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Smarter Power for a Smarter Planet

Samuel J. Palmisano, GridWise Global Forum 2010 , Washington, DC, September 21, 2010

Thank you, Under Secretary Johnson, and good morning to you all. I am extremely honored and pleased to be here today.

The dream of a smarter energy system is one that IBM has been pursuing actively for many years. It's why we were one of the founding members of the GridWise Alliance. But even some of you who know us well… might be surprised how deep our involvement is on three different levels.

First, we develop a broad range of technology and business solutions in energy and utilities—from electricity and gas… to water and even waste management.

In fact, we are involved with more than 150 clients' Smart Grid programs in mature and emerging markets.

Second, as a large global corporation, we depend on energy systems all around the world. IBM's physical plant consists of hundreds of buildings—offices, factories and research labs where more than 400,000 employees collaborate, build and invent. We spend $500 million annually for energy. For me and our employees, the affordability and supply of energy are a very immediate financial and operational concern.

Finally, we are an active participant in national efforts, in both developed and emerging markets, to lay the groundwork for a 21st century energy system.

We led the formation of the Global Intelligent Utility Network Coalition—many of whose members are here today—which now collectively serves more than 115 million energy consumers on five continents. In the U.S., we have been working with the federal and state governments on ways to use economic stimulus—not just to repair what is broken, but to prepare for what is to come.

For all these reasons, we are actively interested in the direction and evolution of energy, here in America and as a global industry. And we have a point of view, grounded in something that is one of IBM's core competencies—systems thinking. Which is the reason I was so eager to come here and speak with you today.

Because, from my perspective, the single question that is most critical to the future of energy in this country—and the world—is the need for a holistic, 21st century energy system. Underscore "system." And I believe we have a better chance than ever before to build it.

To explain why, I'll discuss some of the emerging shifts in technology and business that are helping to make not just our energy systems, but all of the planet's systems smarter. Then I'll look at what this broader picture implies for the energy and utility industries. And finally, I'll suggest some ways in which your leadership could prove critical.

We meet at an interesting and consequential moment. I think it's fair to say that the first decade of the 21st century has been remarkably eventful—indeed, disruptive. And I would suggest to you that there has been a pattern to that disruption.

  • In the last few years, our eyes have been opened to global climate change… the risk of pandemic… and, crucially, the environmental and geopolitical issues surrounding energy.
  • We entered the new century with a shock to our sense of security on 9/11.
  • We have become aware of the vulnerabilities of global supply chains for food and medicine.
  • And today, of course, we are working our way out of a global financial crisis.

But one element of this ecosystem ahs'nt yet been successfully engaged or mobilized--and it is the most important one of all: the energy consumer. But, what is common to all these crises? Well, have you noticed how often in the past decade we have used or read the term "systemic breakdown?"

Yes, greater connectivity across economies, business flows, supply chains—and energy grids—is important and has yielded tremendous benefits. But we have learned that connectivity alone is not enough. It is necessary, but not sufficient, for reliable, resilient, well-functioning systems.

I would put it to you that all of these systemic breakdowns are different manifestations and consequences of a single major shift: The world has become globally integrated. This is irrevocable. We are not going back. And therefore, I believe, we find ourselves today at a historic inflection point in the global economy and society.

Fortunately, something else is happening, too. In a word, our planet is becoming smarter. This isn't just a metaphor—much less an advertising slogan. Intelligence is being infused into the way the world literally works—the systems and processes that enable services to be delivered… physical goods to be developed, manufactured and sold… everything from people and freight to oil, water and electrons to move… and billions of people to work and live.

But you know that. I don't need to tell this audience that our world is becoming instrumented. You know that there are nearly a billion transistors per human, each one costing one ten-millionth of a cent. And 4 billion mobile phone subscribers. And 30 billion Radio Frequency Identification tags produced globally.

You know that our world is becoming interconnected. You understand that the 2 billion people on the Internet are just the beginning—that systems and objects can now "speak" to one another, too. This is what some call the Internet of Things: a trillion connected and instrumented objects—cars, cameras, roadways, pipelines, houses, power lines… even livestock and pharmaceuticals. Most importantly, more than most industries, you are aware of the sheer volume of data produced by the movement and interaction of all those things. To put it in perspective, in just three years, IP traffic is expected to total more than half a zettabyte. (You may not have heard this word before. It's a 1 followed by 21 zeroes.)

