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The Future of Global Smart Grids


Implications for Corporate, Investment and Innovation Strategies Across Industry Sectors
By Olaf Groth, Jesse Goldhammer and Doug Randall


e are facing a high-stakes moment for smart grids. Trillions of dollars of private and public sector investment are at stake over the next 20 years.1 But, the future of smart grids is unclear. Some believe that smart grids will usher in the next Internet boom — democratizing energy management and use. Others imagine the future of electricity grids falling into the hands of a few, powerful, established players that are poised to leverage smart technologies into even greater control over national energy flows. Now is the time for business leaders across a wide array of sectors to question their assumptions. They should consider how critical uncertainties with respect to the differentiated evolution of the energy and power infrastructure around the world might impact their businesses and their corporate, innovation and investment strategies.

energy sector or simply an investor looking for large returns, it is hard not to notice that smart grids are attracting a lot of attention. Globally, the investment in electricity gridsrelated technologies and infrastructure improvements has been skyrocketing, fed by government stimulus dollars as well as corporate and venture capital around the world. The funding is spreading across a wide array of capital-intensive spaces, including renewable energy sources, transmission infrastructure, and consumption-reducing end-user equipment. The International Energy Agency (IEA) forecasts that investment in national electricity grids related technologies and infrastructure improvements will amount to a fantastical $13.6 trillion through 2030.2 Unsurprisingly then, valuations for prominent early stage companies nificant in this space have seen sigincreases in recent years; the much-anticipated Silver Springs Networks IPO, for instance, is aiming at a market valuation of $3B.3 But, wherever you


A High-Stakes Moment
Smart grids might be the next big thing. If you happen to be an energy security or climate change evangelist, an entrepreneurial technologist, a business executive in the

hear the sound of money rushing in, you can be sure that the hype is not far behind. To be sure, electricity grids themselves do not have a reputation for being the most dynamic of sectors. Having

1 “World Energy Outlook 2008,” International Energy Agency.

2 “World Energy Outlook 2008,” International Energy Agency. 3 Dow Jones Clean Technology Insight, February 2010.

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of heated investment environment, smart investment requires clear thinking, an objective assessment of the smart grid landscape and a careful plan for the future. Above all, it requires unpacking and challenging the mindset that is currently driving the optimism that smart grids will deliver the expected results. evolved organically, subject to a dense thicket of regulations and controlled by a relatively small number of actors, electricity grids are designed to accomplish one function really well: getting electricity to end-users without interruption. But, if you start to qualify grids with “smart,” a whole new, exciting world of opportunity emerges: “Smart” means fusing a sophisticated layer of information and communication technologies with the existing electricity grid infrastructure. Hooked to the Internet, these “smart” devices are expected to generate a massive quantity of new data that can be used to manage the grid, as well as its suppliers and customers. Finally, add in next-generation software applications that can perform a variety of “smart” tasks, such as enhanced demand and supply analytics and prediction with appealing user interfaces, preferably loaded onto an iPhone, and the smart grid is born. All of a sudden, the boring infrastructure that simply delivered electricity to your home and office is now enabled to perform a variety of seemingly magical functions: self-healing, consumer participation, attack resistance, energy efficiency, high quality power and more. As a result, for established corporate leaders all the way to start-up entrepreneurs, smart grids hold a lot of promise. But, in this kind For starters, today, Western perspectives about smart grids are shaped by our experience with the Internet, which has changed the landscape of dozens of industries, given individuals a previously unimaginable ability to communicate and access information, and, in the process, generated billions of dollars in wealth. There is a consistency to this logic. In the same way that techno-optimists believe that Internet companies will cause authoritarian regimes to crumble, and that cloud computing will free us from the tyranny of operating systems and enterprise software, the proponents of smart grids imagine a world in which control over generation and consumption of energy will be completely decentralized and democratized. Why would we not be able to repeat the path from centralized to decentralized system in energy, just as we went from the bricks-and-mortar world to the online world? After all, it holds true to the western ideal that individual selfdetermination is always preferable to central power. In the language of scenario planning, this is the “official future” — the future that we believe to not just be possible but highly likely to come true.


