James Kelly Forecasts Growth of Smart Grid Sector

James, you’ve been deeply involved, for over 35 years, with Southern California Edison as a Senior Vice President of Transmission and Distribution. Now retired from SCE,  you are actively engaged in a number of small and large energy company boards. Tell us—what’s your energy sector 2013 forecast for both utility-scale companies and entrepreurial smart-grid start-ups?

James Kelly: David, I think it is tremendously exciting that we’re seeing the emergence of dozens and even hundreds of incredibly exciting young companies that are trying to carve out niches for themselves in this space that we’ll call, writ large, the smart grid.  

These are firms that are working on incredibly sophisticated grid analytics and really high-tech energy efficiency solutions—commercial, residential, and industrial. They’re working on high-tech equipment solutions to replace more of the traditional electro-mechanical grid with fully digital solutions. Then there are a bunch of providers that are sort of casting a net over everything, saying, “We can make everything communicate with everything, all the time, everywhere.” And you put that all together, and you get really excited because you realize that we’re on the cusp of incredible change and advancement in the energy space. 

Now, the negative side of all that is that, unfortunately, I think, like the dotcom boom, we’re going to see waves of mergers and consolidations, successes and failures. Not all of these companies will make it, and many of them will be swallowed up by bigger ventures. But that’s sort of the natural progression of a really dynamic market place. 

You flatter me by saying 25 years, but I actually have almost 38 years with the utility. When I look back, I have to say that for the majority of that time, our industry was pretty stodgy. We were dominated by a few very large equipment vendors, and there wasn’t a whole lot of rapid innovation. People tended to stick with what they knew, ordering what they’d ordered for 20 years because they knew they couldn’t get in trouble. Now we’re seeing the push from regulators, from ratepayers, from some utilities’ management teams, asking, “What more can we do that changes the game?” 

That’s just remarkably exciting, and I think we live in perhaps the most exciting time in the last fifty years in the electric utility business. It’s fun to watch this shake out.  

Jim, let’s drill down on some of those areas that you mentioned. The energy efficiency solutions that you’re engaged with—can you give us a little more information on what that involves and what attracts you to it? 

One of the challenges right now in the energy efficiency space is finding out how consumers really want to play. 

I’ve seen, in the early days of energy efficiency, the belief that if you gave consumers tools, they’d want to be highly active participants in their energy consumption. We found, for a time, that that didn’t seem to be true. Instead, they really wanted you to put in systems of software that would take care of it for them. 

Then we saw a transition—and this is motivated partly by energy cost and partly by environmental sensibilities—where more and more consumers were saying, “I really want to be involved and understand my energy use, and I’m willing and able to play an active role in this sort of digital interface with my energy consumption.” Now you’re seeing the emergence of devices, from the NEST thermostat to energy control systems in buildings, and more firms are focusing on how to interface the building and the grid with human beings, in new ways, exciting ways, simple ways, advanced ways. All of that is shaking out before our very eyes. I can’t tell you who will win—if I could I’d invest in them—but I can tell you there are so many wonderful ideas coming out. 

And the equipment solutions being offered, and the digital opportunities that relate to the grid, can you elaborate on those? 

I often think of the smart grid as being a three-legged stool. We’ve known for some time how to do sophisticated electronics on the grid. The problem was we couldn’t deploy them or utilize them they way we wanted to because we were missing the other two legs. 

The second leg is cost effective, ubiquitous communication. Basically, this is the notion, again, of connecting everything to everything all the time, so I can get the data without having to run fiber optic lines for millions of dollars every time I wanted to monitor something. Now I can do that cheaply, because of the emergence of technologies that enable it. 

The third leg of the stool is high-power, low-cost computing that can take this massive amount of data—and that’s all it is, you’re streaming data from various sensors all over the grid or your home—and turn it quickly into actionable and useful information. And that’s really a huge change in all our lives. We take for granted that our phone now has more power than the super computers that I used to rent time on in the 1970s. Now we can collect this information on a second-by-second basis across the grid and actually turn it into useful information that allows us to increase reliability, environmental stewardship, and, ultimately, enables us to reduce cost. 

Jim you’re moderating a panel the in first week of February for the VerdeXchange 2013 Conference called ‘The Smart Grid: Real or Hype?’ Why that title? And what do you hope to discuss and drill down on during that session? 

