Energy companies can turn the threat of new rivals into an opportunity by taking charge of their own disruption, believes energy and IT entrepreneur Jean-Luc Dormoy. With a background in software, artificial intelligence and energy, Dormoy sets out a model for disruptive innovation inspired by the likes of Google and Uber in this exclusive interview with Energy Post. Dormoy: “IT is changing almost all industries. But IT on its own is not enough. The energy infrastructure also has to change.”
Jean-Luc Dormoy is a mathematician, artificial intelligence expert and entrepreneur who has repeatedly found himself sucked into the field of energy. He worked at EDF for 17 years in artificial intelligence R&D and helped the company with its first foray into smart meters. He has founded numerous companies, notably Kalray, which builds ”manycore” chips that deliver superior processing power – and use 10-15 times less energy too. Dormoy’s latest venture is a company that aims to help incumbents make the most of the threat of disruptive new players. He is also a member of a European ICT expert group set up by IEEE (Institute of Electrical and Electronics Engineers).
This is a man who likes disruption and urges others to embrace it too. What incumbents in a sector like energy need to do, he says, is disrupt themselves. Before somebody else does it. This is what the European airline industry did back in the 1980s when it created an online travel management platform, Amadeus. But this is just the beginning for Dormoy. The key is to think about the customer, he explains. This is what start-ups do. The fundamental question is: “What are people doing with energy?” Find that out – offering people free services to get the data if necessary – then monetise what you find and use the money from that to do R&D and really disrupt your market.
It’s the strategy that Uber is following with its latest research into driverless cars and a global system to coordinate them – one of the biggest mathematical challenges of our time, says Dormoy. It is what energy companies could do if they think and act more like IT companies: “It’s not only about having an innovation unit that looks at start-ups. You need to understand how they work. But then you need to do it yourself. You need to design those services that will be meaningful for millions of people.” IT will change the energy sector, but real innovation requires the sector itself to change too.
Q: Your background is in software, IT and artificial intelligence. How did you get into energy?
A: I started with energy: I trained as a mathematician, switched to artificial intelligence and the topic of my thesis was how to make an artificial intelligence system to understand, explain and eventually avoid nuclear accidents.
The fundamental question is: “What are people doing with energy?”
This was my first contact with energy. I then worked in IT, including blue sky research, at EDF. At that time I was very impressed by the first artificial ant – a robot with six legs. I thought of Chernobyl and the people who were sent in with a camera to take pictures of what was happening. They were sacrificed. And I thought that instead of sending people, you could send robots on such a mission.
After working on software development for a while, I began to wonder why what I was doing wasn’t used. So I started to be interested in the IT industry itself. Eventually I left EDF and went to CEA Tech. This is like the US Department of Energy in France. There I worked on microelectronics, software and new energy technologies. And I caught a virus: the virus of making companies.
Q: You set about creating IT companies such as Kalray, which makes multi-processor chips. How did you go from IT entrepreneur back to energy?
A: EDF called me back in 2008-9. They said “there is this smart grid, smart systems stuff – we don’t really understand it but we would like to do something in this area”. My mission was to design a strategy: what is the impact of IT and what should we do? I worked with Martin Vesper who was one of the leaders of Yello Strom (then a German subsidiary of EDF) at the time. He had already started a project for a smart meter connected to the Internet. It was a real smart grid product, not just a component. It had a proper design and we also had a marketing strategy, data privacy strategy etc.
We managed to sell between 50,000 and 100,000 in Germany. In France, EDF wanted to launch a whole new ecosystem. The objective was to equip 300,000 customers with a home energy management system, fully integrated with the Internet, and on top of that an application for demand response [whereby customers buy more power when it is cheaper]. The objective was to create something similar to Amadeus, the IT-company that makes reservations for air travel.
Q: In what way is an IT platform for air travel an inspiration for a smart grids business?
A: In the late 1980s the Internet didn’t exist yet, but US air transport companies had founded a global software platform. European companies could either join that or create their own. They created their own: Air France, Lufthansa, Iberia and SAS founded Amadeus in 1987.
