THE ENERGY INDUSTRY TIMES - JUNE 2018 Final Word 16 One size doesn’t fit all When it comes to generating revenue in the energy market of the not too distant future, there is no one size fits all in terms of business models. But as the new energy landscape continues to take shape, there is a clear trend that energy suppliers are increasingly shifting their focus downstream to the end consumer. Certainly, different suppliers in different markets are further along their chosen path than others but the direction of travel is clear. The UK, for example, is quite advanced in terms of the vast number of retail suppliers in the market, some of which are investing heavily in home solutions. Centrica is a case in point. The British multinational energy and services company has reformed its business, centring its customer-focused strategy on digital in-home through its Hive business. But the sheer number of retail suppliers in the market has not only brought in competition for retail customers, it is also driving innovation and the adoption of technologies such as demand side management. Delta Energy & Environment (EE) is a UK-based information and consulting firm for distributed energy markets, specialising in helping organisations to exploit opportunities in the changing energy market. Charmaine Coutinho is Principal Lead for New Energy Business Models at the company. She said: “Even in markets such as France where there aren’t as many players, the threat of losing customers to new potential entrants from other industries such as technology, product manufacturers or the likes of Google and Amazon, is really driving business model innovation.” It is a view which Michael Dodd, Market Area Manager, UK & Ireland at DNV GL agrees with. “One of the fundamental things that will change over the next five years on the domestic side is how we buy electricity and gas. We will buy these via an energy service to the home, and at some point will flip over control of our energy supply to someone that can do it much more efficiently. That’s when people will start to bring new technologies into service, e.g. home energy management systems, storage, smart appliances, etc.” In its research, Delta EE says it has seen evolution in six categories of business models, which it believes are shaping the future. These are: timeof use optimisation (models that leverage value from flexibility, whether through demand shifting, storage or use of distributed generation); efficient consumption (models that use a primarily data-driven approach to improve customer consumption); lifestyle products (focused on improving customer quality of life); marketplace operations (a business model that transforms the way in which stakeholders are connected and transactions occur); bundling (offering a combination of services package together into a single proposition); and energy as a service (providing the use of a product as a continued service, rather than a oneoff commodity purchase). Many of these business models seem to be underpinned by flexibility. Using ‘lifestyle products’ as an example, Coutinho said: “Quite often companies start off with offering their customers a gadget such as a smart phone, for example. Part of the reason they do this is to garner some data. With more data they can build a better picture of what the customer wants. They could potentially use that gadget and the home energy hub to know when or how much energy a household consumes to decide when they can buy or sell that demand into the market. This gives them a much better understanding of how much value they can place around flexibility.” Coutinho explains that this could evolve into them adopting other business models such as time-of-use optimisation. Here, they could use information gathered about the home or energy demand in a building to sell other products or services such as, for example, a flat rate energy tariff. Technologies such as storage and even electric vehicles will play an important role for those interested in targeting prosumer models. “Storage has an important role as a sort of arbitrator because it fundamentally changes the way you forecast energy usage patterns,” said Coutinho. “If you think you can predict a customer’s supply or demand and you can put a battery in there, it means you can change that. You then enter the realm of it being much more of a hedging, optimisation, gaming, perspective. You wouldn’t be able to use machine learning and artificial intelligence in the same way if you didn’t have the ability to store energy.” Sonnen is one example of a business that is using batteries plus storage to create a successful business model. The German solar-energy-storage maker, created the SonnenCommunity, which allows peer-to-peer selling of electricity. Members pay Sonnen a monthly subscription charge (membership fee) to use a sonnenBatterie and solar PV to meet their own energy needs and feed into a ‘virtual energy pool’ that serves other members. This disruptive community, which bypasses the traditional utility, is thriving. In one year, it offered up over 14.7 million kWh, more than half of which was purchased. Although important, not every business model is predicated on storage. Not everyone will want to be a prosumer but might only want to know they are receiving a good deal on their energy tariff. There will be a number of propositions as different technologies and business models are brought to market. It will not be a case of one size fits all. Delta EE says it is doing a lot of work with energy suppliers and product manufacturers to look at where they best play in the new downstream, decentralised, low-carbon world. One of the questions Coutinho says she often gets is whether there is value in downstream. “I think it really depends on where you play and who you are,” she said. “One of the key things we are seeing, is companies trying to understand what their inherent strengths are.” But much could be scuppered by a lack of policy, which will play an important role in the success of some of the business models. Coutinho said: “For flexibility, policy is a real challenge. Having consistent and predictable revenue streams is essential. It’s a real challenge when people don’t know how much each of the different value streams they are thinking about in their models will be over the course of an investor’s timeframe.” She added that discussions are ongoing between governments and industry in the UK and other countries across Europe, as well as in Japan, in terms of setting the market structure and value of flexibility. While energy companies can only have a limited effect on policy, what they can do is ensure they have the right skills for their chosen path. Going forward into the new energy world, energy companies will have to draw on their expertise in areas such as energy trading and origination to help with energy optimisation. Or perhaps build on their knowledge of the customer to ensure whatever service or product they supply is the best thing for them. “We really put an emphasis on knowing your customer and knowing yourself as an organisation. One of the key things we are seeing, is companies trying to understand what their inherent strengths are,” said Coutinho. How customers will incorporate technologies such as storage and EVs into their lives will be very important and it is an area to which the industry has to give some serious thought. It is easy to get caught up in discussions around technologies and their costs but neglect the customer. Coutinho noted: “There are pros and cons for different chemical compositions for batteries but actually, the most important thing is to start with the customer and the business model and work out how you can make money from it.” If the experts are correct, success in the new energy world all starts and ends with the customers. All energy companies now need to figure out, is which business model best aligns their own expertise with their customers’ needs. Junior Isles Cartoon: jemsoar.com
Energy Industry Times June 2018
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