New Utility Business Models of the Future

Our last article focused on digital transformation, what it is and ways in which companies can stay competitive. In this article we will be taking a more in depth look at the things that are shaping the new utility business models for the future. We’ll also dive into how some companies are being innovative and diversifying their business models to stay competitive.  

There are certain characteristics that shape the new reality of the utility sector and Internet of Things is a great example. IoT has made it easy to connect our everyday objects with software so that user information can be shared and tasks can be automated. 

Embedded sensors in our watches, energy meters & security systems can be integrated to interact with one another and share data. The information that is aggregated empowers consumers to make better decisions and gives companies valuable insights about consumer habits. 

Newer technologies like wind and solar power, plug-in electric vehicle chargers and solar battery storage can’t work efficiently without smart grid technology.  A smart grid is a network of applications and controls that allow for the 2-way flow of information between a utility and its customer.

The current traditional electric grid does not allow for this exchange of information. Therefore it’s unable to respond to consumer demands for more efficient and greener energy. Utility providers around the world are thus investing heavily in building new infrastructure. 

As a matter of fact, the market value of smart grids is expected to triple in size by 2023 to more than $61 billion. Without smart grids there won’t be smart homes where all appliances can be interconnected. It’s the only way to enable remote power, automate and monitor water management, help consumers save money and assist utility companies in balancing demand.

Players from outside the utility sector see opportunities for new value streams and are jumping in. In an effort to commit to zero emissions, tech companies have become the largest purchasers of clean energy worldwide.  Amazon, Google and Facebook are currently holding the top 3 positions. 

In the US it has become standard practice for tech companies to purchase equal amounts of electricity from renewable sources as their yearly consumption. Companies like Apple and Google are partnering with hardware/software providers to develop IoT systems for smart home energy management, home entertainment and even security systems. 

Project Connected Home Over IP is an open source smart home platform due to be released jointly by Amazon, Google, Apple & Zigbee Alliance. The project is expected to launch in 2021 with the aim of encouraging an open source unifying standard in smart home platforms.

These integrated systems offer a better and more interactive experience for the consumer, but if connected to the utility provider’s platform, they can present new opportunities for the energy provider to leverage valuable consumer information. Integrated systems and data driven platforms will help evolve new business models for the utilities industry. 

The market for electric vehicle smart chargers is growing and expected to reach $25.5 billion by 2027, as more people are switching over to electric cars. 

EV smart chargers not only charge electric vehicles. They also share information with the grid, informing users when is the cheapest and greenest time to charge their cars. This benefits both the grid and the consumer, as it helps to prevent overload on the grid during peak times and saves money for the consumer. 
Since 2019, all EV home chargers installed in the UK must be smart. Government schemes like the Electric Vehicle Homecharge Scheme are designed to encourage the use of electric vehicles by granting applicants 75% of the installation cost of a smart charger. 

Not only is big tech heavily invested in this game, politics is too....

Changing customer expectations are forcing energy providers to develop more customer-centric products. Alternative solutions like electric vehicles and home generation are placing consumers at the heart of this transformation. Energy is becoming less centralized, as digital technology is making it easier for consumers to become “prosumers” i.e. producers of their own energy. 

Two-way flow, vehicle-to-grid-technology enables consumers to sell excess power stored in their E-vehicle battery to the grid when it is needed most and make a profit. A massive transformation is already underway.

The traditional one-way flow of energy from the utility provider to the consumer is a thing of the past. Established energy companies must use their expertise to embrace these new trends and start building solid business models based on the concept of energy-as-a-service. 

DEM or Distributed energy management through the use of micro grids (small grids that supply locally generated energy to a small group of users) and battery storage systems (e.g. Tesla’s home powerwall home battery), will give consumers a more dominant role in energy and facilitate the road towards increased energy independence.

Interest in starting self-cooperatives is growing and should be considered an important future player in the energy transition where a new spin on the sharing economy is pushing a new business model for utilities.

Self-cooperatives are when individual producers and consumers of solar energy come together as part of a local project to generate, store and sell energy to neighbors at a more competitive price than if they were to buy it from the grid. 

One great example of this is Belgium’s“Nos Bambins” project, a collaborative project with the energy provider Sibelga, a school and the local community. Excess energy produced by the school’s solar panels will be sold to consumers at a competitive rate. Sibelga maintains a facilitating role to ensure the safety of installations, managing the billing data, handling customer support, and replacing conventional meters with smart ones. 

If utility companies resist change and fail to evolve their business practices, then the new energy market definitely poses a threat to them. However, committing to transformation will allow them to tap in to innovative, new opportunities and leverage new products and services. 

In 2020, Spain’s Iberdrola responded to the market's demand for cleaner energy and to the growing trend toward self-generation. In 2020, they launched the first solar collective self-cooperative to supply energy to consumers in Madrid. Iberdrola is thus able to prove their social commitment to renewable, locally produced energy and additionally offer more competitive rates to both their residential (B2C) and industrial (B2B) customers.