Published on September 28th, 2018 | by The Beam0
On Disruptive Energy Technology: An Interview With Philip Johnstone From Sussex Energy Group (SEG)
September 28th, 2018 by The Beam
Philip Johnstone has been a research fellow at the Science Policy Research Unit (SPRU), University of Sussex, for the past four years, working in the Sussex Energy Group (SEG) on a variety of themes. This includes work on disruptive innovation, industrial policy, the political and democratic implications of sustainability transitions, and nuclear policy of many dimensions, from weapons to waste.
Originally from Scotland, Phil tries to take the train from the South Coast of England up north when visiting Edinburgh as a small way of reducing emissions by avoiding internal flights in the UK. He realizes there is an inherent economic bias to this type of action: “It is available to those that can afford the rail fare. More systemic change is required to address structures of extreme economic and geographical inequality which underlie many of the problems facing the UK and elsewhere today, including sustainability transitions.”
We talked to Philip about one of his specialties: disruptive technologies.
Hi Philip. First and foremost, could you please introduce us to the concept of disruptive technologies?
The concept of disruptive technologies was first introduced by Clayton Christensen in the 1990s. It was updated to be called ‘disruptive innovation’ with the recognition that new business models could have disruptive consequences regardless of technological change. Disruptive innovations provide a new function or service to customers that was not provided by incumbent technologies or innovations. They eat away at the market share and can often destroy incumbent businesses. The whole thing incumbents is that they are so busy optimizing their current business models that they fail to see the ‘threat’ posed by new technologies or business models. The term has really picked up recently with a range of things such as 3D printing, digitalization, automation in transport, the ‘gig economy’, and ‘smart’ energy.
I think there should be a caution when using the term, however. As many have pointed out, it seems that right now everything is being disrupted. It is the buzzword of the moment. The term is ubiquitous and that spells danger because there is a risk of it becoming an empty signifier used to justify a whole manner of policy interventions. The term was used to understand activities at the firm level in competitive markets. I don’t like the way the term is bandied about where disruption is seemingly entering every nook and cranny of policy. The idea of plucky entrepreneurs from Harvard Business School going in and disrupting healthcare and education is something that quite frankly terrifies me! These areas are about public goods and cannot be understood in the same way as firms competing on a marketplace in computing or whatever. But whether we like it or not, the term is being used by governments and businesses with increasing frequency and applied to a wider range of activities. This is why the term must be given more empirical scrutiny. There is a key role for academia to scrutinize and question the underlying meanings and motivations which drive ‘disruptions’ of various kinds in different contexts.
How are renewable energy production and storage technologies disruptive technologies?
The discussion around energy and disruption has often focused on the work of Tony Seba and discussions of the ‘clean disruption’. It centers around similar observations that have been made regarding the disruptive consequences of digital technologies. Traditional business models are challenged because of the zero marginal cost aspect of solar and wind. There are no fuel costs — you don’t have to pay additional costs to produce more energy like you do with coal, gas and uranium powered energy production. So renewables substantially reduce the wholesale costs of energy, thereby creating havoc with the business models and profit margins of major utilities. You need to design new markets to capture the value of new forms of energy production.
The business model of 20th century energy was based around building large power stations producing a constant supply of energy in centralized systems. It was based, for the most part, around an active supply and passive demand — consumers and demand side measures played little role in the energy system. This is arguably all being disrupted because of the decentralization process with smaller units dotted around the country and intermittency factors. New business models will have to be based around numerous decentralized units and will have to be much more responsive to variable demand and consumers playing a leading role. All of this has huge implications in terms of ownership, business models, grid infrastructure, grid regulation and so on.
Renewables arguably enable new players to come to the fore, for example ‘prosumers’ selling electricity at the household level back into the grid, or community energy groups taking control of energy assets. It’s very hard to imagine, and indeed probably undesirable, to envisage a community owned nuclear power station; yet wind and solar can be more easily owned by communities. This change in ownership is a key potential disruptive feature and one of the main drivers behind energy transitions more generally. In short, renewable technologies and storage mechanisms offer the potential to ‘take the power back’ from the centralized monopolies that have previously dominated energy production. But it is important to avoid technological determinism here. It requires political struggle and also long-term support by the state, as the cases of Denmark and Germany demonstrate.
