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In my last blog I introduced the Delta-ee Customer Panel – a brand new resource made up of 1,000 UK homeowners. Our panellists will participate in numerous exercises throughout the year, enabling us to explore in detail customer attitudes to heat, energy, technologies, new business models, to name a few the key uses.
In this post I share some interesting findings from our first research piece with the panel and look specifically at what our participants say about the opportunity for energy storage.
According to DECC residential PV (< 4kWp) has just had its record year, with 172,318 installations in 2015 (topping the previous one in 2012 with ~160,000 installations). This was aided by the noticeable surge of installations towards the end of the year due to expected and finally confirmed Feed-in Tariff (FiT) cuts that took place at the start of this month.
While January of this year is still expected to show some of the surge from the customers that were jumping on the last train of the old FiT rate, there is a lot of uncertainty around the future of the UK market. Are subsidy cuts the beginning of the end for residential PV? Or, will innovations in technology and finance step in to continue the market development towards bright future?
As DECC moves closer to throttling the UK’s Solar PV industry through the proposed massive reduction in feed-in tariffs (FITs), could this actually be good news for the country’s nascent energy storage industry? Although focusing on self-consumption risks missing much of the prize for energy storage – which is the value energy storage can unlock across the energy system – it could provide a short term boost to the sector.
Currently the owner of a solar PV installation financially benefits in two ways: FIT payments and lower electricity bills (i.e. from self-consumption). Going back to 2010, FIT payments accounted for up to 90% of a customer’s financial return because the FIT subsidy was around 43 pence per kWh (p/kWh) in comparison to a retail electric price of around 12-13 p/kWh. This could be one reason why DECC took the ‘deeming’ approach to export generation where it is assumed that 50% of the generation from residential Solar PV is exported to the grid. (Although no one really seems to know: another theory is that it was the last item on an overly long meeting on a Friday afternoon in Whitehall!).
Around the table there are animated discussions as we debate, analyse, and challenge each other as we discuss the latest in a series of Delta-ee reports on business model innovation. One thing we found ourselves repeatedly asking is: “Can innovative business models really catapult distributed energy and connectivity into the mainstream?” Bold moves by some –a diverse range of small companies not scared to have a goSo far some have promised a lot but not delivered – for example Lichtblick in Germany in 2010 - whose “virtual power plant” of mini-CHP systems stole the imagination of many - but fell far, far short of its 100,000 unit ambitious target. Others, such as SolarCity, with their market-leading “PV for free” model have grown rapidly. The company was only formed 8 years ago but has a reported 25% share of the burgeoning US PV market. Nest Labs is another high profile success. The silicon-valley based company didn’t exist five years ago but grabbed the headlines when it was snapped up by Google for $3.2billion. As well as selling smart thermostats, it’s tapping into the energy market through its ‘Nest Rush Hour Rewards’ demand response offering in the US. There’s a huge number of innovators trying to join these companies. For example a small social enterprise in Scotland called iPower - in partnership with CFCL - has started offering fuel cell to customers for free. With fuel cell usually costing the same as a family car, this is made possible by its “ESCO-lite” business model.Flow – started life as a technology developer of micro-CHP but then added an energy supply business to its portfolio. Flow will soon be offering an innovative financing proposition for their micro-CHP product and have recently extended a contract with a major manufacturing partner to produce half-a-million units.Insero – a small Danish company is proposing a business model that makes revenue from financing and influencing the operation of heat pumps as part of a smart grid and selling the end-users heat for their home.There are risks but flexibility and speed will help innovation succeedWe track a wide range of innovations in the distributed energy, heat and connectivity markets. Many will fail, but – as Nest and SolarCity have shown, some will succeed – and secure new opportunities emerging in the energy and connectivity markets. Innovation is risky, and can’t rely on a “rear view mirror” approach to the market. However, robust research to identify value creation opportunities – and building the customer into innovation - is a critical ingredient for success. Launching propositions in the market – and iterating rapidly around these – is the only way to ultimately become the next Nest or SolarCity.Innovative business models will play a critical role in catapulting distributed energy & connectivity into the mainstream - but only the most agile companies will survive.All comments welcome, or please get in touch directly: [email protected].
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