Policy makers need new business models as much as new business models need policy makers. This was one unexpected conclusion from some of our latest research on the new business models that are emerging in the distributed energy and connectivity markets we track.
We didn’t set out to prove this thesis. Our main aim of our latest research 'New Business Models for Micro-CHP" (published 16 January) was to develop an effective framework for analysing these business models, and test the hypothesis that they are all about 'getting to volumes' for new innovative (more expensive) home energy products. (More on this in my next blog).
So why do new business models need policy makers?
For new technologies - like micro-CHP, fuel cell or heat pumps - new business models have emerged as a response to:
- Economic barriers (i.e. the new innovative technology being initially expensive), and/or
- Inefficiencies in the routes to market being used (i.e. existing sales channels not working with the newer, more complex technology).
Established routes to market can be adapted (although it’s not easy) but even with the best business model in the world, there is no hiding from an energy product with a long payback (and customers have a finite tolerance for long contracts. Anyone for a 5 year mobile phone contract?). Therefore these new technologies still need a help to get the market started and all the business models we looked at for micro-CHP, had incentives or subsidies as an important part of the financial jigsaw. To succeed, these new business models will need the initial backing of policy makers.
So why do policy makers need new business models?
Because they can ensure energy policy targets are hit with supreme efficiency. They can do this by offering scalability, and by allowing the company to re-package the government's subsidy as something else the customer actually cares about. Does the customer want four cheques a year for the electricity he has sent back to the grid, or do they want peace of mind, the provision of finance, or something else entirely?
So what are the risks? Perhaps the damage to consumer confidence if something goes wrong or even abuse of the system. But these risks exist whether new business models are being applied or not.
In the dynamic and fast evolving new energy era we're entering, new innovative business models can help policy makers achieve their many objectives. But only if policy makers accept this help and offer some back in return.