell their grid provider to get lost," Crane said. "But it all has to be managed."

While startups such as LightSail and uBeam are hard at work on new hardware solutions, the energy management software field is also booming thanks to both upstarts and enterprise players such as Siemens and Intel. But the offerings are still nascent, and it would take much deeper market penetration to realize sustainability improvements that could make a dent on issues such as the power emissions contributing to climate change.

One possibility to catalyze larger-scale shifts in energy: pair efforts to improve power efficiency with complementary sustainability goals.

Crane, for instance, preaches four pillars of sustainability: clean energy; clean transportation; zero waste; and fresh water. Without delving too far into detail, he hinted at a potential market opening for a more interdisciplinary approach to these silos.

“The really cool microgrid," Crane said, "is not just going to be about energy."

*Correction: this article previously misidentified the professional background of Danielle Fong. She is a thermodynamicist.

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