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An energy market feast – innovative business models eating into the energy market value chain

Tastes in the energy sector are evolving, with lots of talk about the dash for the provision of services in the utility market (although in some markets it’s more like a slow, Sunday morning stroll). A key objective in our work at Delta-ee is simplifying this energy market transition for our clients, distilling this often complex topic down to the key elements.

Changing tastes in the energy market

The overall themes of energy market disruption are quite similar from country to country:

  • Profits from generation businesses are declining as more renewables – both behind the meter and at a larger scale – are coming online.
  • Demand response is starting to emerge as regulations open up certain value opportunities in market to the demand side.
  • Distributed energy storage is in its infancy but could be hugely disruptive (see our energy storage research service to find out more).
  • Heating markets are slow to change in terms of the appliance mix (although based on our research into Nearly Zero Energy Buildings in Europe, this change is coming), but smart controls, connectivity, and growing customer engagement in this area are beginning to disrupt business-as-usual in the traditional energy value chain.
  • Novel business models around peer-to-peer trading are on the horizon and gaining momentum. This is despite customers’ (as a whole) continued general disinterest in their energy consumption.
  • However, some innovators are succeeding in developing propositions that manage to unlock some customer interest.
  • Finally, the utility sector remains nervous about giants such as Google and Apple entering the energy market and disintermediating them from their customers.

It’s a lot of change – with many ingredients. It’s not always possible, but cutting through market complexity by creating clear frameworks highlights the critical issues in the market and draws out the critical points of action.


 Framework for Energy Market Disruption

We’ve characterised these current trends using our Energy Market Disruption framework, shown below:

Nibble Diagram v5

Figure 1 - Framework for Energy Market Disruption

It’s not the type of diagram you glance at – it does need a more detailed recipe to fully understand the change happening in the market.

  • The traditional electricity value chain is shown by the grey boxes. Utility engagement has traditionally ended at the meter (just to the right of retail).
  • Distributed energy is eating into this value chain. Onsite generation is taking chunks out of the generation and retail markets. Flexibility (storage and demand response) is taking bites out of the traditional trading market. These form a mere selection of the threats facing utilities in the transforming energy market.
  • Spurred to action by these existential threats, many traditional ‘utilities’ are seeking to grow their services revenue streams (shown in the triangle at the right of the framework). The size and accessibility of the energy services pie is growing, driven by factors such as customer insight, data analytics, connectivity and the Internet of Things. This is the prize for utilities.
  • However, start-ups, companies already offering energy-related services, and new entrants from adjacent sectors (such as telcos) are also seeking to grow revenues in this services market. This is where lines are being drawn in the sand, and the battle for the energy customer is taking place.
  • The risk to utilities and traditional energy companies is that these new entrants could increasingly ‘own’ the customer relationship, taking it away from traditional players. They could even take away the energy retail relationship from utilities, relegating utilities to the role of wholesaler (pushing their traditional market boundary, the vertical line, to the left).

This framework highlights the real questions that need to be answered in the fight for a place at the future energy market feast: how can firms best adapt for this inevitable transition to an energy-service orientated market? Amidst the looming threats to legacy businesses, what opportunities are there for well-established players in this space? And most importantly, what’s for dessert?


 Perfecting the energy market menu

I started this blog talking about making the complex simple. The structural changes in the energy sector are certainly no cakewalk, but our Framework for Energy Market Disruption helps reduce the complexity and provokes some new thought and perspectives.

The framework encapsulates much of what we do at Delta-ee, with innovation in energy service business models the focus of our Energy Services Innovation work. We've also taken our own advice to heart regarding key value opportunities, and have developed a research service to add what we believe is one of the key items on the menu for winning the energy services battle, Customer Data Analytics.  

So what disruptive business models do you see transforming the energy sector? Where do they fit in our framework? Shoot me an email, [email protected], and let me know, or join the discussion and get involved via our LinkedIn Group ‘Delta-ee Energy Services Innovation Group’.

 

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Wednesday, 18 September 2019

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