Stephen Koch, Director of Emerging Issues at CEA, sat down with us to discuss innovation and our bright future in the electricity sector. As the resident crystal ball gazer at CEA, Stephen focuses on predicting where the industry is headed based on up-and-coming technologies.
How would you define “innovation” in the electricity industry?
By definition, innovation is the introduction of something new – a new idea, a new method, a new technology. It does not specify whether this innovation will have a positive or negative impact on the industry. There is a misconception that innovation is always continuous improvement. In fact, with every new thing being introduced to the world, there are inevitable risks that come along with it. It is vital that we use the term “innovation” correctly.
Innovation is change, but it can also create change. It creates change when it is impacting the customer, the industry, the workers on the line or the government when responding/adapting to a specific innovation. Also, an innovative idea could possibly never go beyond the demonstration state and never develop into an innovative product that will create change. With that being said, innovation can potentially lead to change, but it is not a given.
From the context of our association and the National Emerging Issues Committee, we look at innovation in two primary senses:
- Electrification (Innovation of electrical power to use). This is driven by many factors, but primarily by the requirement to reduce carbon. We want power being generated with less carbon. Canada has a significant advantage as the world transitions to a more sustainable future with abundant, clean and reliable power. Canadian electricity is among the cleanest in the world, with more than 82% of our power already greenhouse gas emissions-free. Our members have reduced emissions by nearly 30% since 2005, and we are on track to deliver another 30% by 2030.
- Delivering that product (the electrical power) to the people. These would include innovations on existing electricity grids, designed to ensure the continued reliability, safety and affordability of electricity. These types of innovations have led to ideas like microgrids, developing offshore wind and provincial interties.
If a new idea or a concept was introduced several years ago, but has only been applied recently (is now creating change), would that still be considered innovation?
Absolutely. It could have been a new and innovative idea back then, but we lacked the resources to develop it into something useful. Or, on the contrary, we might have had all the necessary technological resources before but did not have the innovative idea that puts them all together and creates this product/service.
An old concept or technology that was innovative 10-20 years ago, can also be innovative today, if someone used it in a different scenario, for a different concept, and for a different industry. It would qualify again as a new idea, as an innovation, in that particular industry. For example, energy efficiency is not a new idea, per se, but to utilize it in the power industry is considered innovative.
What do we look for in innovation? What does successful innovation look like in the electricity sector?
The electricity industry has historically focused on three main factors when creating new and innovative ideas and technologies:
- Safety. This is, and should always be, the number one priority. We always need to ensure that everybody interacting with this type of power will not be hurt by it in any way- whether it is workers at a utility or the consumers of the product.
- Reliability. We want to make sure that the power is there for the people when they need it. The more power outages happen, the more frustrated people get and will ultimately look for a different source of power to meet their needs.
- Affordability. The reality is that affordability is not available to everyone. We must find a way to make sure that it becomes available. We can either define affordability as a rate-base concept (where some people will pay more/less because some people can’t afford it) or as a tax-base/government base subsidies program.
What are some of the key issues that our industry has faced in 2018?
There are a couple key issues that we need to understand with innovation.
There are three stages once an innovation becomes a product or service: Infancy, Growth, and Maturity. One of our goals at the infancy stage of innovation is to be cost efficient, given that this stage is usually based on high cost (costs of research and development are still being covered). The two key issues associated with innovation are:
- How is this project going to be funded? Where does the investment come from?
- What are the risks and returns associated with that?
Although EVs are known to be very innovative, hydrogen vehicles are now on the edge of that innovative spectrum as well. It seems that hydrogen may be easier to supply than electricity, it may be cheaper and more convenient to consumers. So, will investors fund hydrogen cars instead? Will cars migrate from electricity to hydrogen?
There definitely will be a move towards EVs, it is already happening. But the question is, is that just a transitional move to something else like hydrogen? Are EVs going to be a transition product or are they going to be the final outcome? We don’t know yet.
So, what is the risk of investing in the infrastructure of charging stations that may have a short life span, as a transition product? That is going to cost a significant amount of money, time to get approvals and time to build! How quickly will investors get return? Will their investment become stranded? These are some of the things that have to be considered when thinking about creating an innovative product.
With that being said, when we are talking about “where we are going with innovation”, it is really going to be focused around customer acceptance, the investment, the return and the risk associated with it.
What are we doing to prevent these issues in the upcoming years (specifically 2019)?
We are trying to understand the ramifications of some of these changes. If we only had to look at technology, we would probably be able to manage it. But we need to manage 4 different things: customer needs/wants/drivers, disruptive technology, new non-traditional competition and the change needed in regulatory policy. These four things are constantly changing but can also help us define where the investment can come from:
- We can encourage private market investments, which many utilities in the U.S. are doing.
- We can look at investments coming from governments, as we do for large projects in Canada. But we must understand that these investments are not free; the government is giving that investment to the utilities from their tax dollars.
Do people have to respond to innovation, if they cannot afford the product?
In this industry, we are challenged – we are not like other privately-based consumer industries. We can’t decide to eliminate a product because it is not selling enough or focus on a certain customer demographic. We have a responsibility to ensure access to basic electricity for everyone, even those who cannot afford it, while still providing new innovative ways for those who can. It’s a challenge. At some point in time, we will have to find a middle ground for innovation with government policy and regulatory policy.
What is the National Emerging Issues Group’s input on innovation?
The National Emerging Issues (NEI) Committee has focused at 4 areas of where they think innovation is going to impact them. Those 4 areas are:
- Technology: Technology is going to change in a variety of ways. An example of this change is storage. Storage of electricity is a ground-breaker. There are potentially a lot of technologies that we are using right now that will change the way that we operate.
- The competitive dynamics: There are other industries that are just as innovative as we are. Once they see that they can use that innovation within their sector, they suddenly become a competitor. Competition drives innovation and it will be part of innovation.
- The customer: The customer can drive change once they accept the new innovative product. Technology can provide a solution to a customer that they did not know they needed, and the customer accepts it. So, at the end of the day, when we talk about innovation, the driver is the consumer.
- Regulatory and policy innovation: This is the most challenging one. Governments rarely change with innovation. We can look to the UBER case study to define how technology forced policy and regulatory change. We can also see the government taking a lead to encourage change through cost mechanisms. For example, we have decided that carbon is bad, and the carbon tax suddenly appears to drive consumers to potentially use less products that have carbon.
What should the average customer know about emerging issues in the electricity sector, in 2019?
What the customer should know about emerging issues is that there will always be some. They are inevitable. The current situation of regulatory policy and the way the market is, will change. Whatever is happening today in the industry will not be the same tomorrow. Customers can make decisions on whether those changes are important to them and what path they choose to take.
Although innovation can give the consumer more choices, but will it drive short term/long term affordability? Are consumers/tax payers willing to give up affordability for everyone (including people who suffer with cost) in order to look at something new and innovative?
Our NEI committee asked, “what do consumers want for the future?” and concluded that customers care primarily about reliability, affordability, and sustainability. The customers’ demand must be a part of the solution to our power future – utilities understand this as they work towards for the future.
This interview has been edited for clarity and length.
Mr. Koch believes that, despite all the innovation and the choices being handed to the consumer, they are still all going to be focused on safety, reliability, and affordability. We will always find more innovative products, but as long as we keep those three things in check, it will be beneficial to the consumers and society as a whole.
“It will take more than one person to create innovative, positive change in the industry, but it also starts with one person – one that wants to be a part of something different. Are you that person?” – Stephen Koch.