Written by Todd G. Buchholz and Michael Mindlin
Traditional power companies cannot compete with emerging rivals aiming for rapid growth
The average length of power outages in the United States doubled between 2013 and 2021.
If John D. Rockefeller existed today, he'd probably have Google Nest, the pioneering smart thermostat, installed in his home. The famously frugal oil tycoon would have jumped at the chance to save money on his monthly utility bill.
Traditional energy companies, from ExxonMobil (XOM) (a direct descendant of Rockefeller's Standard Oil Company) to local power companies, are beginning to embrace Big Tech. Will companies like Alphabet (GOOGL), Amazon.com (AMZN), and Meta Platforms (META) put their needle readers out to pasture? Who wins then?
Big Tech is already showing disruptive trends. Just 25 years ago, Google, the search engine after which it was named, was an unfathomable number, clouds were the sound of rolling in the sky, and 5G was the queue of cars parked in a garage. did. Over the past few decades, technology companies have transformed industries at both the enterprise and retail levels.
Consider a pharmacy. This depended on the patience of shoppers who waited days to get their prescriptions and lined up to pick them up. Now, companies like Hims and Hers can secretly administer drugs overnight to calm your nerves, make your hair grow longer, or lift your mood. Meanwhile, One Medical, which Amazon acquired last year, offers 24-hour on-demand virtual care and same-day and next-day appointments. Quite a feat considering the average wait time to see a doctor in major American cities is more than three weeks. . It's no wonder that brick-and-mortar drugstore profit margins have declined and Rite Aid has fallen into bankruptcy.
Just as the world needs better access to healthcare, it also needs more efficient and reliable electricity. Too many people sit in the dark, too often, and for too long. Even in developed countries like the United States, the average power outage time doubled from 3.5 hours to more than 7 hours between 2013 and 2021, and their frequency increased by nearly 20%. Unsurprisingly, Americans have a bleak view of their local power provider, with 71% saying they would change providers, while businesses are frustrated by $150 billion in annual losses due to power outages. There is.
However, this does not mean that the power company bears all responsibility. In the United States, local and state politicians and regulators determine profits and prices while delaying capital upgrades. The U.S. Department of Energy spends about five years evaluating new projects before approving them, with about 2,000 gigawatts of capacity per year on standby.
Amazon's clean energy portfolio is now large enough to power 7.2 million American homes annually.
Fast-growing, multitrillion-dollar tech companies can't afford to lose power, so they're taking matters into their own hands. Amazon's clean energy portfolio consists of solar and wind projects in more than 20 U.S. states and 27 countries, and is currently large enough to power 7.2 million U.S. homes annually. . In Nevada's Blue Mountain geothermal field, Alphabet's Google is partnering with clean energy startup Furbo to harness heat trapped beneath Jurassic rocks to power the tech giant's data centers. .
Unlike power companies with old plants that need to be retired, technology companies can start fresh. The average age of oil-fired steam turbine plants in the Midwest is 70 years. In fact, Whiting, Wisconsin operates his 1891-built hydroelectric facility. This was 40 years before actor Boris Karloff was connected to lightning-conducting electrodes in the original Frankenstein movie.
Driven by selfish motives, technology companies have developed new power supplies, but they are targeting home consumers. Fortunately, Big Tech has already been welcomed into homes. Amazon has evolved from delivering boxes of books to answering questions with Alexa and recording doorbell activity with Ring cameras.
Traditional power company executives must re-watch The Godfather Part II and follow mob boss Michael Corleone's “keep your friends close'' advice against these free-spirited, money-spending tech wizards. , but you should follow the advice to “Keep your enemies closer.” At the same time, you should focus on communicating better with your customers. Does your utility ever send you a newsletter, a movie link, or a dozen roses? Or do you only think about it when there's a complaint, like the lights go out or the meter reader is lurking in your backyard? Will it float?
Google recently integrated its software business, Nest Renew, which helps users optimize their power usage, with its software business, OhmConnect, to adjust the energy consumption of homes across the country. The new company, Renew Home, plans to pay people to lower their thermostats and turn off their lights before a thunderstorm occurs, combined with peak hours and artificial intelligence-powered weather forecasts.
Utilities need to work with Big Tech to improve efficiency.
Meanwhile, utilities need to work with Big Tech to improve efficiency. A few weeks ago, Southern Company (SO) announced an agreement with Samsung SmartThings to create an innovation laboratory aimed at facilitating communication between smart refrigerators, dishwashers, and garage door openers for power-saving purposes. . In San Diego, utility company Sempra (SRE) is partnering with Fermata Energy to allow electric vehicles to sell battery power back to the grid during times of peak demand.
Since the days of Rockefeller and Thomas Edison, utilities have been a constant vortex of investment, a regular favorite of dividend-seeking widows and other risk-averse investors. Whether the climate is warming or not, this sector is heating up, and with the entry of Big Tech, the sparks are starting to fly.
Todd G. Buchholz, former White House economic policy director under President George H.W. Bush and managing director of the Tiger Hedge Fund, receives the Harvard Economics Department Allyn Young Professor Award are doing. He is the author of New Ideas from Dead Economists (Plume, 2021), The Price of Prosperity (Harper, 2016), and co-author of the musical Glory Ride.
Michael Mindlin is a venture capital and growth equity investor focused on energy and enterprise software.
This commentary was published with permission from Project Syndicate – Big Tech Shocks Electric Utilities.
Read more: Big tech companies just lost the battle to profit from our personal data
Also read: Don't want to follow Big Tech? Money managers are flagging 3 stocks to bet on that are currently out of favor.
-Todd G. Buchholz -Michael Mindlin
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03/30/24 1012ET
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