The Official Future: “The Energy Internet“
In the official future, the rapid implementation of smart grid technologies will enable an equally swift decentralization of our existing electricity grids, allowing distributed electricity generation and newfound consumer controls with reasonably open access to and management of information and energy. In an effort to spark innovation, governments will require established, regulated energy companies to share everything from their data to their transmission lines. Technology breakthroughs in energy storage will dramatically ease the integration of renewable energy sources into the grid infrastructure. Energy will be “packetized” and become routable on demand. Smaller, more disruptive players will get access to capital and find ways to trade and monetize units of energy as well as consumer energy-use data. Electricity consumers in turn will reward companies and investors who make technologies that are simple and effective — and that are designed for consumers who may not understand or care about the details of electricity flows and pricing. Consumers will benefit from feed-in tariffs that allow them to sell their own excess energy capacity into the larger community network, whereby they engage in trading their own energy and related information. Electricity infrastructure developments will focus on the individual home or business facility, tying, for instance, electrified personal transportation solutions, such as plug-in electric vehicles, to those individual residences and business4 “Smart Grid and Consumers,” SBI Energy, July 2010.

es, rather than to centralized stations. There are already signposts for this scenario: Advances in battery storage, commercial successes with facilities-based rooftop solar and the impending mass availability of plug-in electric vehicles give us at least a few reasons to believe that we might have dramatically more control over future energy generation, transmission and distribution. Furthermore, in the United States, where electricity grids are already mature and fairly reliable, there is a flurry of activity to give consumers more control over energy consumption in order to increase overall efficiency. Investments on the demand side are expected to increase from US$21.4B to US$42.8B by 2014:4 An estimated 25M smart meters will be installed in the US by 2012 as part of Advanced Metering Infrastructure (AMI), which will generate the energy usage data that can eventually allow enterprises and consumers to manage demand in a distributed fashion. The American market is also leading globally in another area that relies on a decentralized control scheme: Smart Home Appliances, which will grow from US$0.2B to

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If this scenario were to come true, it would raise a number of questions:
1. Energy, infrastructure and technology companies: If end-users exercise total individual control over electricity and data flows, how will you address the demand for a myriad of personalized electricity generation and consumption solutions? Will consumers require storage capabilities and trading platforms to use, buy and sell electricity on demand and at their discretion? How will total end-user empowerment and ad-hoc electricity trading impact the future energy mix? 2. Transportation and logistics providers: What types of individualized electrified transportation solutions that tie into home-based energy management will you offer? How will individual electricity generation, storage, footprints, and trading shape requirements for your products’ capabilities? Will personal energy footprint accountability determine how goods will be shipped? 3. Consumer goods and services firms: Will consumers and businesses make choices on goods and services based on their electricity footprint? Will all electricity consuming goods made today eventually contain electricity management technologies that can tie into an individual end-user’s overall homebased electricity management system? How will you monetize services, if data is owned and managed exclusively by consumers? 4. Insurance companies: What types of risks could emerge in a world in which consumers exercise total control over their electricity? How will those risks be distributed across different geographies and populations? Will overall risk decrease due to higher degrees of distribution, or will it increase due to higher potential for human operator errors? What types of electricity-related individualized insurance products will consumers demand?

US$12B by 2014.5 Last but not least, minigrids are springing up, allowing communities and corporations to become their own energy suppliers and therefore reasonably energy independent of the larger regional or national grids.

A Familiar Story
If this official future sounds familiar, that’s because we have been here before with the boom and eventual bust of the dot-coms. Between 1995 and 2000, hundreds of billions of dollars were invested in internet-related firms offering a wide array of distributed solutions and services, from shopping to productivity to dating applications, which could be generated, accessed and consumed by almost anyone. Investors and executives took to this new distributed model in droves: In March 2000 the technology-heavy Nasdaq Composite Index rose to 5,132 points, more than double its value the year before. But then, within days, the index contracted to 4,800 points and eventually, by October 2002, to 1,180 points. By some estimates, approximately $5 trillion in market value were lost in the process.6 More than 50% of dot-coms closed their doors and many others were acquired by old economy competitors, — the very same competitors that the dot-coms had sought to displace. Most of these old economy companies stayed true to their business fundamentals, simply using

5 “Smart Grid and Consumers,” SBI Energy, July 2010. 6 “Fears of Dot-Com Crash, Version 2.0,” L.A. Times, July 16th 2006.


