Consumer, Prosumer, Prosumager

How Service Innovations will Disrupt the Utility Business Model

Fereidoon Sioshansi

• Editorial: Academic Press
• Año: 2019
• ISBN:
  9780128168363
• Categoría: Betriebswirtschaft
• Categoría: Energiebranche

Consumers, Prosumers, Prosumagers: How Service Innovations will Disrupt the Utility Business Model examines customer stratification in the electric power sector, arguing that it is poised to become one of the fundamental drivers of the 21st century power network as distributed energy generation, storage, sharing and trading options become available at scale. The book addresses the interface and the relationship between key players and their impacts on incumbent and disruptive service providers. Topics covered include innovations that lead to consumer stratification, regulatory policy, the potential of service, the speed and spread of stratification, and a review of potential business models and strategies.

The work also covers the evolution and potential end-states of electricity service provision, from its basis in current pilot programs as distributed generation scales and its potential to supplant industry norms.

• Explores the impacts and trajectories of increasing distributed power generation and storage adoption
• Analyzes the growing number of electricity services and their impact on the existing power grid and service providers, including incumbent and disruptor utilities
• Discusses future market trends and trends in costs, pricing and business models

Part 1

How Service Innovations Are Leading to Consumer Stratification and Disruption

Chapter 1

Digitalization of Energy

Mostyn Brown^⁎; Stephen Woodhouse^⁎; Fereidoon Sioshansi^{† ⁎} Pöyry Management Consulting, Oxford, United Kingdom
^† Menlo Energy Economics, Walnut Creek, CA, United States

Abstract

There are many indications that the electric power sector is on the verge of a digital revolution, which can facilitate a more integrated, highly flexible, and customer-centric energy system. Rather than the incremental cost-cutting efficiency measures characteristic of digitalization efforts to date, the next wave of change will be driven by data-savvy organizations that are able to establish direct relationships with consumers, resulting in the provision of new services with new revenue streams. Many offerings focus on the intelligent management of demand and supply from electrified buildings and vehicles, which is leading to a proliferation of new business models.

Keywords

Digitalization; Electricity; Innovation; Disruption; Distributed ledger technologies; New business strategies

1 Introduction

In recent years, growing numbers of businesses and industries, notably banking, communication, entertainment, publishing, and many others, have embraced the potential of modernization, automation, and digitalization, with varying degrees of commercial success. Publishing, for example, has moved inexorably toward digitalization as more newspapers, magazines, journals, and books are published electronically – this book being no exception. In the case of Netflix®, the company has single-handedly transformed the movie and entertainment industry by moving its delivery channel to wireless Internet, in the process disrupting incumbent movie studios, television, and cable services.

But digitalization is not simply the process of moving from analogue to digital, from print to electronic or wireless delivery. It is the use of digital tools to change the underlying business model.

In particular, platform businesses, as further described in chapter by Stanley et al., are emerging that connect large numbers of suppliers and consumers, but do not own the underlying energy infrastructure. Many utilities meanwhile are making concerted efforts to join the digital revolution through acquisition of start-ups while competition is fierce from forward-thinking Internet and communication technology (ICT) and automotive companies built on a “trial fast/fail fast/learn fast” culture. The real pay-offs will take time as forging a new digitally enhanced relationship requires change on both sides, and consumer attitudes to existing brands are slow to change. Players unable to establish – or patient enough to wait for – these data-orientated customer relationships will be forced further upstream, focusing on the lower margin work of owning generation assets and selling electricity as a commodity as further described in chapter by Weiss et al.

This chapter explores how the digital revolution in the electricity sector may play out: what are the impacts of digitalization, how will future digital energy companies make their money, and which are the likely organizations to succeed.

The chapter is structured as follows:

• • Section 2 describes what digitalization means when applied to the electricity sector;
• • Section 3 explains how digitalization will impact the electricity value chain and why the retail sector will see the most disruption;
• • Section 4 explores how the various digital business models may emerge and how they may operate; and
• • Section 5 examines who is likely to thrive in this new energy arena followed by the chapter’s conclusions.