Finally, you know that our systems, processes and infrastructures are becoming intelligent. Thanks to your adoption of advanced analytics and ever more powerful supercomputers, you are helping turn mountains of data into insight… and making our energy system more efficient, productive and responsive.

More and more forward-thinking leaders in other industries understand this, too.

From smart healthcare in China, to smart transportation in France, to smart telecommunications in Africa, to a smart river in New York… companies and institutions are applying technology in new ways.

The energy and utilities industry has been driving many of these shifts, as we work together to transform the world's energy system. And that work has yielded many successes in recent years. But as we look ahead to the needs and challenges of the 21st century, I think it is clear that we must do more.

Over the past two centuries, advances in energy—from steam, to electricity, to internal combustion, to nuclear fission—created the modern world… making possible modern industry, the modern city and a new global economy.

Now the time has come to usher in the next great energy revolution. To reinvent energy and utilities to meet the needs of the 21st century, we will need to take a truly systemic perspective.

At IBM, we know something about systems. Over nearly a century of work with businesses and governments, we have designed, built and managed systems—from Social Security, to modern electronic banking, to retail, to airline reservations and more. And we have been working with cities and nations around the world over the past several years to improve many kinds of systems and make them smarter—with particular success in energy.

In doing so, we have learned what is required for a system to be well-functioning, reliable and resilient.

  • First, there must be clarity on the system's purpose or goal—a vision of its end-state.
  • Second, its elements must actually be connected—which is another way of saying, integration matters.
  • Third, we must be able to know, continually and with confidence, the status of the system and its critical components.
  • Finally, the system must be able to adapt as conditions change, often in real time.

Energy Australia has installed more than 14,000 new grid sensors that deliver cutting-edge monitoring and control capabilities for the 1.5 million homes and businesses. Viewed against these four characteristics, every well-functioning system looks strikingly similar. And viewed against them, we can see why some of our essential systems are systems in name only. Healthcare is a good example.

Now let's look at American electric power today. As we know, smart grids exhibit all of these characteristics—but they remain isolated examples. Some are fairly robust, some merely pilots. As a result, energy in America and the world overall doesn't meet the tests of a true system.

First, today's energy landscape is not truly connected. Information flows are halted between silos of generation, transmission, distribution and consumption. Now, in many areas of life, connectivity is so basic that we take it for granted. Consider banking. We assume that we can transfer funds and make payments among institutions. Consider retail. We take it for granted that we can use the same payment and billing systems, regardless of store, website or industry. All these systems have standards and interfaces that permit information to flow.

So, a true energy system would need to connect production, delivery and use… in a secure manner… among multiple parties.

Most crucially, it needs to connect customers—families, office workers, drivers and building managers who are providing a steady stream of data on their power usage and its cost. It must do so across all modes of energy production. And it must enable them to become active participants in the system.

Clearly, energy today fails this key test of a well-functioning system.

Second, many of the components and subsystems of energy are not instrumented—or are differently instrumented from region to region—so that it is impossible to know with confidence what their current status is—especially as the system gets closer to the end customer.

Data about both status and anticipated conditions would let us improve system reliability and efficiency. The absence of this information is not just a colossal waste of time and money. It also introduces inconsistencies in quality and multiple opportunities for error.

And when it comes to the fourth characteristic of a well-functioning system—adaptability—ask yourself...

Is our energy system in America today—spanning utilities, vendors, governments at all levels, manufacturers, business, and households, and underpinned by communications—is that ecosystem ready for what's coming?

One thing is certain: Demand is going to grow as economies grow, and as countries seek to integrate such new elements as renewable energy sources… electric cars… and distributed storage.

Even a cursory understanding of the radically complex topology of the 21st century energy ecosystem tells us that. It used to be top-down, one-directional and reasonably self-contained. Now it's multi-directional, multi-stakeholder, deeply interconnected with many other systems—and it must be managed in real time. We will need far more physical and digital capacity across our energy networks.