As a result, perhaps the biggest surprise of the dotcom bust, and the one that may be most instructive for the smart grid enthusiasts, is how the promise of democratization and decentralization gave way to the massive, centralized power of a few big players. the new Internet technologies to reinvent their marketing strategies. With the benefit of hindsight, we know that over-estimation of medium term demand for internet-based services and underestimation in demand for existing bricksand-mortar offerings helped to cause the dot-com bust. Investors and executives assumed that Internet businesses would proliferate and displace physical ones, and that this process would happen quickly and indiscriminately across the globe. They also assumed that the Internet would crush longstanding business models by radically decentralizing consumer access to information and controls. They based their assumptions on what they saw: the rapid development and dissemination of new technologies and the revolutionary, bottom-up spirit of the “New Economy.” But, they were wrong. They missed the fact that businesses and consumers were not willing to pay for Internet offerings on a scale and in time to warrant the tremendous, upfront investments in infrastructure in the early years. They couldn’t imagine how security concerns and state controls could recentralize parts of the Internet. And, they didn’t want to believe that old, trusted brands and proven legacy business models, supported by Internet technologies, would largely hold their own. It is not hard to remember the proliferation of Internet-service providers, portals and search engines in late 1990s and early 2000s. They are mostly gone, leaving us with fewer large ones, some new and many old, such as AT&T, Comcast, Time Warner, the big consumer goods conglomerates, and of course, Google. These companies, and the control that they exert over the Internet, remind us that conventional wisdom can be painfully wrong. And, they underscore how important it is for executives in the energy and ICT sectors to check their assumptions carefully about whether smarts grids will indeed be like a completely democratized Internet in the short to medium term and across different geographies. Understanding the critical uncertainties and the forces that are impacting and driving smart grid developments is therefore imperative for making the right strategic choices this time around.

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Critical Uncertainties
There are many questions to ask about the future of smart grids: What technologies will disrupt the traditional players in the electricity grid sector? What “killer” applications will propel the rapid


market adoption of these new technologies? How will government deregulation and re-regulation impact growth and innovation? Despite their breadth, these questions can be answered. And, to answer them, it is often helpful to start by narrowing all of the uncertainties that affect the future of smart grids to the two most critical: First, how will the major objective of grid management, reliability, be impacted by new efficiency and market enhancing objectives? Second, will consumers demand increased controls over the grid more transparent. But, it is also true that today, and in the near term, energy requires central coordination to balance demand and supply minute-by-minute in order to keep the grid stable and reliable. The reason for this is simple: energy does not behave like information. Unlike bits and bites, electrons are a physical matter with known properties that must be tightly controlled and managed, so as to travel and arrive safely, on time and in the right amounts without causing blackouts resulting in disastrous economic effects and physical harm. Hence, most electricity grids require central grid coordinators to ensure reliability, security and adequacy of electricity. And those coordinators are by-and-large very successful at fulfilling their objectives: compared to Internet or telecom networks, central grid coordinators in the industrialized world on average steadily exceed the “five-nines” network uptime requirements. For instance, the average consumer in the US experiences only about 2 hours of outages per year; in some European countries, that number is even lower, and in Japan it is an astonishing 6 minutes. So, in the short to medium term, we should consider the question whether transforming the grid into a more decentralized and democratized “energy Internet” rapidly with more elements and factors might not yield more, but rather less reliability.

their energy consumption, and what would they do if and when they get it?