2 Digitalization in the Electricity Sector

First order of business is to define what is meant by “digitalization” in the electricity sector, followed by how it may emerge, what its benefits may be, and who are likely to gain the most from the digital transformation.

In the case of publishing – which has largely embraced the transition to digital – it can be said that the traditional business model is increasingly being eroded by new models; electronic publications are sold online, leased through subscription, or provided for free in return for exposing the reader to advertising. This is a response to two developments brought about by digitalization, namely:

• • The new economics of (near) zero marginal-cost supply; and
• • The disruption of the conventional linear value chain brought about by the proliferation of authors – anyone can now publish their writing and/or opinion to the world for free on social media and other channels.

Similar characteristics apply to the electricity sector through increasing supplies of essentially zero marginal cost renewables and the growing role of distributed generation, where millions of small-scale generators are now feeding the network rather than a few central power plants. However, the energy sector as a whole, and the electricity sector in particular, has not made the transition to digital yet (Box 1.1). Products and services are still largely sold in the same way they always have.

Box 1.1

What Is “Digitalization”?

Broadly speaking, digitalization can be defined as the use of digital technologies to improve efficiency by reducing costs and risks; or to change the underlying business model by engaging with customers to understand and influence their preferences while creating new sources of revenue.

Digital technologies include all types of electronic equipment and applications that use information in the form of numeric code – usually binary code consisting of two numeric characters, 0 and 1. These “digital technologies” are not new: most of today’s workforce started employment in the age of desktop computers, and digital information and processing has been mainstream for several decades. But the pace of change is accelerating, as both data and communication become increasingly accessible.

Digital technologies in the energy industry. (Source: Pöyry Management Consulting.)

These technologies can be grouped into three categories:

• • Access to new sources of data and communications;
• • Decision-support systems based on improved analysis and visualization tools; and
• • Automation and control.

The future digitalized system will allow decisions to be taken and executed autonomously based on a wide range of uncontrolled data sources while cybersecurity protocols must adapt to this new decentralized and autonomous reality. Digitalization also allows companies to interact directly with people through social media, assessing people’s real needs and preferences – potentially influencing their preferences.

However over the last few years, electric utilities have become much more open to the idea that the new business models will crowd out the old, and are proactively exploring new ideas, powered by new digital approaches as further explained in chapters by Shipworth et al., Baak and Sioshansi, and Stanley et al. The key is to establish direct relationships with end consumers without necessarily having ownership of the underlying assets, as testified by the likes of Amazon®, Uber®, Airbnb®, and so on.

While digitalization in the electricity sector spans the entire value chain, the front line in this battle for the customer is taking place at the grid’s edge, generally defined as where the distribution network meets the customers’ premises and what takes place on the customer side of the meter – the so-called behind-the-meter (BTM) space.

3 How Will Digitalization Impact the Electricity Value Chain and Why Will Retail Face the Most Disruption?

To date, the digitalization of the power sector has mostly focused on more efficient, secure, and sustainable electricity systems. The main benefits have been reduced operations and maintenance (O&M) costs, improved efficiencies, increased reliability, and extension of operational lifetimes of critical assets. While these are critical components in delivering services to end customers, further opportunities are spread across the value chain as illustrated in Fig. 1.1. As accompanying chapters in this volume explain, many unexplored opportunities exist in trading, distribution, and retail space, the last three boxes in Fig. 1.1.

Figure 1.1 Digitalization opportunities across the value chain. (Source: Pöyry Management Consulting.)

Some of the significant potential impacts of digitalization on the various parts of the electricity value chain include:

• • Gains in generation asset management mainly focused on the optimization of plant maintenance, fuel, and spare parts. Technologies used will include remote sensing and digital monitors, new control systems with automatic predictive and remote maintenance/control – perhaps linked to projected market conditions – augmented intelligence for decision making, and machine learning for better short-term forecasts for balancing and trading;
• • Digitalization could improve decision making in trading and scheduling of generation by utilizing strategies based on big data, new risk-management models, and new trading products, based on more rapid decision-making and algo-trading including optimization of short-term generation operations;
• • Reduced losses, reduced labor costs, and predictive maintenance in transmission and distribution networks through real-time remote monitoring, real-time sensor data to aid forecasting, at data hubs compilin...