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Tesla doing a Google in the Australian electricity industry?

Back in 2001 I established Utilitel, an industry alliance of all the major electricity companies in Australia. The initial set-up was aimed at looking at business opportunities for the utilities in the telecoms industry and over the subsequent years various new telecoms businesses were established by the utilities. Obviously this was a tough market and a tough period, especially since Telstra still held an iron monopolistic grip on the telecoms market. Some of these new utilities-based telecoms ventures were more successful than others; some were sold, others continue till this day.

However a major shift happened in 2006/2007. Climate change was right in the forefront and energy companies were told that they would have to be serious about carbon emissions and energy savings. For that purpose they needed to upgrade their infrastructure as well as their IT systems, to be better able to manage and monitor their energy activities. Several reports indicated that through a large variety of measures energy savings of 30%+ were achievable, of course simultaneously reducing their carbon emissions. An ETS was introduced and the transformation process was set in motion.

In 2008 Utilitel was transformed into Smart Grid Australia.

However, in its infinite wisdom in 2013 a new government decided to reverse all of this and the electricity companies were in limbo about what to do next. On top of that, energy reduction also means revenue reduction and, thanks to the successful lobbying of the energy companies, electricity prices in Australia basically doubled overnight!

Ever since then haphazard government policies and industry strategies have hampered the industry’s progress, and it is still very slow. But in the meantime the world is moving on.

Over 20% of households in Australia now have solar panels, and climate change is still uppermost in the mind of many people; at the same time many people have taken their own energy savings measures. In other words, the person-in-the-street is energy-aware even if, because of partisan positions on the issue, politicians have shied away from it.

One of the issues that I often spoke about during my time as executive director of Smart Grid Australia was that the electricity industry would have to go through a similar transformation process to the one the telecoms industry went through 20+ years ago upon the arrival of the internet. I warned that there was no doubt that eventually a Google-like company would step in and disrupt the electricity industry like Google and others did in the telecoms industry.

It is now 10 years later and we still haven’t seen decisive action from many of the electricity companies. It is extremely difficult for these incumbent players to actually make the transition without clear government direction, and, as a very senior electricity executive once said to me, it will be nearly impossible for the industry to do this on its own without strong government leadership. He argued that without strong action the electricity distribution companies might be relegated to simple pipe operators, and that in those circumstances there was little hope for the traditional incumbent players.

I think that we can now see the Google of the electricity industry appearing on the horizon in the form of Tesla.

Tesla is certainly not an unknown company in the industry in relation to electric vehicles and battery storage systems, but recent acquisitions are making it clear that the company is aiming for nothing less than an end-to-end power supply, storage and distribution supplier, totally based on renewable energy. As a new, innovative and cash-rich company it can, like Google, Facebook and others, expand these systems globally. So rather than disruption operating on a country-by-country basis, the change would be led by a global company. Obviously an electricity utility is rather different from an internet utility; and in relation to infrastructure it is far more complex. Of course national systems will have to be developed, but nevertheless a global concept has now been placed on the table. As with the internet companies, starting new systems from scratch is far easier and cheaper than upgrading the old big-iron grid and its systems.

We have seen that these internet companies have been able to reduce the traditional costs by up to 80% and they have wiped (or are in the process of wiping) total sectors. This process will no doubt be replicated in the energy industry.

Obviously there are many more issues attached to this. Electricity is an absolutely essential utility for our society and economy and within this transformation the big grid will remain an important element for many decades to come.

How this will all develop remains an uncertainty and it will be messy, but one thing is certain – things won’t be the same once Tesla starts rolling out its own end-to-end power systems around the world. Obviously it won’t happen overnight. It will take decades to accomplish. Furthermore, there is nothing stopping local utilities from partnering with Tesla and, by so doing, becoming part of the solution.

It is now approaching two minutes to midnight for the utilities to decide if and where they want to play in this new industry, and this will be a tough decision for them. Sitting on the fence and waiting for the government to show some form is leadership is no longer an option. Obviously if there are no clear government policies relating to where the country as a nation wants to go, those organisations will find it even more difficult to make the right decisions. In Australia current government policies are actually working against such a transformation process and this will make it an uphill battle for the organisations involved to plan their future.

Hopefully the move from Tesla will be a wake-up call for all involved to finally start making some serious decisions about the future of the electricity industry in each individual country.

Paul Budde