It’s true that in countries like the United States, there is a confusing and unbelievably complex patchwork of organizations which generate, transmit and distribute electricity, and that the decentralization-focused investments are well-intended in their aim to make


So, it comes at no surprise that the most powerful actors who are responsible for maintaining reliability today, such as balancing authorities, regional coordinators, utilities and regulators are leery to change the system for the sake of efficiency or market enhancement that can undermine reliability near term. Consider California’s disastrous experiment with energy deregulation in 2000 and 2001. The theory made sense: make the energy market more competitive, increase efficiency and decrease cost. The reality looked quite different: market manipulation by Enron and others, rolling brown and black outs due to energy shortages, millions of lost revenue for businesses and a utility in bankruptcy proceedings. While the failure of California’s deregulation may appear to be the result of a few bad players in an otherwise good system, the overall lesson should not be dismissed. Electricity grids are optimized for reliability.

pilots around the U.S., for instance, which have been met with resistance, with some consumers claiming dramatically increased electricity bills without guidance on how to change consumption behavior, and others questioning the utility and feasibility of individualized controls in their already busy lives. And even if we assume that consumers will adopt enhanced controls, no one knows how they will behave when technology


enables them to not just use electricity more efficiently, but store, broker, trade and barter it, potentially across municipal, state or even national borders. Together, the reliability and the consumer uncertainties might actually work

Today, when utilities need a large industrial customer to shed load in order to balance flows in the grid, they have a reliable solution: pick up the phone and ask them to do so, based on pre-agreed terms. In contrast, the smart grid calls for a future of decentralized consumer-side demand response in which consumers will effectively control their own energy usage in response to signals, such as the price of electricity. It is not at all clear that the public is ready for electricity controls, let alone ready to pay for them and any “killer smart home apps” with the savings that these applications may help to accrue. Consider the many smart meter

against the decentralized official future that most Western investors currently believe. Instead, the future might be one populated by a few, powerful actors who find innovative ways to aggregate and make sense of smart grid data on behalf of residential and commercial customers. So, in the medium term, much like the Internet after the bubble, all of the new information technologies in grids might just reinforce existing actors, operations and business models, rather than displace them. Let’s take a closer look at this alternative picture:

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goods and people, as well as the efficient delivery and consumption of different types of services at different times of the day, month or year, depending on what is required to ensure the balance of energy supply and demand, as well as grid reliability. We are already seeing signposts for this

An Alternative Future: “Air Traffic Control“
In an alternative future, investors and executives gravitate toward established energy players with big budgets and operations responsibility for the transmission and distribution portions of the electricity grids. Access to and management of energy and information is proprietary and centrally controlled by utilities and large-scale regional or national network operators. Big established electricity players, infrastructure firms and large grid-management technology suppliers call the shots in their respective ecosystems. Overpowered by reliability-impacting events, such as security breaches and largescale disruptions, government essentially abandons attempts to empower the demand side and to foster distributed energy generation or consumption control. Consumer energy and information flows are steered by these large corporations and government agencies in an effort to stabilize and secure energy flows, and to keep electricity affordable. Communication technologies will allow these central actors, not consumers, to manage energy consumption remotely in consumer devices. Central authorities will also manage the energy-efficient routing of

scenario in global markets. To enable reliable and secure transmission, US$30B will be invested in the central elements of grids: intelligent transmission and distribution infrastructure, grid operators and utility operations globally from 2010-2014.7 The best example of a market with a relative focus on the centralized model is China, which invested an estimated US$36.5B in updated transmission infrastructure in 2009. Its brand new high-voltage, low-loss, DC transmission lines run from central generation locations in the rural northwestern provinces to the industrial production hubs in its southeastern coastal provinces. Moreover, across the country, China has already installed nearly 1,000 PMUs – more than any other country in the world – to help central grid operators manage transmission infrastructure. In China, as in many markets around the globe that have established grids, the regulatory environment and dynamics between established energy players are optimized for reliability, balancing supply and demand, not for effi-

7 SBI at; includes T&D Monitoring and Control Systems; Distribution Automation; Protective Relays; Substation Automation; and PMUs; Automated Metering Infrastructure excluded.


ciency, consumer controls or profit. Similarly, there are only a few powerful national and regional transmission-operating organizations, which execute on this reliability mandate and hold almost all of the power to shape policies and execute the massive infrastructural and technological changes. Needless to say, both scenarios are extremes that are intended to question our assumptions and demonstrate the plausibility of vastly differing investment and innovation conditions. The future will likely play out in various hybrid forms between the two extremes across different countries. But depending on where exactly a market will fall along the centralized versus decentralized spectrum, making bad decisions based on the wrong assumptions at any given time could make or break a company.

play out across different geographies in future, affecting consumption and competition patterns, and hence strategic choices in their sectors.