Finally, let me return to the first requirement for a smarter system—clarity on its design point. We have made great progress in moving toward a smarter energy ecosystem. Many utilities are embracing smart grids… Most regulators are asking the right questions… We've made important strides on standards… And there is a lot of excitement in the investment community. A real marketplace seems to be developing, and it is spawning promising start-ups. It is also attracting the entry of formidable global competitors, from all over the world.

But one element of this ecosystem hasn't yet been successfully engaged or mobilized—and it is the most important one of all: the energy consumer.

We collectively haven't cracked the code on conveying the benefits of smarter energy to the individual, to families and to communities.

As a result, they haven't yet embraced their more active role as full participants in a truly networked, multi-stakeholder system.

Until that happens, the full potential of the smart grid will not be realized.

I believe this is the key point at which we now find ourselves. Yes, the progress of technology is accelerating. Yes, the consciousness of key professions and institutions has been raised. But the crucial change—the one that will have a truly transformative impact—is activating the consumer.

And doing that isn't a matter of dashboards, or advertising, or advocacy. It means designing a system that is optimized for them. One that considers the many modes and motives of energy users—from productivity-conscious manufacturers, to strip-mall landlords, to low-income renters, to green-conscious citizens. One that gives them easy ways to control their energy usage, and that engages their hearts and minds to take a more active role in doing so.

In this regard, energy is very similar, from a system evolution standpoint, to other complex systems—such as transportation, retail, healthcare and cities. They are all, increasingly, coming to see the individual user, customer or citizen as the system's design point.

So, if these are the keys to a smarter energy system… how do we get there?

As we have worked with clients across multiple industries, we have validated that the key to smarter systems lies not in the chip or the sensor. It's not the smart meter, or the smart powerline. It's not even the software, per se.

It's the data.

Thanks to an instrumented and interconnected planet, we're capturing data in unprecedented volumes. And we're receiving these enormous streams in real time. They are coming in multiple forms—from text to rich media… sensors to cell-phone cameras.

And we're capturing them from just about every kind of system or event imaginable—supply chains, weather patterns and billions of individuals using social media.

But the most important point is not how much data there is. It's what the data could tell us. To capture that, you need to dive deeper—to move from "big data" to smarter data.

That's why analytics are key—the sophisticated mathematical algorithms that can detect the patterns, spot the correlations and see the context of the data. Context is important, because a data point by itself is pretty useless. And you need to see all of that not after the fact… but in real time—or sooner, through modeling and simulation.

When you do, it fundamentally changes the game. Where once we inferred, now we can know. Where once we interpolated and extrapolated, now we can determine. That's the promise of a smarter planet.

And it's coming to life in smarter energy all over the world. For instance:

  • Energy Australia has installed more than 14,000 new grid sensors that deliver cutting-edge monitoring and control capabilities for their 1.5 million homes and businesses. These sensors add new insight into operations by touching more than 200 of Energy Australia's distribution substations and distribution centers.
  • On the island nation of Malta, the world's first countrywide rollout of advanced metering is underway—and it will manage both energy and water. This is crucial, in a country where a significant percentage of the water comes from energy-intensive desalination and virtually all of the energy is imported.
  • In Texas, the largest utilities—including Centerpoint, Oncor and Michael Morris's American Electric Power—have joined in an innovative program called Smart Meter Texas to deploy more than 7 million advanced meters. These are enabling consumers to make more informed choices on energy use, enroll in energy supply contracts and take advantage of innovative new energy services.
  • And at Anders Eldrup's DONG Energy, through the use of advanced monitoring and analytic techniques, outage times have been reduced by 25-50 percent, and they expect to cut capital spending through higher asset utilization.

This list could go on and on.

In Texas, the largest utilities--including Centerpoint, Oncor and American Electic Power--have joined in an innovative program called Smart Meter Texas to deploy more than 7 million advanced meters. In cities and countries around the world, we are seeing forward-thinking leaders who are not waiting for permission from above—they are taking the initiative to gather key stakeholders, obtain funding, navigate their bureaucracies and build the constituency to make smart grids and smarter energy ecosystems a reality.

