Alternative Utility Business Models

The power and utility sector, which underpins every other industry, has traditionally focused on long-lived assets and gradual policy shifts. As a result, it has adopted changes in a piecemeal, deliberate, and sometimes regulatory-constrained fashion and is not accustomed to an accelerated pace of change. But decarbonisation, decentralisation, and digitisation are creating a new three-dimensional challenge — and impelling faster evolution.

Amid rising market uncertainty and increasing pressure on traditional fossil fuel generation, the world’s largest utilities are shifting investments from large-scale power supply. New value pools are forming in areas as diverse as energy management, electric car charging, and home automation. And instead of simply charging a fixed price to deliver electricity, utilities are rolling out business models and services more closely associated with consumer goods and industrial companies. Here are a few models:

Energy as a Service Provider

This broad umbrella term describes the growing sub-market of selling not only energy, but also technology, analytics, personalised services and even access to the grid. It realigns the utility business model to deliver energy services to customers instead of electricity as-a-commodity.

Energy as a service is changing how organisations think about energy procurement and management. In this model, organisations partner with solution providers to actively manage their energy portfolio and financing, delivering services that result in guaranteed performance such as energy cost savings or equipment uptime. The result is reduced performance risk and decreased capital burden.

The trend is driven, in part, by advances in technology, and the desire of residential and business consumers to reduce costs and/or their carbon emissions.

Alternative Energy Access Providers

These providers partner with communities and individuals to help them access locally generated low-carbon energy. Utilities can encourage local deployment of alternative energy by individuals, businesses or communities through products and services that support distributed renewables—such as solar PV, microgrid installation, and maintenance and peer-to-peer solutions for exchanging low-carbon electricity. This model helps customers finance, install, and maintain local generation capacity and microgrid infrastructures.

In addition, they build virtual platforms that support collaboration among small scale generators and consumers. The biggest change required for electric utilities adopting this model is shifting their one-dimensional business-to-consumer relationship to a partnership model, in which joint investments in local generation and distribution lead to shared profits and shared risks.

Optimising Flexibility

These providers could capture value by optimising efficiency in all segments of the value chain and maintaining system balance and reliability. Utilities can enhance efficient electricity generation, distribution, and demand and thereby reduce operation and balancing costs and improve system stability. At the generation side, conventional flexibility such as spinning reserve is replaced by energy-efficient storage elements such as batteries. In transmission and distribution, flexibility optimisers mitigate congestion and match supply and demand with the help of smart grids and storage elements.

Because of their emphasis on efficiency, these providers must be adept in three key areas: 1. addressing the complexity and cost implications of the changing composition and distribution of supply and demand; 2. aggregating and coordinating systems such as electrification of vehicles and heating and distributed generation across locations and partners; and 3. capitalising on opportunities provided by future grid technology, such as automation, sensing devices, and real-time analytics capabilities to improve real-time management of the grid.

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