If this scenario comes true, it will raise several questions:
1. Energy, infrastructure and technology companies: What will be the energy mix that caters best to the needs of utilities and transmission operators? Will industrial-strength wind and solar farms, alongside nuclear and coal, be preferred by these players over residential or mini-grid solar? What types of infrastructure projects and technology systems are needed to address large central deployments? 2. Consumer goods firms: What kind of command and control technologies need to be embedded in consumer goods that rely on central authorities to manage electricity and the behavior of devices remotely? How will privacy concerns be addressed if central players own most of the end-use data? 3. Transportation and logistics providers: What types of remote control capabilities will logistics firms need to embed in their electrified transportation solutions to allow for radically centralized electricity management? How will transport and shipping routes and timing be impacted? 4. Insurance companies: Will a centralized energy grid system have greater complexity, be prone to cascading disruption, potentially resulting in entire system failures? What types of risk will the centralized electricity paradigm yield and what types of insurance products does this require? Which programs can insurance companies put in place to mitigate these large-scale risks with central authorities?

What To Do About It
In the midst of what is claimed to be a revolution in the electricity sector (which should rather be characterized as an evolution in some markets), it’s easy to get lost in the technical details and to build business plans that reflect untested, potentially risky assumptions about the future Before your company or investment firm bets the farm on any one future for a given market, take a step back to evaluate the uncertainties and forces that are driving the implementation of smart grids and to examine how these forces will generate unique combinations of risk and opportunity. Specifically, business executives should ask how these uncertainties and forces may

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will help separate mission-critical options from those that are of secondary importance. It will also yield a portfolio of priority opportunities for different scenarios, each with quantified bottom-line impact. For instance, Of course, nobody can predict exactly what the smart grid of the future will look like and, therefore, which companies will win. But, strategic planning is not about prediction; it’s about challenging our assumptions about the future in order to imagine what’s possible. And, it’s about making choices today that are designed to convert those possibilities into profit. We have successfully used this process, which we call “From Scenarios to Strategy,” across many sectors. depending on an organization’s business focus, its product mix may be impacted severely by regulatory and standards changes driving toward the centralized market scenario, rather than by consumer empowerment patterns in the decentralized scenario. Resulting opportunities might consist of partnerships and acquisitions that address utilities, network operators or large technology providers, while steadily building capabilities toward the longer-term decentralized scenario with consumer solutions. 3. Formulate Strategy: Define long-range goals and formulate a plan that provides the best options for success. This strategy will include an execution plan with action steps and financial performance metrics along the way. And, it will be “future-proof,” i.e. it would perform robustly against the extreme bookend scenarios and various hybrid scenarios in between. It will also allow an organization to recognize and navigate shifts in market scenarios flexibly to stay ahead of surprises. For instance, robust strategies might entail building capabilities and solutions that play well in the biggest centralized markets, but also generate derivative know-how that can be leveraged for success in a more decentralized grid structure. We can help your organization to convert the uncertainty of this high-stakes moment into a winning opportunity. ●

How Monitor Can Help
For companies hoping to capitalize on smart grid opportunities, Monitor can help in the following ways: 1. Build Scenarios: Apply proven foresightand insight-generating methodologies, along with networks of renowned thought-leaders and experts, who can help your organization make sense of the complexity. We identify the most relevant uncertainties in the smart grid space and build 3-5 alternative scenarios that demonstrate how a given market might plausibly evolve. This will help your senior executives question their assumptions about how the future of smart grids, align their visions of the evolving landscape, recognize signposts particular futures and set strategy flexibly. 2. Identify Options: Identify, quantify and prioritize the implications of and options in the unfolding scenario pictures described above that matter most to your business. This