These companies created an intermediary that they recognised was inevitable. They thought: “better create it ourselves and control how much margin it takes than leave it to someone else”. They introduced a new, disruptive business but with benefits that come back to the incumbent.
In energy, they want a business plan for the next 30 years. In IT, it’s for the next three years
This is the model that I proposed to EDF. But it was too early; the mindset was not there yet. Today I am founding another company however, that will do exactly this: help incumbents turn the threat of new players into an opportunity.
Incumbents often get it wrong. For example, they say that Google and Apple were start-ups “so we have to be interested in start-ups”. That’s true but it’s not sufficient. The IT and energy sectors also think in totally different timescales. In energy, they want a business plan for the next 30 years. In IT, it’s for the next three years. And the pace of innovation is going to be imposed more and more by IT.
Q: What would you say is the role of IT in energy today?
A: I believe that IT is changing almost all industries. But IT on its own is not enough. Look at smart grids. People still think and I also believed that – it was a mistake – it is enough to put an IT infrastructure on top of the existing [energy] infrastructure. It’s not enough. The energy infrastructure also has to change.
Q: How does the energy system have to change to make the most of developments in IT?
A: Let’s take the example of Google. In 2007 they unveiled a project to make Renewable Energy Cheaper than Coal (RE<C). Companies like Google set these so-called unattainable objectives, or very ambitious goals. They also have another way to working, which is that if they don’t get meaningful results quickly, they stop. And they say “we failed”. This is what happened.
Do carmakers really know what people are doing with their car? I don’t think so
At the time of the project Google was promoting the Google Meter. At Yello Strom we had an agreement with Google. We were the only utility in Europe to have a connection to the Google network with our smart meter. Then they stopped and apparently withdrew from energy. But from 2011 to 2014 they asked two scientists to analyse why RE<C had failed. These researchers concluded that even if Google had been successful, it would not have been sufficient to solve the climate issue because the energy industry is not organised the way that Google is.
How does Google work? It’s not a secret. They spend 70% on normal business, 20% on new business and 10% on crazy ideas. In energy today it’s more like 0.00001% on crazy ideas. The level of effort devoted to new ideas and even more to crazy ideas is much too small.
The IT sector spends more than €300 billion a year on R&D. That’s public plus industry money. In energy it’s only €16 billion. That’s twenty times less. We talk about climate change but we don’t spend the money.
Q: Do the energy companies have a chance though? Inken Braunschmidt from RWE suggests that they are at least starting to talk the talk.
A: There is an evolution that is positive, but not yet complete. As I said, IT is going to change the sector but you also have to work on very innovative things in the area of energy itself.
There is another point: how does the IT sector do business? They are interested in use, in the customer. They want to know what people do with the products that others sell. IT companies try to get as much use data as possible – the buzzword is “big data” – then they define different services and put them on the market very fast. They want to be a hit with customers. They try to give them services that are irresistible, even free, to [get data to] understand what people are doing.
It’s not start-ups that are going to provide you with solutions
Take cars. Do carmakers really know what people are doing with their car? I don’t think so. Yet today’s technology would make it possible, aside from some privacy and security issues. And when you have that data, there is the possibility to monetise it, to reveal some new, unexpected, dormant value. The sharing economy is one example, but there are probably other possibilities.
Q: Do you see energy companies creating new, disruptive intermediaries that allow them to retain some control over their market – and their margins?
A: That’s what they should do. And I believe there is a process underway to change the mindset of the energy sector. Eventually someone will ask the question: “What are people doing with energy?” For now, it’s totally unexploited.
Q: Who is most likely to seize these opportunities though, the energy companies or the Googles of this world?
A: The energy companies could do it. They can decide to do it. But it’s not only about having a unit for innovation that looks at start-ups. That’s good because you have to learn, but it’s not start-ups that are going to provide you with solutions.
