Infrastructure Innovation in a European perspective

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Infrastructure Innovationin a European
perspective

• Margot Weijnen Ivo Bouwmans
• Cross-Border Infrastructures Symposium Rotterdam,
  November 11, 2004

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Infrastructures
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Facing the Challengethe Lisbon strategy for
growth and employment

• Five priority areas
• Realisation of the knowledge society
• Completion of internal market and promotion of
  competition (incl. services and financial
  services)
• Favourable climate to business and enterprise
• Adaptable and inclusive labour market
• Win-win environmental economic strategies
• Report from the High Level Group chaired by Wim
  Kok, November 2004

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Facing the ChallengeThe Lisbon strategy for
growth and employment

• The Lisbon strategy calls for
• Information society defining a regulatory
  framework for electronic communications
  encouraging the spread of ICTs creating
  conditions for e-commerce supporting European
  leadership in mobile communications technologies
• .. to ensure future economic growth, the EU
  needs a comprehensive and holistic strategy to
  spur on the growth of the ICT sector and the
  diffusion of ICTs in all parts of the economy
• .. closer cooperation between the European
  Commission, national competition authorities and
  national regulatory authorities
• .. boosting by 2010 the accessibility of
  broadband to at least 50
• .. a regulatory framework that stimulates the
  development of standards

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Facing the ChallengeThe Lisbon strategy for
growth and employment

• The Lisbon strategy calls for
• Completing the internal market for network
  industries progressively liberalising markets
  and network industries, notably gas and
  electricity (2007), postal services (2006), rail
  transport (2008) and airspace.
• Along with investment in RD, completing the
  internal market is the key to boosting
  productivity and innovation
• Even in supposedly liberalized sectors such as
  network utilities, incumbent operators continue
  to dominate national markets
• creating an environment where the most
  competitive companies reap the rewards of
  innovation and efficiency, driving down prices
  and increasing consumer choice

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Facing the ChallengeThe Lisbon strategy for
growth and employment

• The Lisbon strategy calls for
• World class infrastructures for the worlds
  largest internal market
• Europes level playing field remains cluttered
  with infrastructural obstacles
• More urgently than ever in the light of
  enlargement, Europes internal market needs to be
  connected
• .. in desperate need of expanded and modernised
  infrastructures
• There needs to be more targeted investment in
  infrastructure coupled with more effective
  competition in areas like electronic
  communications, energy and transport to drive
  down costs for businesses wherever they are
  located

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besides the Lisbon strategy, there are other
concerns about Europes infrastructures and
network industries
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Vulnerability

• terrorist attacks computer viruses blackouts

www.stephan-staehler.de / be.trendmicro-europe.com
/ about.reuters.com
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Vulnerability

• Natural causes
• Technical causes
• Human errors
• Intentional damage
• Capacity overload

www.ethlife.ethz.ch / cyclone.atmos.uiuc.edu /
genesis.sannet.gov
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Costs of Service Interruption

• Road Congestion Accidents
• Cable Disruptions
• Computer Hacks
• New York Blackout
• Netsky Virus

300 G annually, EU 500 M US 1600
G annually, worldwide 6 G 35 G worldwide
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the need for innovation is evident
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Which infrastructures?
financial services
education services
health care services
public utilities / network
industries
information and telecoms
energy supply
water supply
transport of people and goods
flood protection
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Defining Infrastructure

• Transport distribution networks
• Carriers, conversion storage facilities
• Governance, management control systems
• from generation to load
• from supplier to end-user
• from one user to another

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Infrastructure Complexity - 1
Infrastructures are multi-dimensional systems
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Infrastructure Complexity - 2
service provision
management control
physical assets
Infrastructures are multi-layered systems
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Users Service
service provision
management control
physical assets
Reliability and quality of service depend on
the integrated system performance !
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Positioning innovations
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but how to predict the effect of (local)
innovations on the integrated system performance ?
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Dealing with complexities

• Evolutionary growth
• Active / Adaptive nodes
• Emergent network behaviour
• Socio-technical interactions
• Interconnectivity
• Across national borders
• Across different infrastructures

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Electricity Evolution

• 1880-1910

• 1880-1910 City

• 1910-1950

• 1910-1950 Province

• 1950-1980

• 1950-1980 Country

• 1980...

