The direction of travel is clear – our energy and heating markets are undergoing a profound transition. The dynamics of power generation that have previously held true for over a century are being flipped precisely on their head, coupled with rapidly evolving and increasingly sophisticated energy demand characteristics.
And now even the largest, most established - and traditionally fossil fuel focused energy companies - are beginning to murmur a response.
Total, the 4th biggest energy company in the world, is one of the most recent to announce a reshaping. At the company’s annual shareholder meeting the chief executive revealed the aim to ensure a fifth of Total’s assets will be invested in low carbon business within 20 years – and with an asset base of $130bn, this move is likely to bring with it a ripple effect. Others such as Statoil and Shell have had previous initiatives into “new energies” – from creating separate business units tasked with looking at new ventures including smart meters and fuel cells, to more aggressive steps directly acquiring firms.
Yet, here at Delta-ee we question:
- Whether such moves are sufficiently ambitious in a world that aims to be fully carbon neutral in less than 35 years, and
- To what degree these companies will succeed in tapping into low carbon markets.
Within our Pathways Service we model the implications of disruptions in the European heating market that these companies could be subjected to, if the markets do indeed move from gas towards electricity. Indeed, our analysis shows that product innovations in the hybrid heat pump space could significantly shake up the coveted retrofit heating markets across Europe, delivering CAGRs of ~25% between now and 2025. On the flip side, could such a disruption be an opportunity for these companies to take a stake in a new value chain?
The ability to understand for example the impact of introducing a new product to the market that significantly alleviates barriers such as upfront cost through a leasing arrangement, or reduced running costs through a ‘heat for free’ offering, are key. Innovating in such a way is usually tough and too niche for very large corporates, but therein lies one of the key challenge for incumbents – how and when do they take stakes in new and emerging value chains?
Innovative business models that challenge the status quo are around every corner – our ever expanding libraries of Energy Service Innovations, Energy Storage propositions and Connected Homes offerings is evidence enough! Understanding why, how and which will gain traction with customers is fascinating, and core to what we do.
It will be captivating to see how the petroleum giants of today’s system respond to this changing landscape. While it is unclear how things will play out, it is clear that these companies are serious. As the supermajors set out their intentions, some incumbent utilities are working hard to enter new value chains. Centrica has formed a new distributed energy business and recently acquired two specialist distributed energy businesses. DONG is already entering the demand side response space, and E.On and RWE are in a hurry to re-invent themselves as services and customer-focussed businesses. With non-traditional players such as telecoms and others, poised to further disrupt the market, one thing is certain – we are set to see lots of exciting developments, sooner rather than later. The fossil fuel giants have made their intentions clear – let’s see how they execute on these.
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Delta-ee’s Pathways Service forecasts how the residential heating market will develop out to 2025 across five of Europe’s major boiler markets – France, Germany, Italy, the Netherlands and the UK. For each market, we forecast the annual sales of a range of low carbon heating appliances, taking into account customer soft factors.
Read our new Whitepaper which discusses the issues above in further detail, including extracts from the Pathways Service. If you would like information on how to subscribe and prices for our Pathways Service please contact Philippa Hardy.