Digitization of the Utility Industry Part II: The Impact of Metcalfe’s Law

My previous post focused on The Digitization of the Utility Industry, and mentioned Metcalfe's Law...

"Metcalfe's law states that the value of a telecommunications network is proportional to the square of the number of connected users of the system (n2). First formulated in this form by George Gilder in 1993,[1] and attributed to Robert Metcalfe" (source Wikipedia)

So what, you ask, has this to do with the utility industry?

I'd propose the following: what's become known as the “smart grid” is simply a use case for the Internet of Things (IoT). IoT is all about securely connecting more and more devices to a network, collecting the data from these devices, and either locally or centrally analyzing that data to create insight. Today, we have more and more devices being added to the grid, be these smart meters, renewable energy generation devices (think solar panels, wind turbines), electric vehicle charging stations, or simply automating more of the existing transmission and distribution grid. It's all about more and more devices getting connected to the grid.

In addition, there are deployments of smart thermostats, building energy management systems, electric vehicles and more. Now you may say, these devices are not connected 'physically' to the electric grid. This is true. While the business models for what's connected via a private or public network are evolving, there will always be valid reasons to have extremely secure and low latency private networks for given parts of the grid. However, the data from all these devices will be combined in the cloud to uncover all sorts of insights that lead to be services and business models. This is what is already going on, for example, via Opower, Google/Nest, C3, Alstom, AWS/Splunk, British Gas Hive and many others.

Each of the use cases called out above have their own current value propositions and return of investment criteria. For MetCalfe's Law to hold for the smart gird, we'll have to see exponential value created as a result of more and more devices getting added and value accrued. This is already happening. Utilities in the U.S. are using data from smart meters to respond faster to the effects of earthquakes, thus adding huge economic value. Energy savings are being accrued as people get insight into how their homes can better consumer energy and utilities can use this to then plan future load profiles in the grid, thus maximizing investment. All are examples of Metcalfe’s Law beginning to kick in. And it will only accelerate as new ways of combining big data from more and more devices come on stream.

So if it were not for Moore's Law, Metcalfe's Law and human innovation, then the concept of the smart grid would never come about.

So do you agree or disagree with the above? Let me know your thoughts.