Reimagining Business Models In The Utilities Industry

Henry Bailey

Technology is transforming many aspects of our lives. Smart technology optimizes everything from our phones and cars to our utilities and cities. We generate Big Data. We store our information in the cloud. And we accept hyperconnectivity as a normal part of daily life.

The rise of non-traditional business models

Additionally, hyperconnectivity is changing the traditional business models of a number of industries. It enables a two-way exchange of information and services between providers and consumers. Consider the following well-known examples of successful, non-traditional business models:

AirBnB is a website that connects travelers with lodging via an online platform. The lodging usually consists of rooms in people’s homes. Users pay AirBnB a small fee when they confirm a reservation. AirBnB doesn’t own any of the properties, which reduces both its costs and its liability.

Uber uses an app to connect passengers with taxis or private cars. These vehicles are owned by independent citizens as well as professional taxi drivers. Uber provides the software that connects passengers with drivers in their area. The company’s revenue comes from charging a fee for its service.

Neither of these companies would be able to even exist without the Internet and mobile phones. Since most of us now have Internet access 24/7, these business models can thrive.

Business models in the utilities industry are also changing.

The smart grid connects large power producers to retailers. These retailers then distribute the energy to consumers. If there’s excess energy, they store it in storage plants for use when demand rises again. And advanced computer systems in the digital control center balance supply and demand.

But this isn’t the only way in which the smart grid is reinventing the way we generate and consume energy. A growing number of households produce energy themselves with solar panels and wind turbines. Two factors motivate these so-called prosumers: cost savings and conservation of the environment. They can keep their utilities costs much lower than when buying energy from a retailer. Moreover, solar and wind energy is renewable energy and doesn’t harm the environment.

As energy-generating equipment becomes more affordable, more and more consumers will become prosumers. Also, some prosumers will produce more energy than they consume. And that’s where the opportunity for new business models lies. Consumers will be able to sell their surplus energy back to the utilities retailers.

This means that a new kind of relationship evolves, one in which prosumers can assume one of two roles. First, prosumers can become competitors of energy retailers. And second, they can become partners.

In the first scenario, those who generate a lot of power can sell their energy to their neighbors. In the second scenario, prosumers sell their excess energy to power retailers. In both of these scenarios, prosumers will need to install metering and communications systems. These systems will track how much energy prosumers produce and sell.

Requirements and regulations

Of course, private citizens and companies can’t just become producers or sellers of power. Local, state, and national governments need to create and enforce regulations. This step of the process is still in flux. Experts continue to research the best ways to enable these new business models.

With a growing number of prosumers, prices of equipment and power will drop. Power retailers won’t be in the position to fix their prices anymore. Why? First, they’ll have to match the rates of local prosumers. If they don’t, they’ll price themselves out of the market. And second, because consumers can easily become prosumers. That means they’ll end their dependency on large power companies.

Conclusion

The digital energy network forces utilities companies to rethink their traditional business models. They need to determine what value they can offer consumers in this new system. At the same time, prosumers can become independent sellers or partners to established retailers.

Learn more about digital transformation for Utilities. Reimagined for the new economy.



This blog was originally posted on the Digitalistmag.com on May 4, 2016

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