How To Avoid Mistakes In Utility/Cleantech Investing.

The utility is a complex adaptive system.

It's becoming even more complex and, despite the glacial nature of the changes on the asset/consumer/workforce elements of the utility, it is also becoming more adaptive with the application of smart technologies. But where to invest?

Well, look to those three words - Complex, Adaptive, System - and it’s at the intersection of those that you will find the opportunities that will provide a return for any smart and savvy investor planning to ride the wave of development over the next ~10 years. I say ~10 years because we are in the infrastructure deployment stage.

Complex: The utility industry is made up of many interacting/organization of agents. It is the very basic premise of the industry; from the generators, transmission and distribution infrastructure, employees at these agents and, of course, the consumer. All are agents that are interacting every second of the day. When you switch on your power, turn on the tap or fire up your gas heater the interaction and organization of agents ensures you get the desired result; comfort from electricity, water or gas.

Investment opportunity: The complexity of the industry, from a centralized structure, will only increase as distribution in the form of solar/storage, grows. Since all complex adaptive systems revert to a state of dynamic stability the investments that will make the most money in this space will be those that facilitate or support this move towards the dynamically stable state. Think of it this way; storage, solar, wind and electric vehicles add to the chaos but operating systems software (like GELI) that purport to bring a state of equilibrium/standards to the space will thrive. It is inevitable that the equilibrium state will be reached even though it is chaos right now. Put your money (or time if you want to work in this industry) into companies that bring the ecosystem into a state of dynamic stability. I predict that Geli or one of it’s competitors will be raising a big round of money in the next few months.

Adaptive: As the grid gets modified with new technology and consumer expectations change, the design of solutions and strategies to solve for the changes and their impacts will (and) continue to change. 

Investment opportunity: As more investors plow into software, for both it’s complex and adaptive nature, look to other parts of the utility ecosystem that show adaptive properties. Since I used a software example above I’ll turn to a hardware example here and buck the trend by suggesting investors should plow their money in competitors to Tesla. Yes, don’t put your money in Tesla right now, put your money in Faraday Future (if you can get in as an investor) or some company like it. Why? Because Tesla is making a lot of mistakes (and still succeeding) and you want your money in the fast followers taking all the learning from Tesla’s mistakes (or some might say changes of strategy). As Tesla focuses on energy storage in the form of it’s Powerwall it opens up room for well funded competitors to come in and quickly adapt their technology to serve the market that Tesla has opened up. I use the term ‘quickly’ carefully as nothing is quick in developing true breakthrough technology and processes. This thinking applies to other parts of the industry as well.

Systems: From the micro behavior of each agent in this complex adaptive system that is the utility, patterns always emerge that point to the systemic nature of the industry: consumers buying Nest thermostats, the utility responding by partnering with Nest and Nest working on creating an interaction layer to itself become a utility are all micro behaviors that point to macro patterns of change. 

Investment opportunity: My view on whether the current utility will play a part in the future swings between 'definitely it will' to 'sadly it won’t’. I’m allowed to do that, as both extremes of participation by the utility (fully and not at all) are scenarios; systems thinking does not do predictions but focuses on scenarios. So what is the investment opportunity here? It’s at that system level otherwise known as the infrastructure layer that gets the energy to your home; we are at the infrastructure deployment period of the what the utility industry is going to look like. Whether it is distributed-  like most predict - or still centralized, there will be required deployment and you want to put your money at that level. Yieldco’s are not in favor right now, but that does not mean the market for investments in assets is dead. What is required is a longer term view of where things are going.

A fundamental understanding of the nature of the industry, as a complex adaptive system, will always show areas of opportunity in this space. It’s time to take it...

Seyi Fabode is a Partner at Asha Labs, providing utilities & SMBs with systems thinking, strategy (from data), planning & implementation of technology in a fast changing world. He has 15+ years of experience applying technology solutions to asset management, workforce enablement and consumer engagement in the US & UK. Seyi writes about energy (future utility), technology (smart cities) and people (systems thinking) at www.asha-labs.com/blog. Follow @Seyi_Fab.