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 go

So 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 succeed

We 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: info@delta-ee.com.

Delta-ee attended the Hannover Messe 2013 last week. The Messe is a leading global trade event, held annually in north Germany. It is actually 11 trade fairs held concurrently on the same exhibition grounds.  Energy is just one of these 11 trade fairs, focusing on renewable and conventional power generation, power supply, transmission, distribution and storage.  

From our Delta-ee decentralised energy perspective, Hannover Messe is a really interesting event for both micro-CHP and CHP, and it was great to talk with some of our clients and contacts while we were there, and discuss latest developments.  Here are some of our observations from our time at Messe 2013.

• In overall terms the event seemed much quieter and less well attended than previous years.  The Messe was only a month after ISH so perhaps this had an impact on attendance, but the nervous economic climate can’t be helping much.
• It was also very noticeable that none of the big German utilities had any major presence or large exhibition stands, a marked contrast to previous years.  We see this as a symptom of the crisis these companies are facing in Germany, with the phase out of nuclear power and growing impact of decentralised power generation on their core business.
• Wind had a very strong presence in the Energy fair, as in previous years, but there was less evidence of solar PV and nothing significant on heat pumps.  The smart grid forum felt quite different to 2012, with the focus being on grids/network/smart metering, and there was minimal presence of HEM vendors.  This could be a reflection of the Messe 2013 overall theme of “Integrated industry” but may also indicate that many companies at the Messe see the best near term ‘smart’ opportunities on the utility side of the meter.  This made an interesting contrast to the ISH fair a month earlier where it was ‘apps galore’ - see Top 5 Takeaways from ISH 2013
• For micro-CHP, the focus of the Messe is primarily on fuel cells.  Many of the micro-CHP developers are participating in the Callux and/or Ene.field field trials, and some claim their product is ‘ready’ for market launch.  I say ‘ready’ because this doesn’t mean we expect to see a wave of fuel cell micro-CHP products to hit the market this year.  There will be some launches but these may be quite selective as some companies need to scale up production capacity and supply chains before they are really ‘ready’.  Also some manufacturers are still working hard to make their products as ‘plug n play’ as possible.  This is to try and negate the risk that installers will charge customers very high fees for installation.  But we sense that developers who have been collaborating through the Callux programme are now gently starting to think about how they can differentiate their own fuel cell product, what makes their product special and what customers they will focus on – indicative that market competition is getting closer.  For example, CFCL, which is already active in the market with its Bluegen product, is particularly focusing on maximising sales into the small, commercial market in the German state of Nordrhein Westfalen, where incentives are now available.  See our latest micro-CHP research for more details on this topic. 
• For CHP, the Messe provided further evidence to support our view that economic and policy drivers are helping the sector to recover from the doldrums of 2009-2010.  This is especially true of mini- and small-scale CHP (in our eyes 5 to 100 kWe and 100 to 400 kWe, respectively). This increasingly dynamic sector has witnessed a number of product launches recently which are likely to challenge the incumbent ‘main players’. For example, EC Power has recently expanded their portfolio of products to include smaller 6 and 9 kWe CHP units which will surely be in direct competition with the current market leader in this segment - the 5.5 kWe Dachs unit from Senertec. Interestingly, Senertec appear to be returning fire; they are due to launch a new 20 kWe product later this year. To help our clients understand the opportunities and changing dynamics in this space, Delta-ee have recently commenced a new multi-client study focusing on gas engines (CHP and power-only applications) in the 10 to 400 KWe size range throughout Europe; you can find out more about the research here.