The need to drive innovation is a hot topic and nowhere is this more evident than the energy sector

Denise Massey, MD of the Energy Innovation Centre, discusses why large organisations must embrace collaboration with SMEs in order to drive innovation.

Innovation is a hot topic and nowhere is this more evident than in the heavily regulated energy sector. Whether it’s the recent commitment from the Department for Business, Energy & Industrial Strategy (BEIS) to invest in energy innovation spend up until at least 2020 or Ofgem asserting in its recent ‘network innovation review’ consultation document that “innovation is critical for transitioning to a low carbon economy” – innovation’s impact on the energy sector has never been more clearly stated.

The big trilemma

Driving this is the need for energy system transformation that addresses the challenges facing the UK as we transition to a low carbon economy. It is only through innovation that energy network operators will discover the new technologies and processes that will help them to address the energy trilemma of energy affordability, security and sustainability that lie before them.

Since 2008, the Energy Innovation Centre has worked as an innovation scout for the UK’s gas and electricity distribution networks. We do this by constantly scanning for new technologies from around the world that have the potential to be game-changing for energy customers, the supply chain and the industry itself.

These ideas come from our innovator community of almost 2,000 SMEs ― SMEs that have the specialist skills and agility that larger organisations, such as our energy network partners, simply lack. The complexities of these big businesses mean that it can often be difficult for them to engage with SME innovators to trial their new technologies and implement them into their day-to-day activities. Effectively leaving them cut off from a rich and disruptive innovation source.

For their part, SMEs often lack insight into the operational, regulatory and procurement challenges that typically characterise energy network businesses and this can block their access to potential customers in this market.

Collaboration, not competition

This apparent misalignment between established industry players and SME innovators isn’t unique to the energy industry – it’s typical for any market where the major players constitute big business. Some of the world’s largest companies – Unilever, Google, Lego and Coca Cola to name a few – have sought to bridge this gap by investing in their own initiatives to connect with innovative SMEs, creating benefits for both sides.

While there’s plenty of evidence of the success of such programmes, we believe that the real opportunity in the UK energy sector is in the remarkable consistency of challenges faced across all network businesses – whether gas or electricity – as this has enabled us to pursue a collaborative approach to innovation.

By collaborating on innovation rather than competing against each other, the benefits on offer to our network partners, third-party innovators and customers are often greater and the risk of duplication in terms of effort and resources is minimised. An example of this approach in action is our ‘innovation calls’ process which allows the networks to publicly and collaboratively seek third-party solutions to their challenges from our global innovation community of SMEs.

Funding the future

Another vital factor in helping SME innovation to flourish in any sector is access to funding that can help support the testing and development of new ideas and technologies.

In the energy sector, distribution network operators are able to draw down funding from the regulator, Ofgem, to support innovation projects. This has had an extremely positive effect in embedding innovation within the culture of energy networks but as this funding comes under increasing scrutiny, the energy sector may potentially need to look to other sectors and business models to support future innovation projects, such as private equity investment. However, with energy innovation projects typically not generating an ROI until 10 to 15 years down the line this may be not entirely realistic.

Picking up the pace

We need to dramatically pick up the pace so we can start to see innovations go from trial stages, right through to it becoming a part of day-to-day, ‘business as usual’ on much shorter time scales. After all, if we had something that wasn’t working as effectively as it could do in our own homes, we generally wouldn’t wait 10 years to fix it. We’d be looking for solutions to make it cheaper, safer or easier to use – why should it be any different in business?

Even to increase pace, it all comes back to collaboration. If we expect to see innovation projects delivered at a faster rate, then we need to continue to create opportunities for big business and SMEs to come together and share ideas. By working in collaboration, we open ourselves up to a whole world of new thinking and technical possibilities that could result in the next big thing and a whole new outlook to our energy future.

See the press release on the Real Business website