How do you keep your business properly organized when your industry is besieged with change from many directions at once? Is there a way to assess how technology change, regulatory change and structural change are likely to work in combination, so you can stay ahead of the curve?
In the energy sector, as in many other industries, there is a frequent tendency to focus on disruptive technologies in an attempt to foresee the effects they will have on the sector at a high level. In reality though, many of the significant impacts on the system arise from how the different actors in the system decide to work together to deal with anticipated changes, and what their individual perspectives and incentives actually drive them to do. This is an area that is more measurable and manageable than predicting overall change.
Hearing these kinds of concerns from many of their clients, in 2014 the MaRS Advanced Energy Centre (AEC) in Toronto started by trying to understand why the electricity system seems so resistant to innovation and to change. They recognized that the majority of energy sector players (generators, consumers, utilities, traders, policy makers, regulators, and others) absolutely agree that innovative technologies and business models are key for their futures, but they have extremely diverse understandings about what it means to be innovative.
In reality, each key actor in the system has a different perspective and set of incentives. Utilities are fundamentally driven to adhere to a decidedly unconventional risk/reward platform – called the rate-base. In that context, there is little incentive to do things less expensively, and certainly none to take risk. Government is driven by relatively short election cycles, and a desire to link policy to results. The regulator is charged with protecting ratepayers, but has no real way to make the long term risk/reward tradeoffs that are an essential foundation for new investments. The result is the system we have today.
Combining knowledge of technology change, the nature of energy systems, and expertise in design and facilitation, the Advanced Energy Centre has produced the “Systems Change Approach” to addressing the very real challenge of how engaged parties can act in a coordinated fashion, to design and implement a modern, resilient energy system that is open to innovation. It is a framework and methodology “to assess the entire system and identify key issues, develop strategies, and deliver effective solutions that help stakeholders solve the complex problems they face,” the AEC says. “This approach allows organizations to not only overcome their challenges, but to take advantage of the opportunities presented during this period of energy sector transformation.” The approach can be applied to increase success on delivery of individual projects and initiatives, address challenges energy organizations are facing, design new business models and for application to overall business strategy.
Ron Dizy, Managing Director of the Advanced Energy Centre, explains that this methodology takes a structured look at the policy, solutions, and capacity issues impacting energy stakeholders in an organized way. Although many changes in the sector may be driven by technology advances, the barriers to adopting innovation are often human or structural in nature. This is crucial to understand, he stresses: “The AEC found that most attention is placed on technology, but the real barriers have nothing to do with technology. To manage effectively, players need to recognize the location of relevant barriers and take steps to understand the challenges, co-create solutions, prepare prototypes, and scale up. The system change approach incorporates techniques and interventions to address these four processes, drawing experiences from real-world, best-practice examples of implementation.”
In a sector with tremendous threats and opportunities arising from looming change, business strategies often employ equal parts facilitating internal capabilities and preparing for external drivers. Does AEC’s System Change Approach help existing energy stakeholders prepare for change, or help them to change themselves? The answer is both.
Reflecting a power system background, Mr. Dizy notes that innovation fundamentally has to be “a path to a flexible system and lower rates,” and that it “must also protect the ratepayer.” The product is only good if the result is better than the system that is in place today, he reminds participants. “It isn’t about innovation for the sake of innovation.”
Using the Systems Change approach when working with a number of clients over the last 2 years, the AEC has been able to refine the methodology and summarizes it as follows:
• Provides language and a structured approach to identifying the pieces of the system that have to change
• Provides a way to design ‘interventions’ that will have the maximum effect
• Most importantly, provides a structured way to convene stakeholders to make sure multiple actions will combine to have the desired effect.
One of the high level objectives of this work, Mr. Dizy notes, is making the system more receptive to change “which fundamentally requires coordinated actions from key players.” Many utilities are not yet experiencing change or acting proactively to address it. As a result, he expects the project will explore, “what should you do in a changing landscape and where the system may not be changing fast enough.”
As examples, the AEC has successfully deployed the Systems Change approach to designing the launch of the “Green Button” energy data access program across Ontario. In addition, the approach was implemented in the early stages of community-level energy systems planning for Zibi, a zero-carbon urban re-development project in downtown Ottawa. In each case the AEC analyzed the situation, outlined the challenge and opportunities, and produced a series of recommendations for instituting effective business strategies. Each of the strategies considers the various policy influences, technical solutions available, and capacity building to implement change.
The Advanced Energy Centre is part of the MaRS Discovery District, one of the world’s largest urban innovation hubs. Its mission is to “Foster the adoption of innovative Canadian energy technologies and to leverage those successes and experiences into international energy markets.”
For more information, readers may contact Ron Dizy at