Wednesday, July 20, 2005

Timing adoption of the "smart grid"

As anyone interested in energy technology knows, electric utilities are -- generally speaking -- slow technology adopters. They operate under a mandate to be conservative, not to be innovative, since the most important thing they have to do is make sure the lights stay on. Electric utility engineers are not very risk-seeking, to be sure, and you can't blame them for it.

This often means that promising technologies aimed at utility customers may have a hard time getting initial market traction. No utility wants to be first to try out a new technology. And even when they do move, they are going to test the technology in a series of limited trials and beta tests over a long period of time before they actually start buying the products at any significant scale. Thus, technologies such as "smart grid" systems (automation of the electricity transmission and distribution network, including fault detection, efficiency optimization, etc.), which may get a lot of positive press and investor attention because of their innovativeness and potentially compelling value propositions, can still often take too long to develop for venture investors to make their expected returns. It can be very tough to time the market in such situations.

So it was interesting to see this take on likely adoption paths for the smart grid, by the Center for Smart Energy. They note that the technology adoption cycle for utilities is often 20-25 years, but argue that the smart grid is primed for a rapid adoption phase in the next 5-10 years. They've broken down the systems into several useful categories, and -- to an extent -- provided some thoughts about the timing and pace of adoption for each. One could quibble with some of their timing thoughts (for example, knowing how conservative utilities necessarily are, you might expect information security to be a critical issue earlier in the adoption cycle than CSE indicates), but it's an intriguing summary. And a good introduction to the smart grid for those getting up to speed on the topic in general.


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