And they are achieving measurable, quantifiable benefits in cost savings, economic stimulus and environmental stewardship.

There are, of course, many ways in which the creation of a national and global smart grid could be derailed or delayed.

But given how urgent the issues are—from rising costs, to energy security, to climate change, to geopolitical impact—I believe that the full energy ecosystem… as represented in this room… can and must come together to make sure this new system-of-systems comes to life, that it gets operational traction.

What it will take is leadership. The work that GridWise has done is wonderful, but now this kind of leadership must be practiced more broadly across business and society.

So let me close by asking for your help in four key areas.

First, standards: Progress has been made, but we must finish the job. We need agreed-upon data standards for energy across all the relevant domains.

And it is essential that those standards be open. That's the only way to interconnect processes and data sets across the whole system. On this, you need to be an active voice.

Second, smart systems by design: In anything as complex, interdependent and fluid as energy, the qualities we seek—interconnectivity, system knowingness, analytics and security—cannot be "bolted on" after the fact. They need to be integral to the design of every project or investment.

Third, moving to a true energy system will enable—and require—far more collaboration: I'm not just talking about the familiar idea of "private sector-public sector cooperation." A diverse, multi-stakeholder world requires all the parties actually working together, shoulder-to-shoulder on a daily basis.

Yes, we all have particular responsibilities—to customers, to partners, to regulators, to shareholders. But in today's world, fulfilling those responsibilities requires that we also fulfill our responsibilities to the system as a whole. That will be transformative. But it will also require change.

Finally, policy and ethics: From new models of technology… to the changing role of the individual in modern life… to new expectations for sustainable living… we are entering a very different world. We must come together around clear guidelines and commit to how we operate and manage our organizations and industry, from an ethical and societal point of view. Importantly, this includes the issues of security and privacy.

As energy professionals, you know how exciting it is to embrace technology to improve efficiency, safety, sustainability and daily life. But the idea of pervasive sensors and cameras… sharing data with energy providers and governments… Not everybody is going to be happy about that.

And when it comes to security—the technology is robust, but as the world's infrastructure becomes networked and interconnected, the exposures multiply exponentially. How vulnerable is the world's essential infrastructure? Are our electric grids only going to be as secure as a website?

If we don't come together to forge a new policy framework that protects the individual's privacy and the community's and nation's security, people may say "stop." And they should.

In the end, the key is the human dimension. If we can optimize the smart grid of the 21st century for the individual—then our energy infrastructure will become more than a new power plant for the world's economies. It will become the infrastructure of a smarter planet.

Let me conclude with a dose of optimism.

Smarter energy is not some grand, futuristic ideal. For one thing, the examples I've mentioned are real, and more are being deployed right now, around the world.

For another, smarter energy is practical because it is non-ideological. Yes, debates will continue to rage on many contentious issues that impact energy—from security, to climate change, to the economics.

But no matter which viewpoints ultimately prevail… the system that results will have to be smarter—more transparent, more efficient, more accessible, more resilient, more innovative.

And that's one final reason for hope. Making energy smarter is in everyone's interest. For a whole spate of reasons, the boldest action and the most pragmatic action are now one.

The initiatives undertaken by Secretaries Chu and Locke and their colleagues at DOE and DOC—and by many at the state level—are very promising. But with all due deference, the rest of us do not have to wait for the government… or anyone else. That's the lesson we have learned from dozens of smart grid deployments around the world.

We find ourselves today at a unique moment. The key precondition for real change now exists: People want it. And they are hungry for leadership. Such a moment doesn't come around often, and it will not last forever.

So ask yourself this: In hindsight, when the circumstances that cry out for change are gone, when things have returned to "normal"—don't we always wish we had been bolder? More ambitious? Gone faster… gone farther? Did anybody ever wish they had done less?

Despite the litany of challenges we face, I am confident that energy providers around the world will do what leaders do—lead. I'm convinced we can build a smarter, more secure and more sustainable energy system.

And I'm convinced that in doing so, we will achieve both societal progress and economic growth for our cities, nations and planet.

I hope you share my excitement about the opportunity before us, and that you will join with us in this exciting journey.

Thank you.