About the Authors
Olaf Groth is a senior practitioner at Monitor 360, where he leads engagements that employ strategy,
innovation and uncertainty management craft to generate insights for clients in business and government in hi-tech, cleantech and energy domains. Olaf also brings to his clients 20 years of international experience in business and academia. Previously, he headed hi-tech and clean-tech work for Monitor’s GBN unit. Prior to joining Monitor, he was a business executive for international corporate, market and operations development, public policy and strategy with Qualcomm, Boeing, Vodafone, AirTouch Communications, a clean-tech startup, and innovation-focused boutique advisory firms. In these functions, he spent many years working in Asia, Europe, North America, the Caribbean, and parts of the Middle East. Olaf is a frequent panelist and speaker on international innovation, technology and energy trends and their intersections with the global economy and geo-politics. He is involved in a number of initiatives, thinktanks and forums, such as the panel of judges for GE’s $200M Ecomagination Challenge, Clean Economy Network, the Energy, Environment and Security Committee of the Pacific Council on International Policy, the International Institute for Strategic Studies, the BMW Foundation Transatlantic Forum, and the Bay Area Council Economics Institute. Olaf holds MALD and PhD degrees in international affairs with technology, business, and political economy focus from the Fletcher School at Tufts University, and BA and MAIPS degrees with similar emphasis from the Monterey Institute of International Studies.

Jesse Goldhammer is a partner at the Monitor Group and Monitor 360, where he works with public- and
private-sector clients to undertake strategic, analytic, organizational and institutional transformation. Jesse has spent the past 20 years bringing together unique people, ideas and approaches in order to devise lasting and effective solutions to vexing problems. These solutions include developing novel analytic approaches to understand and reframe client challenges; using human networks to leverage alternative and unorthodox perspectives; and designing training programs to propagate new strategies and tradecraft. Having originally come to Monitor through Global Business Network, Jesse is also an expert in scenario planning, has taught scenario planning training courses and published “Four Futures for China Inc.” in Business 2.0. Jesse previously worked in search-related strategy, sales and analysis at Yahoo!, Overture and Inktomi. He holds a BA in social science from UC Berkeley, an MA in political science from New York University, and a PhD in political science from UC Berkeley. An accomplished instructor and expert in modern political theory, Jesse has written several articles and is the author of The Headless Republic (Cornell University Press, 2005). He is currently working on a book concerned with the topic of deviant globalization.

Doug Randall is Managing Partner of Monitor 360 and a Partner at Monitor. He has nearly 20 years of
professional experience serving governments and private sector organizations in strategic planning, scenario thinking, networking, and complexity management. Doug is a recognized thought leader on managing uncertainty, designing effective institutionalization programs, and a select set of geopolitical issues. He has lectured at the Wharton School, Stanford, and National Defense University; and has published in the Financial Times, Wired magazine, and Strategy & Learning. Doug was previously co-head of the consulting practice at Global Business Network (GBN). Before that, he was a Vice President at Snapfish, a senior consultant at Decision Strategies, Inc., and a senior research fellow at the Wharton School. Doug received his BA, cum laude, from the University of Pennsylvania and his MBA from the Wharton School. He practices Ashtanga yoga and meditates daily. He is on the board of directors of the Center for Contemplative Mind in Society.

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ABOUT MONITOR 360 Monitor 360 helps organizations make sense of complex geo-strategic issues. We serve a variety of clients, including governments, NGOs and corporations. Our unique multi-disciplinary approach leverages best practices from corporations and academics to develop new analytic approaches, capabilities and tradecraft. In creating these solutions, we reach out to a proprietary network of thousands of thought leaders and experts from around the world who offer fresh perspectives. We institutionalize these solutions through a variety of novel approaches, including state-of-the-art custom training programs, workshops, and other innovative capability development programs. Working with Monitor 360, our clients get actionable answers to their problems. For more information about Monitor 360, please contact Olaf Groth at or +1 (415) 205-0807

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