Energy Industry Start-ups: How Are They Changing Power-Generation?

Energy industry start-ups are emerging into the centuries-old power-generation sector, creating new challenges for incumbents but also new opportunities.

Unlike other industries, the energy sector has not yet experienced major disruption from energy industry start-ups to its business model on the scale created by Uber or Airbnb. However, Western power-generation sectors are, rightly so, bracing for change. Innovations such as demand-side response, smart meters, solar rooftop panels, decentralized wind-power, and self-learning, Wi-Fi enabled, and remotely controlled thermostats are all changing the way energy is generated, consumed, and managed.

The most disruptive technologies are decentralized power systems that effectively create greater competition for traditional power generators. Companies such as Tesla with its integrated solar rooftop panels and Advanced Micro Grid Solutions, which provides energy storage technology, are moving energy generation away from the power plant to people's homes and businesses.

According to the World Economic Forum, in the first quarter of 2015, approximately half of newly installed power-generation capacity in the U.S. came from solar, with households as one of the leading energy-generating entities.

Yet, new energy technologies remain a niche market—but for how long? It's almost universally agreed that these trends will grow and disrupt the traditional business model. As technology evolves, rules will change and stakeholder expectations will shift. For power plant managers and utility companies, however, this shift also offers opportunity.

Don't Get Left Behind

Renewable power generation, a major disrupter of traditional power plants, has greatly increased globally from 10 years ago. In the past decade, the trend was to develop utility-scale solar farms. However, there has now been a shift, particularly in the U.S., to decentralized solar and even wind as businesses and consumers opt to generate their own electricity.

Although the price of this technology still needs to come down, Paul Donnellan, a partner at the energy consultancy firm Clareo, says it could be a significant threat in the longer term. Many big utility companies are actively investing in these start-ups to benefit from them, he says.

"Many large incumbents are aware of new technologies and start-ups coming into their industry and are thus making small investments into these firms to learn and partner with them—it is about understanding and testing new concepts and adopting them into their processes, as is appropriate," says Donnellan. "The biggest threat is being left behind by all the change," he adds.

Equally, many new energy industry start-ups, renewable-focused or otherwise, are keen to partner with larger companies, such as utilities, because they don't have the resources to grow exponentially by themselves. By working with entrepreneurs and small companies, power generators can learn how to reduce costs, digitize, and pivot themselves into new technologies that will help future-proof their business.

"Whether it is adopting new technologies to become more competitive or moving into new lines of businesses; power generators can learn from start-ups about how to approach business and move with great speed and urgency," says Donnellan.

Learning From Energy Industry Start-ups

Innovating can be different and over-complicated. However, companies should look to how start-ups do this and adopt their approach to testing and learning.

Donnellan says power generators should consider the concept of the minimal viable product (MVP) often used by energy industry start-ups, whereby they invest only in what they need to get to the next phase.

"Once startups have solved one problem they move onto the next one," says Donnellan, "This is often driven by a necessity because they are capital-constrained, but given the speed at which change is happening in the industry, the incumbents—the large power producers—can adopt this policy, as well."

Of course, when considering large capital investments and equipment that takes a long time to deploy, adopting this strategy can be more difficult. Applying this approach to any business can allow leaders to choose a clear strategic direction and then execute on it relentlessly, reducing the time it takes to incorporate new technologies into their businesses. Taking an almost modular approach by breaking the task into phases rather than tackling the project at once can actually streamline the process and make it more manageable. It also offers the opportunity to adapt and learn along the way.

"GE has used its Fast Works approach, which includes MVP techniques for product development, to bring a gas turbine to market in half the typical time of five years," says Donnellan. "They've moved more quickly through the design stage, using smaller steps to test and iterate throughout the product development process."

The challenge for power and utility executives now and in the future is to find new ways to adapt to rapidly changing conditions. The tools are available, but they involve working more closely with others. Managers must identify, measure, and monitor the sector, working alongside regulators and startups to determine how their business model is performing and how they can make changes and adopt new technology, as necessary, to secure the longevity of their assets.