Network November 2018

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NETWORK / 37 / NOVEMBER 2018 property (IP) rights and to com- mercialise the new product or solution. The networks space, par- ticularly in GB, is unusual in that DNOs o• en do not want to own IP and so are unwilling to develop and exploit technolo- gies for themselves. This is not unique to electricity networks with similarities in the water industry too. The current default operat- ing model for DNOs is to take one step towards open innova- tion by making their high-level challenges known to the market. From there they hope to unearth products already on the market or very near-to-market that they can buy through a conventional procurement process for com- mercial goods. Where this is possible it presents DNOs (or any other company) with a low development risk approach with a high degree of certainty on price and functionality, at least in the short term. However, not every solu- tion the DNOs might like to use is on or near-to-market at the price point they need. Conse- quently, where it is not possible to procure exactly what they want, DNOs are forced to choose between accepting the nearest commercially available alterna- tive – o• en at increased cost – and persuading a third party to solve their problem. The former is straightforward if potentially costly in the long run, espe- cially if they need the device in large volumes. While the latter involves outlining the problem in the hope that one of their existing suppliers will extend their product range to provide a bespoke, lower cost solution. Relying on the supply chain to innovate creates a number of risks but three of them are par- ticularly interesting. Firstly, the supply chain company may per- ceive that the new product will cannibalise existing sales and so delay or even decline to be in- volved. Secondly, a DNO cannot guarantee it will buy the new product, only that it intends to run a competitive procurement process and the supplier will be invited to take part. This means the supply company needs to fund the development at signiˆ - cant commercial risk. Finally, as the DNO has little or no control over the product, there is the risk that once established in the market and embedded into a DNO's operating culture, the supplier pushes up prices, or discontinues the product (perhaps because sales volumes have dropped oŠ ). In industries where assets last such a long time this is of more concern in network business than in many others. As there are typically a very small number of suppliers seeking to sell to a very small number of GB network opera- tors and GB network infrastruc- ture is o• en quite diŠ erent to its European or international counterparts, all of these are very real risks that need to be 'priced in' by the supply chain on successful products to cover those that are less successful. Consequently, the 'persuade your supply chain' approach to innovation does not avoid devel- opment cost entirely, it simply moves it oŠ the DNO's balance sheet and amortises the cost over future procurement cycles but with an added premium to cover the supply chain proˆ ts and risk. For lower volume products this risk premium may become a relatively signiˆ cant proportion of the total cost. Perhaps more importantly, these increased risks act as a brake on the pace of innova- tion and development in the networks space which leaves cost-saving opportunities 'on the table'. If the pace of innova- tion in the industry could be stepped up, there are likely to be signiˆ cant savings available to consumers as new technologies and cost reductions are imple- mented. What's the solution? In the case of FuseOhm, the risk issue was greatly alleviated by an Innovate UK grant which allowed development at an af- fordable opportunity cost to 42 Technology and allowed them to retain IP ownership. However, SME reliance on grant funding to develop solu- tions for network companies is its own form of innovation bottleneck. One model perhaps worth consideration – although it would require a signiˆ cant cultural shi• – would be for one or two DNOs to collaboratively set up a small, unregulated limited company to develop and own IP rights. This company would pro-actively identify un- addressed cost or performance opportunities in the networks businesses, then work with third parties to develop solutions in a way that it retained the arising IP rights. The new IP company could then produce the solu- tions through contract manufac- turers and sell them to all DNOs through conventional channels; while yielding unregulated prof- its for its shareholders, some of which could be reinvested in further research. Perhaps more importantly, ˆ nding creative new ways to ac- celerate innovation at lower risk will reduce the long run cost of network operation, increase network operator margins and ultimately bring down costs for consumers. FuseOhm logs current, voltage and fuse temperature across three phases. The next stage in the development of FuseOhm will be the fi rst install and real-world testing of prototype units in a customer-facing substa- tion. Extensive testing of FuseOhm has been carried out at the UK's Power Networks Demonstration Centre (PNDC).

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