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The Innovation Imperative Part 2: ICT Companies as Electric Utilities Means Opportunity for India

In my previous article in REW on the innovation imperative, I argued that ICT companies are well positioned to be next generation electric utilities, especially in the renewable energy space, should they show leadership and vision. This is due to an increase in energy information intensity, and IT and telecom companies are in the best position to manage the voluminous information we will generate.

Should my hypothesis hold, India has opportunities for leadership. Well-known IT companies (TCS, Infosys, Wipro with back office expertise) and telecom service providers (Airtel, Idea, Reliance with customer relationships) can launch strategic initiatives in the emerging information-energy space by partnering with each other. Can this be accomplished?

India Favorably Placed, But

Certainly, India has the assets and capability to play a major role in this industry. India also has the need and a “can do” mindset. As mentioned by Jairam Ramesh, former minister of environment and forests, at Tata Institute of Social Sciences convocation address, about 56 percent of rural Indian households, about 400 million people, have no electricity. Further, he estimated that the country will add another 400 to 500 million people to its population by 2050. Of the 182 GW of electricity capacity in India today, only about 21 GW, 11 percent, comes from renewable sources including small hydro projects. India depends on imported oil and coal.

In contrast to fossil fuel deficits, the country enjoys abundant sunshine, a robust IT and telecom industry, and the policy intent to leverage solar energy as stated in the Jawaharlal Nehru National Solar Mission. In the words of the Indian Prime Minister, “We will pool our scientific, technical and managerial talents, with sufficient financial resources, to develop solar energy as a source of abundant energy to power our economy and to transform the lives of our people. Our success in this endeavour will change the face of India.”

Indian industry faces increasing domestic and global competition, and competition demands innovation. But even within the Indian IT companies, the emphasis has historically been on “services,” never new products or services on their own account. Low cost skills have been the source of advantage. The IT industry views itself as a “solutions” provider to the traditional utilities — helping with meter-generated data, customer information, or operations.

That legacy and limited thinking needs to end. Will it? Despite capabilities, India may miss the boat in the emerging energy industry because the country has limited history of innovation.

Telecom and Energy

Why should the Indian telecom operators focus on energy? With rising telephony penetration levels and a host of operators in every market, operators expect 3G or 4G data services, e.g., video and entertainment on dazzling devices, or social networking on mobiles, to be the source for growth. This may not bear out, and the demand may be confined to professionals or teenagers with limited budgets. 

The data story faces the threat of Skype-like and free video chat services, too — they make demands on the network without yielding adequate compensation, and compete with operators’ core service. Adding to operator woes, customers perceive network applications as originating from Apple, Google, or device providers, rendering operator brands secondary. Data-as-strategy is thus neither insightful nor visionary; it may in fact be a sideshow compared to the possibilities from the energy-information nexus.

Rather, telecom operators may leverage their data networks to explore how electricity generation and distribution companies may become customers. Could renewable energy generation plants co-locate with telecom hubs fed with fiber optic cables in rural schools? Could each solar panel, wind turbine, air-conditioner, and vehicle become “paying customers”?  “Energy management” may well be the killer “app” for ICT providers. The smart grid is still being defined, and energy-transportation synergies are in the early stages; both hold promise for telecom operators. The challenge is fostering organizational capabilities in new directions.

Traditional Energy

In the energy sector, the world has passed “peak oil.” Coal, while essential, has fallen from favor — a main reason being that it causes global warming. After accounting for emissions, no longer as “externalities,” the price of coal-generated electricity is higher than what we pay. When initiatives such as charging A$23 (US$24.60) per ton of CO2 emitted introduced by the The Australian Prime Minster proliferate, the upward pricing pressure for electricity will only accelerate.   

Major changes loom in the sector — distributed generation, demand response to mitigate peak loads, efficiency and conservation measures, two-way flow of electricity and corresponding information — that challenge normal operations. Distributed generation, for instance, raises questions about the role of transmission lines; do we need them for micro-grids in rural India without electricity? Millions of households, latecomers to the modern world, could be energy self-sufficient without any connection to the traditional grid.

Events may disrupt the traditional utilities industry, sooner than later, triggered by the geo-politics of oil-producing nations, say, Israel attacking Iran’s nuclear facilities, or an uprising.

Leadership and Disruptive Innovation

The structural attributes of today’s utilities — centralized generation, transmission infrastructure, rate-of-return regulations, and in general its natural monopoly characteristics — no longer hold when distributed solar power becomes economical and commonplace. At that point, mutation of the classical electric utility business begins.

India in 2005 launched the Rajiv Gandhi rural electrification program called RGGVY. It involves mostly fossil fuel-based generation followed by the extension of the electric grid to more and more villages. Recognizing that thousands of villages would nevertheless still lie outside the economic viability envelope of such an infrastructure, the program includes a smaller Decentralized Distributed Generation (DDG) component where renewable deployment is encouraged.

Assets, needs, and capabilities favor India becoming a prominent player in DDG, and the creation of the electric utility of the future. To achieve this, leadership could emerge from today’s ICT industry in India, as they have the assets and certain requisite competencies. But that is not enough. Vision of the end game, boldness in thinking beyond traditional industry boundaries and new partnerships with the state and private companies are essential.

The organizational innovation and vision shown by Theodore Vail when he rolled up numerous telephone companies to form AT&T in early 20th century presents one analogy for what is needed. It gave the USA a telephone infrastructure with scale, scope, and reach, and the Bell Laboratories — the envy and admiration of the world. Will the millions of decentralized distributed generation points remain standalone deployments, or will they be connected in an information network? What business model will support it?

Where the traditional grid exists, new substitutes are impractical. In India, where electricity grids do not exist for millions, government programs such as RGGVY, and in particular its DDG elements, may be a catalyst for giving birth to the information-energy infrastructure and the electricity industry of the future.

The reason to emphasize distributed photovoltaic generation is this: I believe such solutions are fundamentally disruptive innovations. Implemented right and over time, they confront the dominant electricity paradigm with alternatives, and potentially upset the industry structure of today’s utilities. What should today’s electric utilities do about it? That discussion is for another article. 

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