• 1980... International Interconnectors

www.bosatlas.nl
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physical electricity exchanges, 2002 (GWh)
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Old drivers for technological innovation

• Increasing demand
• Economies of scale
• Changing public values reliability, quality,
  affordability, health, safety, environment,
  sustainability, flexibility, security, privacy,
  .

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Innovation in the public monopoly culture

• Central coordination and planning
• Supply driven
• Focus on reliability (gold plating?)
• Technocratic technology push
• Entrenchment in established infra-structure
  (embedded costs)
• Universal service one size fits all

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New drivers for technological innovation

• Institutional innovation liberalisation,
  privatisation, de- and re-regulation
• Internationalisation of firms and markets
• Critical consumers service-on-demand,
  personalised service quality, higher reliability,
  .
• Liabilities and damage compensation

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From Monopoly to Market
production column
regulator
consumers
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Generation
Transmission
Load
technical subsystem
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steering innovation through market forces and
network regulation
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Innovation in liberalised utility sectors

• Distributed coordination and planning
• Demand driven
• Focus on efficiency (what about future
  reliability?)
• Customer oriented market pull
• Competition with the established infra-structure
  (competing networks, network independent utility
  supply)
• Service quality differentiation

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Dominant innovation penetration of ICTs in all
utility sectors

• Physical assets intelligent infrastructure
• Deeply distributed autonomous intelligence in the
  networks self-adaptive capabilities, QoS routing
  (self-organising, self-healing network
  properties)
• Autonomous intelligence in carriers (cars,
  aircraft, trains)
• Management and control
• More intelligent capacity management (Traffic
  Information Systems, tariff differentiation by
  time-of-use and user group, better information
  sharing between infrastructure operators, such as
  in ATM, etc.)
• Market operation through the Internet (e.g. APX)
• Service provision smart services
• Personalised services, service-on-demand,
  multi-utility services, consolidated billing,
  etc.

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Barriers to innovation

• Imperfect competition
• Regulatory uncertainty
• Poor standardisation
• Poor physical interconnection
• Poor market harmonisation
• Political risks, uncertain returns, long payback
  times

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Barriers to innovation

• Striving for perfect competition
• in Europe or in individual Member States?
• Harmonising network regulation
• by national regulatory authorities?
• Poor standardisation
• struggle between national champions?
• Expanding interconnection capacity
• expensive solution to make the internal market
  work

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Barriers to innovation

• Market harmonisation
• post stamp tariff system is not enough to make
  the internal market work worse, it does not
  encourage timely investment to remove bottlenecks
  in transport (and generation) capacity
• future reliability and quality of service will be
  jeopardised unless smarter tariff systems (nodal,
  zonal pricing) are implemented or a capacity
  mechanism is introduced

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infrastructure reality is even more complex
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Interdependent Infrastructures
Interdependent Infrastructures
Physical Network
Social Network
Physical Network
Social Network
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Interdependent Infrastructures

• Physical Convergence
• Multi-functionality
• Organisational Convergence
• Multi-utilities
• Market Convergence
• in substitution
• in complements
• Spatial Convergence

Interdependent Infrastructures
Physical Network
Social Network
Physical Network
Social Network
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Conclusions Boosting Infra Innovation

• .. to ensure future economic growth, the EU
  needs a comprehensive and holistic strategy to
  spur on public and private investment in
  expansion and innovation of its network utilities
  .
• .. closer cooperation between the European
  Commission, national competition authorities and
  national regulatory authorities
• A European strategy (mandate?) for harmonisation
  of market structure and network regulation in a
  cross-sectoral perspective

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ConclusionsDealing with new innovation dynamics

• Network growth steered by market forces
• Change technology push to market pull
• Emphasis on service innovation
• Technology selectiondetermined by market /
  social network

service provision
management control
physical assets
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ConclusionsUnderstanding Infra Innovation

• Dealing with complexities
• physical network
• social network
• Understanding the integratedsocio-technical
  system
• Multi-disciplinary, cross-sectoralknowledge
  infrastructure

Physical Network
Social Network
Physical Network
Social Network
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www.nginfra.nl

• Margot P.C. Weijnen
• Ivo Bouwmans