What are the emerging disruptive energy technology trends that you think will become very interesting in the years to come?
If you look at countries like Germany or Denmark, or what’s happening in California, or even Scotland, there’s a sense that a point of no return has been reached and we’re on our way to a renewable future. It’s just a matter of how long it’s going to take. In our research, the ongoing decentralization of energy production around renewables and energy efficiency was considered by many as the ‘first wave’ of disruption which is well under way. Significant challenges lie ahead of course in how these intermittent renewables are integrated. Affordable household electric storage solutions will likely be a game changer, though the storage pathway is not necessarily clear. For example, many are looking towards the household level and household battery storage as an important disruptive change once it becomes affordable. But others, like the Danish engineer and professor Brian vad Mathiesen, think that the merging of electricity, heat and transport with liquid fuel storage, thermal storage, heat pumps, and district heating are playing a key role. So there’s different potential directions of travel.
When we conducted research on disruption in Germany, there was talk of a ‘second wave’. This focused on the idea that the next big changes would be in the transport sector. There has been a lot of talk recently about electric vehicles given the announcements by some countries of phasing out petrol and diesel vehicles, so that’s on the horizon. It’s a key topic in Germany on account of the strong automotive industry. The question is whether German incumbents will respond in time to the challenge of electric vehicles or whether they will be left behind. In the UK there is talk that different regulatory measures will have to be put in place to deal with the rise of electric vehicles to avoid significant problems for the grid.
One thing concerns the business models and actors and how these will change. In Germany, big utilities like RWE are attempting to shift their business models, but there are many things like digitization, automation, the dissolving of the producer/consumer divide, a more service-oriented approach to energy provision as well as electromobility, which may mean that the actors involved in energy provision could be very different to the utility structures we are familiar with.
But the main thing is there are multiple paths and much uncertainty. if previous energy transitions are anything to go by, factors entirely missed by economists and modellers will emerge and play a key role. Such is the nature of disruption!
Do you feel like energy leaders and politicians globally are facing and acknowledging disruptive change in energy?
An important point is that with investment in non-hydro renewables outstripping those in fossil fuels and nuclear combined, there is a sense that something momentous is occurring in the global energy sector, that will continue regardless of what politicians are doing. However, the pace of this transition can be significantly affected by the awareness and types of responses from politicians. I’d like to highlight the worrying role politicians may play in actively slowing the disruption as one example. In the countries that have led on this, Germany in particular, politicians (along with utility companies) were caught off guard to a certain extent. That the growth of renewables would be so substantial was not taken seriously by some politicians in the 1990s. Now, countries that have developed renewables at a later stage, like the UK, will perhaps look towards Germany and try to prevent such disruption from occurring. It is no secret that incumbent vested interests often have very close ties to the political establishment. The UK’s unique levels of enthusiasm for fracking and nuclear compared to the rest of Europe may be suggestive that these kinds of relationships are particularly pronounced in Britain. In the UK between 2010–2015, when renewables had been doing very well, you had this extraordinary campaign against renewables from the ruling Conservative Party and intense promotion of fracking and nuclear power, despite the fact that the economics for fracking was completely uncertain and increasingly expensive in the case of nuclear. It culminated in a so-called ‘policy reset’ of 2015, where onshore wind was essentially banned, the solar Feed-in-Tariff was reduced by 85%, and energy efficiency policies were cut. While at the same time, support for fracking and nuclear intensified. It just so happened that between 2010–2015 you had people associated with the fracking industry and nuclear companies working directly inside government.
So, the energy system is changing globally. But the rate at which it changes depends on challenging concentrations of power and democratically problematic relationships between incumbent industries and government. The same could be said for the difficulties Germany is experiencing in implementing a coal phaseout. In 2016 it looked like there would be something put in place, but then the vested interests moved in and stopped this process from occurring. The technical and economic cases for transitions are there, increasingly it is a matter of political will.
Interview by Anne-Sophie Garrigou