What I hope is that we can separate the wheat from the chaff. One of the things that happens, and I think it happened in the dotcom boom, is that there’s an awful lot of smoke and mirrors that happens in a new, growing and cool kind of space. Everybody has ‘the ultimate solution’ to every problem—and, of course, we know they really don’t. 

An awful lot of people have tried to cast the smart grid as referring to the widget they make or the software they make—if we just had smart thermostats, we’d have a smart grid; or if we just had AMI meters, we’d have a smart grid. Of course, the answer is that those are just components that you have to fit and match like a jigsaw puzzle to get a grid that actually accomplishes what a smart grid has to do. 

A smart grid has to be safer, more reliable, and more cost effective. I often like to say that a grid enhancement that doesn’t benefit consumers is just showmanship, not smart. You’ve got to be able to get out there and demonstrate that there are real benefits, and you’ve got to get away from the provincialism of equipment vendors. The equipment is really secondary to the strategy and the architecture that will make the grid smarter and more effective for consumers. I’m excited because we’re finally moving in the right direction after that hype, but we want to get the things that utilities, public policy makers, and consumers can actually do today to start to realize benefits from a smarter grid. 

James, now that you are free of working for a utility, what actually incentivizes the utilities to make the moves and investments that you’re suggesting? 

I think in the utility space it always is a combination of informed regulation and economics. I always like to say that regulation can trump economics in the short term, but not in the long term. Markets are too efficient and people are too smart. In the long run, the stuff that wins is the stuff that works. We must never loose track of that fact. 

But you have to have regulators (and fortunately, for the most part, we do in California, and I think we’re seeing it spread across the US) who challenge utilities to wisely incorporate technology advances for the benefit of consumers. Incorporating it because it’s neat doesn’t cut it. You have to incorporate it with a plan to actually derive benefits. If regulators put the carrot out for utilities and say, “Here’s a way that you can make money and do the capital improvements you need; You can use this technology to make things better,” then you get an alignment between regulators and utilities and their incentives to do the right stuff. 

If either one of those falls apart, if you don’t have informed regulators who really understand what the realm of the possible is, or if you have recalcitrant utility management that doesn’t want to advance because they’re comfortable in their box, you’ve got a problem. Those two have got to get aligned and work together to achieve policy goals.  

James, you’re also moderating a panel at VerdeXchange 2013 called ‘Distributed Energy: Issues and Opportunities’ that accompanies another panel that has a lot of solar and wind providers. What’s the message that will come from that panel? What is the challenge?

I think the provocative challenge, particularly in the US (and it’s a challenge that’s been faced in some ways more aggressively in other countries than in the US) is how we wisely incorporate distributed generation in to the mix. How can we properly incent distributed generation so that the costs continue to fall and the performance continues to increase? It gets deployed as part of our solution to carbon and to utility rates—but on the other hand, it must get incorporated in a way that is safe and doesn’t adversely impact the reliability of the grid. Frankly, if you put DG out there and you don’t know what you’re doing, you can adversely affect the grid. That’s why it’s really important that the various organizations like the IEEE are working on standards. 

So how are we going to reconcile those interests? We want it to happen without inappropriate subsidies, and we want to continue to drive down costs and increase performance. We don’t want to adversely impact safety or the reliability of the grid. And we’re going to talk in that panel about that challenge. 

Let’s close this interview with your sharing a little bit about some of the work that you’re now engaged in after your career at Southern California Edison. For example, GRIDiant: you’re on their advisory board. What attracts you to that company? What’s their product, and what’s the expectation? What is it that you can contribute? 

The reason I got involved with GRIDiant was because of the problem I referred to before: massive amounts of data, but often a scarcity of really timely, accurate, useful information that helps you run and plan the grid better. And one of the things I like very much about GRIDiant is they developed some really powerful software tools, some optimization engines, and so forth, that enabled them to take data from very diverse systems—because if there’s one thing we know about utilities around the US, it’s that there is no standard for their systems, or the kinds of data they generate. How do you take all this diverse data and process it really quickly to produce information that makes the grid better? What I like about GRIDiant is they’ve developed a tool that enables utilities to do that. And they’re one example of a young firm with breakthrough ideas that have the potential to change the industry, and I love firms like that.