After six years living in Europe and deeply involved into the European Energy Market, I am finally scratching the surface of this complex world. Empowered by my vast experience in the telecommunication market, I have gained a clearer picture of the technology challenges ahead of the legally defined electricity models not only in Europe but also all over the world where energy markets are liberalized.
Have you ever thought the number of things people can currently do without any kind of intermediaries? Purchasing, selling, renting, exchanging, sharing, donating, learning, teaching, publishing, etc. This was absolutely unthinkable before the advent of the Internet. Since then, these decentralized business activities have spread all over the world like a virus. And of course, the energy market is not immune to this at all. That becomes even more obvious if we take into account the advent of recent technologies.
Technologies are blurring the lines between traditional utility services and competitive services. Blockchain, internet of things, big data, decentralized renewable production, home energy management, battery storage system, plug-in electrical vehicle charging, online smart metering, among many others software applications, are forcing electricity utilities to rethink their role as well as the regulators agents’. They have been facing a slow but growing process of disintermediation.
After intense research and face-to-face conversations with some managers of Austrian and German technology companies who develop and invest in blockchain and energy management projects, I have realized that there are good opportunities for electricity utilities to partner with these technology companies instead of fearing an unlikely scenario of rupture, prophesied by some market’s opinions. Utilities and grid energy operators could get benefits of energy grid digitalization and modernization, and cost reductions, while the technology companies address final consumers with key value-added services. However, depending on how the pieces are placed on the business board, the disintermediation level can range from partial to full disintermediation.
Let’s check the French company Voltalis. It produces energy savings for consumers without asking them to spend any money or give up their comfort. The electricity supplied to their radiators (heating system) is interrupted for just a few minutes during which time the consumer hardly notices any drop in temperature. When this operation is performed simultaneously in thousands of homes, significant energy savings are made. Voltalis makes money selling these ‘demand response productions’ for TSO (Transmission System Operator), who uses this as a means to balance in real time the electrical system, thus replacing expensive methods of power generation which cause pollution. This is a clear example of power network optimization and cost savings for final consumers without direct action from utilities.
Another good example is Sonnen, an electricity utility in Australia. It focuses on the intelligence and sustainability of homes by combining a mix of solar generation, storage and home energy management. In partnership with Energy Locals, a software platform enterprise, the companies offer a service that promises customers who have a solar system and Sonnen battery (German manufacture), a flat monthly rate for energy. In return Sonnen utilizes the battery for grid stabilization.
Local energy community represented by a group of prosumers trading electricity among themselves have also climbed up the disintermediation scale. By connecting together homes with solar generation, storage systems, home automation and other controllable resources, new virtual community becomes possible. There are models ranging from residential virtual power plants, such as those of Fortum and Swisscom, to most disintermediating peer to peer models like PowerPeers (Netherland) and Enyway (Germany).
Complete disintermediation models, most of them developed with peer to peer blockchain technology, are still rare but they are the ones which might bring the most challenging scenario to electricity utilities on the long run. Quite close to here, in Bavaria, we can find Elektrizitätswerke Schönau GmbH from Germany. Here the community has taken control of the entire local energy system, including network and generation assets, creating a truly community-based energy system.
In my point of view, the greatest risk utilities face is the threat of technology companies with aggregated value added-services (VAS) step into their field. For those who already profit their business from a VAS portfolio, to become an electricity supplier might be a logical strategic move to add and retain customers. Unlike utilities, they do not have to make a profit from the sale of electricity.
Therefore, I understand that it is critical for electricity utilities to be able to offer value-added services directly to consumers and/or in partnership with technology companies. The utilities have a very advantageous position to offer new sets of aggregated services to the market. They have experience in scaling market, customer relationship, the ability to geographically reach and engage a wide variety of electricity consumers, expertise on energy grid management and network controlling tools to keep the costs low.
Joining forces with innovative technology companies which owns agility, flexibility and creativity to address key value-added services to final consumers seem to be a win-win business scenario for both sides. On the side of the regulators, the challenge is to ensure that the correct rules and regulations are properly in place to provide the greatest value for final consumers and to create a sustainable business environment for all market participants.
References:
Fortum: Driving the change for a cleaner world
Comments