Black swans, white elephants and the internet of things.

A white elephant is an industrial asset which its owner cannot dispose of and whose cost, particularly maintenance, is out of proportion to its usefulness.

Here’s a challenge; think of any large capital asset, such as a railway line, and I bet you can think of at least one new technology that could emerge and disrupt the whole business model underpinning its existence.

As anyone planning infrastructure investment in 2021 will tell you, there’s now so much innovation going on it’s hard to make any long term decision with total confidence. There’s just no way of knowing if a black swan, an unforseen disruptive technology, won’t come along and make your shiny new asset look like a big white elephant.

We can all think of recent examples. AirBnB undermined the business case for motels. E-scooters and Uber have hit bus occupancy in some cities. Amazon put a large number of shopping malls into the red. 

Some disruptors can be predicted with reasonable accuracy. Block-chain will clearly disrupt financial services in the next decade. But it’s the black swans that give planners the real headaches.

Nowhere is all that uncertainty felt more intensely than inside electricity utilities. Their management teams are wrestling with an unpredictable landscape of EV adoption, residential solar, large scale battery storage and more. In their periferal vision they also have the perennial possibility of the hydrogen economy. Nikola, a hydrogen truck manufacturer, recently unveiled plans for a hydrogen powered pick-up which will look tough and emit only water. Hydrogen fuel cell cars have the potential to not only disrupt EV adoption, they might even offer the potential for overnight residential microgeneration, to complement roof solar and eliminate the need for batteries.

Nikola’s great looking, 900hp, hydrogen powered black swan. Coming soon to disrupt multiple industries near you.

As well as the more predictable disruptors, electricity utilities also have to contend with completely out-of-nowhere disruptors. A great example is the impact that fracking is having on Tiwai Point, a New Zealand aluminium smelter, and subsequently on the country’s entire energy sector.

Energy is the dominant cost in aluminum production, so ingot prices track oil prices. The invention of fracking put oil prices into decline for a decade. This helped drag down aluminium and made Tiwai, which consumes 13% of NZ’s electricity, insufficiently profitable to continue operation. The country now has 776,000 households’ worth of energy being returned to its energy market, at least one geothermal power station development project stalled, and a $600 million lines upgrade required to move all that energy elsewhere.

Deciding how a complex physical system, like an electricity grid, should be developed within this world of exponential innovation is a fascinating challenge. But it’s also an unenviable responsibility.

Consider the story of a certain rural grid which saw its farming customers replacing old flood irrigation with new pivot irrigators. The utility decided to invest heavily into beefing up the grid that supplies those farms to meet the demand from their new high pressure irrigation pumps.

That was all well and good, except, within just a few years, the farmers irrigation scheme decided to replace the leaky irrigation canals with new underground pipes that, thanks to gravity, now deliverd the water to the farms under pressure. All the new pumps were decommissioned and the local grid was left holding a very costly stranded asset.

That type of story is likely to play out many times around the world thanks to accelerating innovation. There will be lots more infrastructure white elephants as utilities fail to spot imcoming disruptors. So what role can the Internet of Things play in helping organizations to navigate the uncertainty and optimize their captial utilization? 

Investing into IoT systems gives organizations real time information, about about the status of their physical assets, and real time remote control over remote device settings. These powerful new operational capabilities can be employed to squeeze significantly more performance and value out of existing physcial infrastructure.

IoT systems allow organizations to dynamically manage the demands being placed on their assets, by end users, to protect them from being overloaded. They also allow organizations to target and improve the maintenance regime enormously across their asset base, so those assets can remain in full service for longer. These gains enable the deferral of what would otherwise be unavoidable infrastructure upgrades. 

To demonstrate this claim, let’s go back to the irrigation pump scenario. The challenge that utility faced was how to keep their grid stable during expected new peak summer pumping events that would happen on a few hot days each year. The management team’s predictably engineering centric answer had been to spend millions of dollars upgrading hard infrastructure, lines and substations, to provide more grid capacity.

How could IoT have helped meet this challenge without that huge, ultimately stranded, capital outlay? The answer is by allowing the utility to take remote control of all those new pumps.

An IoT solution could have given the utility’s SCADA system the ability to shut down individual pumps, or groups of pumps, in the early stages of electricity demand spikes, to hold the load on the grid within safe parameters. What’s more that IoT system could have provided the utility with data on soil moisture, local weather and line voltageto help predict the farms’ daily irrigation activity.

Yes, the farmers would need their supply contracts amended to compensate for giving the local utility that control over their pumps, but the residents in the district would also then not have needed to help fund the huge grid upgrade through their future distribution tariffs.

Using an IoT solution like this, which could have smoothed out summer demand spikes, would have been a vastly more capital efficient way of handling the immediate grid capacity problem and avoiding the long term stranded asset outcome. The great news is these types of distributed IoT solutions are getting simpler and more cost effective with the launch of low cost satellite IoT networks such as Swarm Technologies new satellite constellation. An ioSphere upLink, which could now connect each pump to the utility’s SCADA system, over the Swarm network, would cost only USD $1,000 per farm. 

Exponential innovation looks cool on a chart. But its tricky to plan for.

There are endless situations emerging where IoT can be used to squeeze more performance from existing industrial assets. One of ioSphere’s pilot customers, in the Pacific Islands, is looking at using our Swarm IoT gateway to gather smart meter data, over LoraWAN, from homes that are connected to solar powered micro-grids. This application of a LoRaWAN to Swarm gateway, will allow new business strategies such as time-of-use pricing which will shift the islands’ electricity consumption towards the middle of the day, when solar arrays produce maximum output. The implementation of an IoT system, alongside their physical assets, will allowing the islands to get a lot more value from their invesment. 

Planning infrastructure investments is always going to involve some crystal ball gazing, and it will never be perfect. However, there is no doubt that organizations can improve their capital efficiency by taking advantage of the huge advances being made in IoT technology.