A couple of weeks ago, in “The New Electricity Reality: The Center is no Longer Central,” we explored what a new electricity paradigm may look like, given the fact that utilities face flat demand. We wrote that the shift in demand is caused by factors such as improved energy efficiency and on-site power generation by a growing class of ‘prosumers’ (or energy-producing consumers), which are forcing utilities to devise new models to stay relevant.
Industry analyst group Navigant recently published a forward-thinking white paper aptly titled, “Energy Cloud 4.0: Capturing Business Value Through Disruptive Energy Platforms.” The paper examines the industry transformation that is underway and how it is being driven by four underlying and converging trends: the clean circular economy; the intelligent network; the generation of distributed power; and the mobility of energy generation, storage, and consumption.
This week, we navigate this shift in perspective to envision what a thriving utility of the future may look like as this sector crosses into the cloud frontier that has worked so well for other industries. For utilities, a new “Electron-as-a-Service” model is emerging that holds great promise for differentiating the kilowatt depending on how, when and where it is produced and consumed to meet customer needs through more meaningful and individualized services.
In the energy world of the future, everybody wins.
The Cloud Makes for Collaborative Energy
The cloud has completely transformed many industries over the past two decades. For example, mobile eCommerce and the ubiquitous SaaS (Software-as-a-Service) systems we now take for granted for both business and personal use would not be possible were it not for the flexibility, affordability, and speed that they provide. The time has come for the cloud to transform the energy sector. This new digital frontier promises to open opportunities for new innovative players as well as create new business streams for established companies, provided they embrace the inevitable disruption that is underway.
Navigant describes the emerging ‘Energy Cloud’ as a system that “supports two-way energy flows in which customer choice (optionality), clean energy, innovation, and agility command a premium.” The Energy Cloud promises to bring about provides four significant benefits, as stated by Navigant:
These benefits are at the core of the business model transformation that is sweeping the entire energy value chain―from utilities to the way you and I view energy. New business models need to provide and capture value in these four areas for energy companies to remain relevant. This is especially true for utilities, which built their asset and supply-driven models decades ago when large-scale, centralized, bulk generation was what made economic sense.
Meet the Engaged Consumer
In the past, consumers were bound to their utility by the simple fact that their cable was the only one reaching their home or business. Today, however, consumers increasingly find themselves with more than one electric utility choice plus an array of off-the-grid options, including Tesla’s sleek Solar Roof, which enables them to feed electricity back into the grid.
New technologies, such as smart meters, smart grids, and energy-efficient appliances, have changed the balance of power, shifting control away from the utility provider to utility consumers who demand more control over the energy they consume.
Awhile back, Rocky Mountain Institute (RMI) published an article, The De-Commoditization of the Kilowatt-Hour, which highlighted the movement towards value-based pricing. As the title suggests, not all kWhs are created equal in the eyes of today’s engaged consumers. How and when energy is created and used matters to consumers of electricity to the point that they are willing to pay varying prices. Reframing energy as a service can create value for an industry that has seen it eroded for many years.
This central premise is reinforced by a utility customer experience study released just last week. The Foresee Experience Index is based on more than 6,000 consumer interviews about the nation’s top 25 utility providers to assess consumer satisfaction, frustrations, and needs. The study’s bottom line is that “consumers want access to services beyond what utilities historically provide.” Today’s prosumers are “looking for more, such as value-added products and services, usage data, smart home guidance, energy-saving information,” and of course, environmental impact and sustainability information. To increase “satisfaction, brand affinity, and revenue,” utilities must “create and follow CX-centric strategies, and deliver the kinds of experiences that consumers expect.”
For utilities to remain relevant, they need to be mindful that the Energy Cloud will lead to the creation of a “plug-and-play and dynamic platform environment,” as Navigant calls it. At Joi Scientific, we know first-hand how metamorphic the cloud can be. Several of our team members come from Citrix, Microsoft, and early Application Service Provider (ASP) pioneers that helped to launch the early cloud computing model and steer it into the ubiquitous platform it has since become. As the cloud comes to the energy market, the benefits for consumers and providers are enormous.
Dynamic Platforms, Not Assets, Drive the New Business Model for Utilities
The Energy Cloud is redefining the creation of value through a series of platforms that deliver different aspects of the energy value chain to end-users. Navigant describes these game-changing platforms as: “Dynamic, customer-centric platforms are emerging as the foundation of the Energy Cloud. These platforms consist of various combinations of customers, their individualized needs, energy and non-energy products and services that deliver value, viable business models, and enabling technologies that extend the functionality of physical assets.”
Several examples of new value delivery platforms highlighted in the Navigant white paper shed insights into the what the utility of the future may look like. They include “Building-to-Grid (B2G), Transportation-to-Grid (T2G), the Internet of Energy (IoE), Transactive Energy (TE), Neural Grid, and Smart Cities.” These delivery platforms enable new levels of efficiency and services that come from communication, collaboration, artificial intelligence, and the effective use of data.
In short, utilities are beginning to align around the Electron-as-a-Service model (to use the catchy term introduced earlier), where the reliance on bulk fixed assets of the past is replaced with creating and controlling new platforms and partner ecosystems to deliver the distributed energy services of the future. Some utilities are rapidly embracing the technologies that make for the new platforms and for the new ways of generating and delivering power. For instance, they are incorporating edge-of-the-grid technologies, such as solar and wind today (and in the future, Hydrogen 2.0), in ways that make sense for their business and meet the expectations of their customers.
Value for All
The utility of the future has a bright outlook. Indeed, Navigant indicates that “zero carbon power generation will attract nearly $9 trillion in investment through 2040 (Bloomberg New Energy Finance, New Energy Outlook 2017). At this scale of investment, significant ripple effects will be felt across the grid (due to intermittency and load balancing) and beyond (e.g., water demand for geothermal and nuclear systems and forestry and agricultural impacts for the bio-economy).”
Value creation in the new world of electricity that is upon us means that the structure of the utility of the future looks a lot like the decentralized structure that makes the Internet not only possible but resilient. This is good news for everybody. “A major characteristic of Energy Cloud platforms,” the white paper concludes, “is that they allow value to be created in the energy ecosystem by a diversity of parties and in a variety of new ways.” Happily, in the energy world of the future, everybody wins.
As the Hydrogen 2.0 ecosystem gains momentum, we’ll be sharing our views and insights on the new Hydrogen 2.0 Economy. We also update our blog every week with insightful and current knowledge in this growing energy field.