Start-ups need customers. There are two solutions: either they are on a B2B market and they look for customers from the energy sector, or they are in a B2C market and very probably the disruptive players that are going to push the incumbents away. You need to understand how they work. But then you need to do it yourself. You need to design those services that will be meaningful for millions of people.
What Google teaches us, is how to do that. You have to build teams and an organisation that is not hierarchical, but based on projects; where people have skills in both technology and marketing; where people have time to spend on pet projects even if they are crazy.
Q: So innovation is as much a question of organisation as priority setting?
A: It’s a question of decision. You need decisions at the highest level. The fact that some energy companies are opening up new business units or small innovation teams means they are progressing. But it’s not enough.
Q: What could accelerate this process? Can policymakers help?
A: Certainly, yes. For example, you have quite some money spent on R&D projects. People say we should go further downstream and do longer, more comprehensive experiments before going to market. No, don’t do that! On the one hand, you must fund crazy ideas. On the other, you must have projects which go to market very fast. Don’t experiment without the real future customers; experiment with them to see if what you are doing is adopted quickly by thousands, hundreds of thousands, millions of people. I believe projects should be organised differently.
Young people want to play it differently to what’s been done until now. It’s not too late, not yet. We are still in the game
The other point is that you have both research and innovation in mind when you set political objectives. The level of R&D in IT companies is very high. They know that they are spending for the next generation of products and services. You have to think about that. If you spend €100 billion on subsidies in renewables, how much of that is going to research and innovation in renewables?
Q: What do you think will cause the biggest disruption in the energy system in future?
A: It’s hard to say. I’d like to give some examples from energy, but the car industry is changing faster. Uber is making a lot of money. But it doesn’t stop there. It uses that money to do research and innovate. Uber is heavily funding projects for self-driving cars. It is also funding projects to design algorithms to pilot thousands of cars in cities in a collective way. This is a very difficult algorithm. Behind it is one of the five most difficult mathematical problems of the 21st century.
In effect, Uber is looking to disrupt its own business. Why? Because every company in the IT sector knows that when you sell something, two years from now it will be sold for half the price.
Uber is imagining a future with global artificial intelligence to manage all those cars in the most efficient possible way. It could make the introduction of electric vehicles must easier. Yes, driverless cars will change their business model. But what is Google doing? Google today is monetising its data through advertising. But I’m pretty sure they are not really happy with that. They are thinking of their next business model. And this is why they are getting into other areas such as health and the car industry. Maybe they will enter energy again at some point. They have the Nest thermostat but that is still small compared to the whole energy sector.
Q: With such innovation heavyweights around, is there an opportunity for others to make their mark?
A: Yes – and this is also important for policymakers to realise – they are not big enough to do it alone. Even if the IT industry today is 8% of the economy in the US, 6% in Europe and 5% globally, it’s not big enough to tackle and disrupt the rest of the economy. Moreover, I believe that Silicon Valley is not big enough. This is why it’s an opportunity for everybody around the world. It is also possible to disrupt from Europe, from Asia and from other companies.
Q: Usually Europe is not lauded for its innovation or disruption skills. What does it have in its favour to take advantage of this opportunity?
A: We have the basic necessary resource: competence. We have excellent trained people. And we have a young generation that is willing to do it. I see thousands of start-ups just in Paris. Young people want to play it differently to what’s been done until now. It’s not too late, not yet. We are still in the game. It’s a matter of mindset and I believe that this mindset is changing, slowly but it’s changing. And that’s also the case for politicians.
This will be part of the KIC InnoEnergy Business Booster event on 21-22 October in Berlin.
The other panel members will be Ad van Wijk (Professor of Future Energy Systems at Technical University Delft), David Arfin (Founder and CEO of First Energy Finance) and Anil Srivastava (CEO of French storage company Leclanché).
For more information and to register see here. Readers of Energy Post receive a 50% discount and pay only €250 for the two-day event, in which dozens of European energy startups will display their innovations and pitch their ideas to the audience.
For some excellent in-depth interviews with David Arfin, Ad van Wijk and Inken Braunschmidt, head of RWE Innovation, see our Innovations page here.