Uberizing Energy

Next month marks six years since Uber began its national expansion. Given how quickly the ride-hailing service upended the taxi industry, Uber has become an archetype of disruption. Like Google, it has even earned status by becoming a verb. The phrase “Uberize energy” has been tossed around in customer meetings, at regulatory conferences, by industry watchers and even by the World Economic Forum. And, it’s a captivating opener. Whether we’re talking miles or megawatts, who isn’t drawn to the idea of using technology and entrepreneurship to transform a highly regulated industry that’s slow to innovate – especially when disruption poses a threat to its very survival? With a dash of technology, some business model innovation and app-savvy customers, we’re on the road to a new future.

Uber and its peer service Lyft have revolutionized transportation by making ride services more on-demand, convenient and responsive, in addition to offering more seamless payments, better conversations and a clear feedback loop, but is their model the answer for modernizing the energy sector?

Uber offers some lessons for how a better customer experience can radically reshape a static industry. Customers like convenience, choice and control. But the model has its limits. Look closer and we can see that the businesses are different in fundamental ways.

Uber brings customer-centric convenience to the taxi industry

Where the model works: Uber has replaced the passive act of taxi-hailing with a process that puts the customer in charge. Getting a ride is now “when and where,” not “only if you’re lucky.” Customers find this model attractive because they have control, choice and visibility. Give energy customers the same thing, and they’ll choose better, cheaper and cleaner technologies.

Where it doesn’t: People don’t buy energy like they buy rides. Uber is pay-per-use, and its energy equivalent would mean pulling out the credit card each time we needed to charge a cell phone, use the office copier or fire up the kitchen fans, leading to hundreds of transactions per day. Could we automate it? Perhaps, but the complexity and volume of settling so many retail transactions would be mind-boggling. 

Uber uses behavioral triggers to modulate supply and demand 

Where the model works: Economics works and dynamic pricing does influence customer behavior. While pilot studies have shown mixed results, well-designed electricity pricing has the potential to influence consumer behavior. And technology helps consumers understand and compare options, such as Pacific Gas & Electric’s Time-Varying Pricing model, which provide rate schedules tailored to individual business’ needs.

Where it doesn’t: Even after decades of attempts, the energy sector can’t get basic agreement on the use of time-varying rates, let alone real-time pricing. Getting the power sector to emulate Uber’s dynamic pricing may be an uphill battle.

Market share improves Uber’s customer experience 

Where the model works: Like all companies that benefit from network effects, Uber can offer customers a better experience when drivers and riders are plentiful: more options, more rides, more feedback cycles. Similarly, utilities go through growing pains during early stages of DER adoption, but the benefits increase as the market grows.

Where it doesn’t: Uber sets the market rules for a large part of the ride-sharing world. Drivers and riders – market participants – become subject to those rules. History demonstrates that people count on regulation to keep energy market power in check. Given how little agreement exists today on the question of market design, it’s implausible that we would hand over control of the nation’s power markets to a single broker. And the road to market dominance for Uber has been full of potholes – not what we want from an entity responsible for ensuring reliable electric and gas service. Sometimes boring is good.

Uber needs roads

Where the model works: Uber relies on the world’s roads, just as energy service providers rely on transmission and distribution. Uber’s growth has been unconstrained by road capacity and it benefits heavily from socialized costs of road maintenance. Similarly, transmission and distribution networks are a critical enabler to electric and gas system evolution and the growth of distributed energy.

Where it doesn’t: Transmission and distribution are a constraint for utilities, and interconnection and congestion remain major challenges. Electric utilities need to manage the flow of traffic on the system closely, and fixed costs figure prominently into all utility investment decisions.

Everyone loves a flashy comparison, but before we set out to “Uberize” the energy sector, it’s important to separate the industries’ differences. The way Uber has revolutionized the customer experience is a model for utilities and energy service providers to emulate. Customers will continue to value the convenience, choice and control afforded by better digital tools. But the limits to this analogy are clear, and energy sector modernization needs a much longer playbook that reflects the unique challenges of the industry.

Photo Credit: Alan Levine via Flickr