A new business model for utilities

Published: Mon 25 Nov 2013
A blog entry by Sasha Bermann

Contributed by:

Sasha Bermann
Chief Dissemination Officer
VaasaETT

Sasha Bermann's Blog

Written by Anna Bogacka, Analyst

 

 

 

The energy industry worldwide is facing serious challenges: Aging equipment that needs to be renovated, renewable resources are about to be included into the base load generation and the electricity network has to be upgraded to meet the needs of a modern society. In addition to that, here comes the issue of pricing. First of all, renovation of aging equipment leads to the need of massive investments, second, including renewables into the generation mix leads to a decrease in the price of electricity in financial markets and last but not least, the need in innovative technologies brings additional uncertainty - it is impossible to count on it, but there is a hope in new technology, which have the potential to solve all the problems at hand. The above mentioned controversial tendencies make electricity pricing a central issue. All over the world customers don’t like utilities. Utilities spend millions on marketing campaigns trying to engage customers, but once they announce a new price increase hatred is revived with renewed vigour. So, what to do?

 

The paradox is: Utilities need more money, but customers don’t want to pay more and in fact try to consume less. The cornerstone of the problem is that utilities are rewarded for the amount of supplied energy – the bigger the amount the greater the profit. In fact the solution to the problem can be very simple. Utilities want customers on their side, thus all the marketing campaigns and customer engagement programs. But can the utilities get the customers on their side? Can they develop a new business model, where the customer and utility company share the costs and benefits?

 

The example of such a model can be energy cooperatives, which are currently booming in Germany.  This is a model where consumers own their electricity retailer jointly. The profits go to consumer services, such as increased efficiency, information, research and development and Demand Response. However, it is important to remember two things: Firstly, when many people own something jointly there is always a threat that at some point someone may start to want the common good only for himself. Secondly, due to the country differences it is impossible that the same model will be a solution everywhere, but the core elements of the model can be the same - and new different pricing schemes will appear accordingly. More information about our work on: www.vaasaett.com