Four wheels, a steering mechanism, and a propulsion system: Peter Tertzakian’s definition of a car. On October 14th, Tertzakian, Managing Director of ARC Financial, Deputy Director of ARC Energy Research Institute, and Executive-in-Residence with the Ivey Energy Policy and Management Centre, gave a thought-provoking presentation on energy transitions to Ivey undergraduate students. He started by leading students through the narrative of propulsion systems over the last century. By analyzing vehicles’ propulsion systems, we get an excellent representation of the energy business at the time. Over the past 100 years, gasoline and diesel-powered vehicles have clearly prevailed, but there were some serious attempts at changing this paradigm: from a tiny steam auto engine in the 1960s to a fully electric vehicle prototype in the 1970s. So, why is it only 50 years later that electric vehicles are gaining traction? What is now enabling the propulsion system paradigm to shift? The electric vehicle prototype from the 1970s had comparable performance and specs to Tesla’s current offerings; what has changed? Tertzakian set out to explain the founding business principles that differentiate successful energy transitions from failures. He used the business case of the electrification of lighting, championed by Thomas Edison, to illustrate these principles.
Think in Complete Systems
Edison understood that an incandescent bulb on its own would be useless if homes were not connected to a source of electricity. He was not simply selling a lightbulb – he had to revamp an entire system. Edison had to generate electricity on a large scale, build a network to distribute power to homes, and only then could he transition lighting from gas-powered lighting to electric. Discovering the lightbulb (though he was not the first to do so), made him a great inventor. Affecting change on the entire system to enable to wide-spread adoption of the lightbulb made him a great innovator.
Go Where the Money is
The first area to receive electric lighting was a wealthy neighborhood in Manhattan, where Wall Street lies. This was no coincidence: it was Edison’s business acumen at work. The high-end market was willing to pay for the “new,” and as they bought, Edison’s Illuminating Company could learn and fine-tune their processes. Gaining experience, the company realized cost efficiencies that then allowed Edison to offer affordable electricity to mass markets, completing the transition to electric lighting.
Hijack Current Infrastructure
Bringing electric wires into homes was a daunting task for Edison. Instead of attempting to start from scratch, Edison had the brilliant idea to repurpose the current infrastructure: gas pipes. Instead of burrowing wires through walls to electrify homes, he fed wires through existing gas piping, added sockets, mounted lightbulbs, and voila: electric illumination. Hijacking the existing pipe system dramatically reduced their workload, enabled faster deployment of technology, and made the conversion from gas to electric less intrusive for homeowners: a win-win.
Discredit the Incumbent
People can be averse to change, and it often takes a significant push to convince consumers to ditch their current habits. Edison discredited gas lighting by covering and publishing reports of gas-related incidents in newspapers. From house fires, deaths, and explosions, Edison publicized it all to discredit the existing system. Highlighting and publishing the problems that customers were experiencing facilitated the adoption of his alternative: electric lighting.
Tertzakian applied these fundamental principles to today’s budding energy transition towards a low-carbon economy. Despite being centuries old, the business principles still apply, and players who follow them are more likely to be successful than those who do not. Tesla, for one, has created significant waves towards the electrification of vehicles by employing these principles. Once again, it will take innovative thinking, not simply inventive thinking, for our world to transition to a new energy system; one that will lead to a more sustainable future.
Francis Coulombe is an HBA student at the Ivey Business School. He was the Finalist in the 2020 Canada's Energy Past, Present and Future: Ivey Student Story Competition presented by the Ivey Energy Policy and Management Centre in partnership with Peter Tertzakian and his personal online museum, www.energyphile.org.