Emerging business models in the utilities industry

Across industries, digitalization is changing the way organizations do business. In the utilities industry, new business models are emerging, many of which are closely linked to the pressing need to embrace a low carbon economy. This shift is driving changes in demand, caused by increased electrification, and in production, with more renewable energy generation. Consumers are becoming energy suppliers and some independent organizations are even building-out their own power assets.

These changes make it increasingly complex to maintain balance in a system that is greener, but still affordable and reliable. The new energy system also needs to recognize consumers as market players in their own right to provide added value to them and help to better manage the system.

One way to address these challenges is to exploit the flexibility within the system. There are several examples of large enterprises either reducing consumption during peak times to save money or giving system operators access to their own backup generation assets to generate new revenue. A notable example is Scottish-based publishing company, The Herald and Times Group, which will earn up to £250,000 over five years in partnership with a demand response operator. However, demand response is not limited to large enterprises. Smart devices that are connected to equipment such as heaters, coolers and air handling units can help consumers adjust energy use in real time. Eventually, all appliances will be connected to the grid so that consumers can track their energy usage and reduce energy consumption and costs.

Models that enable load aggregation trading in wholesale markets are also attracting interest. For instance, Alliander, a large network operator in the Netherlands, offers a solution that allows clusters of consumers to aggregate their shortage or surplus of energy and access existing trading markets. In the UK, three corporate giants have launched the Living Grid program that aggregates their flexible power. The group aims to bring 20 more organizations on board.

Another way to create more value is by connecting local producers with local consumers, offering them better deals and helping to reduce energy losses. For example, in the UK and the Netherlands, market entrants seek to differentiate themselves by offering services that bring together customers who want to buy renewable energy with local suppliers.

What ties these models together is that all of them involve the exchange of high volumes of data in almost real time, and favor new entrants that are experts in monetizing data and developing businesses around smart homes and convenient lifestyles. One of IDC Energy Insights' top 10 predictions for worldwide utilities for 2017 is that by 2020, non-utility companies and digital disrupters will seize 20% of the energy retail market.

However, some forward-thinking utilities are making inroads into the smart home market by piloting advanced solutions that help consumers better manage the way they consume and produce energy in their smart homes, including solar roof panels, EV chargers and connected domestic appliances. In this scenario, more real-time price signals to consumers will be key, and so will collaboration between the grid operator, the supplier and, in various countries in Europe, the central market operator.

Expanding on the concept of an energy-sharing economy, Alliander is now addressing the combined challenges of charging EVs with the need to manage local congestion and the intermittent nature of renewable energy. On the Dutch island of Texel, Alliander is piloting the use of blockchain and real-time grid data as an end-to-end solution that allows consumers to trade energy among themselves. Owners of Tesla EVs can trade directly with their “prosumer” neighbors by using market-based price signals and reducing peak load.

Utilities, such as German power company, RWE, also seek to facilitate the adoption of EVs with their autonomous electric charging station concept that is based on blockchain. Here, users will be able to rent a charging station by making a refundable deposit and pay for the electricity they consume, instead of the time spent at the charging station, which is the current norm.

Models based on peer-to-peer trade between small generators and users are very promising, especially with the development of new business models enabled by micro-grids and mini-grids, where the combination of renewables, storage, and combined heat and power can reduce the pressure on the main grid. Centrica’s pilot project in Cornwall, UK seeks to demonstrate the possibilities of these new “virtual market places”. 

These emerging business models will bring the consumer to the heart of the market and create new ways of increasing the value they receive from the energy system. There will certainly be regulatory challenges, but if the value created for consumers and the energy system proves to be high enough, there will be tremendous pressure for change. And this could ultimately lead to the reorganization of the entire energy value chain as envisioned in New York’s energy strategy for the future: Reforming the Energy Vision (REV).

I invite you to learn more about the digital trends and priorities of our utilities clients—and CGI’s insights—by visiting the CGI Global 1000 outlook and contacting me.

For the original version of this blog, please visit https://www.cgi.com/en/blog/utilities/emerging-business-models-in-the-utilities-industry