Infrastructure report: Change is coming swiftly

Think Auckland's future energy development. Think power stations and networks of lines and cables criss-crossing the city to deliver electricity to a rapidly growing city.

Think again, urges Vector chief executive Simon MacKenzie, as he talks about what the future entails in a world where rapidly changing technologies will put the customer -- or consumer -- at the heart of technological choice.

"The biggest mistake we could make in Auckland is doing these traditional-type developments," says Mackenzie. "We're heavily engaged with developers to broaden options and thinking."

He points to the convergence (a "puzzle") of three major platforms. There's the world of existing traditional networks -- that's the power lines and substations; then there are the new hardware solutions -- solar power and increasing battery storage capabilities that are already providing consumers with distributed power options; and finally the new software solutions which allow those same consumers to manage control.

"We see a world where all of a sudden the traditional providers are competing with the hardware solution providers and the disrupters in the control space."

It's a world where for a major network company like Vector getting the wrong emphasis could result in stranded assets in four to five years time, if customers move ahead of strategy, and, on the consumer side the potential for social issues if people cannot afford new hardware like solar panels or whizz-bang apps. Hence, Mackenzie -- and Vector -- are engaged in all three components.

There's an element of commercial sensitivity to some of the work Mackenzie has under way, supporting small companies to innovate in New Zealand and thinking through how that can be leveraged with international partners in the US, for instance, to create whole new industries in the weightless economy space based from here.

Here's the thing. The company's San Francisco partner recognises New Zealand has a pool of skilled people who are have experience in a world where globally there is a shortage of emergent technology capability.

"They look at New Zealand and see we are very pioneering in this space," says Mackenzie. "They recognise there is a real talent pool here and from our perspective we have been utilising this pool.

"We should be looked at as the innovation and creative centre of the world. They are thinking of setting up down here to take advantage of the tech pool we have."

One factor driving this is US pay scales. Graduates with three years' experience in computing technology can crack US$250,000 a year within three years of graduation.

Mackenzie reckons there are plenty of opportunities for NZ firms to be pathfinders.

For instance, Nest -- a US company ("two guys out of Apple") -- has developed customer focused energy management solutions which are as simple as a thermostat control with smart technology embedded in it. "We've been developing similar technology with local people here. But in the US you can access capital and a market more easily.

"There's a whole lot of talented people in the space if they could be facilitated into a bigger market."

We should be looked at as the innovation and creative centre of the world - Simon Mackenzie, Vector CEO

Already in Germany, 75 per cent of energy is produced by either customer-owned or community- owned solutions through solar and wind.

In Queensland, there is now 20 per cent penetration of solar power in the market.

The big question is whether solar can be built on a scale that will meet the bulk of the world's electricity needs.

Mackenzie instances other technological sectors like computing, the internet and telecommunications. All three were dominated by huge, centralised technologies. But all three industries have been turned upside down by new "distributed", or hand-held devices.

"The same thing will happen in electricity".

Electric vehicles are part of the major disruptive changes that lie ahead in New Zealand. Mackenzie points to a situation where batteries will initially be used in cars then moved to provide home storage systems after 8-10 years of driving use. Driving an electric car will save an average driver more than $2000 per year on petrol costs.

Batteries are forecast to drop from $1000 per kWh today to as low as $200 per kWh in the next five years (or sooner as massive manufacturing plants are being constructed).

The point is, the future is already here.

"We are going from big centralised power plants to decentralised generation, to decentralised storage, and to decentralised distribution," says MacKenzie.

"It is just a matter of policymakers understanding this and making regulations appropriately."