- There are two new business models emerging in the electricity sector: (1) greening generation through increased renewable energy sources and (2) digital products targeted at "retail-size" customers.
- Green generators depend on policy support and securing stable revenue streams prior to investment. Digital technologies help reduce costs for small players offering customized products.
- Regulated grids are impacted as they are key to renewable generation but lack incentives, and are the "delivery loop" for digital products but regulation lags behind changes. Questions remain around revenue streams for green generators and role of grids in facilitating new business models.
New Business Models in the Electricity Sector: Greening Generation and Digital Products
1. New Business Models
in the Electricity Sector
Jean-Michel Glachant
Director Florence School
Florence, 17 Sept. 2019
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2. 1. Two key novelties in el. BizzMdls
2. (Nov.1) Greening generation
3. (Nov.2) Digital Products for ‘retail-size’ players
4. (Then >) Caught in between: the Reg. grids
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Summary
3. • Another wave of changes shaking electricity sector & BizzMdls.
Former waves were (Wholesale Markets + Retail Markets + X-
Border) supported by (Smart Grids & Smart Metering)
• New wave has 2 legs:
– Greening generation
– Digital Products for “retail-size” players (like “sharing economy”)
• We need a simple conceptual framework to grasp it
BizzMdl = “how one creates, delivers & captures value”
(Osterwalder and Pigneur, 2010)
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1. Two novelties in electricity business
models
4. 4
2. (a) Greening generation
• Policy support & technological improvement expand role of RES
(wind & PV) in generation mix
• RES call for upfront investment in generating asset, and little
variable cost
• >> Need to secure stable revenue stream before taking final
investment decision (as nuclear…)
5. 5
• Asset characteristics & revenue streams influence economic
viability & “types” of green generators
• Scale & entry barriers differentiate
Onshore wind for all or for a few
Offshore wind only for few majors
Utility scale solar easy to enter
Rooftop PV for prosumers
6. • Digital technologies increase
availability & accuracy of information
• Digitalisation help reducing transaction costs: defining new
products, searching credible partners, matching them, delivery-
loop following up, settlement
• New BizzMdls:
– Creation of particular services (instead of mass market commodities)
– Value creation with “light assets” (typical: digital platforms)
– Strategy validated expost (time needed to gain customers who can validate
new Digital BizzMdls) 6
3. Digital products for “retail-size” players
7. • The new digital world (going beyond B2B and B2C)
Aggregator single activation: activates “retail-size” consumption units
& packs them to re-enter into wholesale / retail loop = C2Agg2B
Platform1 single activation: eliminates Aggregation as intermediaries,
as TSO-DSO directly buying own flexibility needs = C2B
Platform2 double activation: activates both “retail-size” demand &
offer = P2P
Blockchain too can do double activation; eliminating Platforms as
intermediaries; but works better in a “club” = P2P
Communities as organic “activation association” = P&P
“Asset Fleets” as “autonomous territories behind the meter” (EV
fleets; smart buildings; IoT; micro-grids, etc.) = C2Fleet 7
8. • Grids’ business impacted by both
greening generation & digitalisation of retail-size players
• Grids key to GreeningGen
but incentive regulation still lacking (see GB vs DE regulatory framework for
offshore grids; volumetric tariffs and prosumers)
• Grids essential facility to Digital new Products as “Amazon delivery loop”
but incentive regulation still lacking (despite views on “Platformization” of
distribution – NY, Eurelectric, MIT 2016, Hogan & Caramanis, etc.)
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4. Caught in between: the reg. grids
9. • Grids still fully regulated “Steel & Concrete World” with Universal
Access + “Fix & Forget” + Public Service Obligations + Postal Stamp
– Neutrality towards market parties, Tgies, BizzMdls
– Cost socialization among network users AND support to
vulnerable and passive customers
– Consumer tutelage (regulation of products, contracts, suppliers
entry & c onduct - called “Consumer Protection”)
• If grids are frozen to change, disruption can take place at their edge or
behind, possibly by new players
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10. • 2 types of BizzMdls are seen in electricity sector:
1. (Assets employed) ↔ revenue streams secured ex ante to
validate investments
2. (Particular product characteristics) ↔ specific customers
targeted to validate ex post this special offer
• Questions:
o Any other type of BizzMdl?
o Implications for companies
implementing them?
o Non company bizz:
P2P Blockchain, Communities
o What relevant regulation?
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5. Conclusions
12. 12
Thank you for your attention
Email contact: jean-michel.glachant@eui.eu
Follow me on Twitter: @JMGlachant (~ 55K tweets)
My web site: fsr.eui.eu
14. 14
• The two BizzMdls face risks:
1. Green generators depend on policy or regulatory decisions on
revenues
2. Particular services for retail-size customers are dependent on a
physical delivery loop
• Questions:
o Can green generators secure market-based revenue streams, e.g. by
signing long-term corporate PPAs?
o Will grids provide efficient & neutral price signals that ensure level
playing field to new BMs?
o Will grids become “digital platforms” facilitating emergence of new
businesses? Or will mini-grids friendly to specific BizzMls established
& operated quasi-independently from regulated public grid?
o Will a platform of platforms emerge allowing seamless integration of
all particular platforms?
Implications of the two BizzMdls
Notes de l'éditeur
A business model is an expression widely used but its definition is frequently vague, even in the scientific literature on business and management.
An alternative good definition is the following one: “the manner by which the enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit” (Teece, 2010).
The expression became fashinable in the 2000s when due to internet/digital economy and globalisation firms had frequently to update/rethink the way to earn money.
At the world level, the share of wind and PV in electricity generation grew from 0.2% in 2000 to almost 6% in 2017 (Source: IEA, 2018, p. 528).
In the EU, the vast majority of investments in new RES capacity between 2005 and 2014 were linked to FiTs (around 160 GW) and, to a much smaller extent, to fixed or variable Feed-in Premium (around 20 GW). Green certificates were responsible for a relatively small amount of capacity additions (a bit more than 40 GW). Capacity additions without public support were negligible (Source: IEA, 2016, p. 62).
Devices can be monitored and controlled remotely and in an automated way.
Sophisticated forecast of consumption and generation can be elaborated.
Transactions can be tracked.
History of digital economy suggest that it might take time to validate a business model: Spotify took about 10 years to get 100 million paying subscribers and it is still reporting losses.
Big potentialities are frequently visible at the beginning but it is not easy to know in advance how customers and competitors will react.
Aggregators pool distributed energy resources and offer back their DR or energy to wholesale markets or balancing mechanisms.
Platforms are developed to allow parties to trade energy, possibly with specific characteristics (local, green, etc.), or services.
In a previous policy brief, we called the autonomous territories as «virtual resorts for artificial intelligence».
Smart EV fleets may offer mobility as a service plus ancillary services to the grid, while optimising the recharging costs.
We are talking both of transmission and distribution grids.
Grids used to connect customers by investing in long-lived physical assets and be remunerated via volumetric tariffs paid by network users.
Three Ds make grids’ traditional business more difficult, costly and risky:
Grid reinforcement & expansion to host new renewable capacity
More variable and less predictable use of the grid
Revenue gaps due to final customers deploying DERs
Grid companies are aware of the importance of developing new services and new interfaces with their customers but they are blocked by their company culture, the lack of certain skills and expertise, and by the regulatory framework.
New players can disrupt the system, possibly by acting at the margins of the regulated grid so that they are able to bypass regulation.
Business model canvas:
A flexible tool to describe a business model
Up to nine building blocks
A platform of platforms is a concept similar to the system of systems frequently mentioned by ENTSO-E.