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The New Energy Letter: February 2019

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Digitalisation, new services, channel disruptions, dynamic integrations with the electricity system: ‘New Heat’ has the potential to become one of the biggest pillars of the energy transition

Comfort in buildings is by far the largest ‘service’ that customers require energy for. It is typically 2 to 5 times the size of demand for appliances and for mobility in terms of household kWhs. It’s not discretionary. And there is a huge market of €100s billions across Europe for the fuel, hardware in home, and related services.

It’s about to be disrupted as the market transitions from the 20th to the 21st century, driven by the six factors in the table below. The heating sector is a conservative, traditional sector for sure. But the forces beginning to change it are powerful ones, and are some of the same macro forces affecting most industries today. The heating sector certainly isn’t immune to them.

This disruption, as disruption always does, will bring lots of opportunities and threats. The value pools between different types of companies have been very static in the past. This won’t be the case in the future.

Some say that change in the sector is dependent on policy intervention. I don’t agree. Change is coming from digitalisation, from business models and propositions more focused on services and solutions, and from smarter integration between electric heating and the electricity sector. And policies to decarbonise heat are starting to slowly gather pace, for example in countries like the Netherlands, Denmark and France.

Here are some examples of the changes we see: In France, Engie is offering an Engie-branded boiler, with remote monitoring, with customers making monthly payments. Marketplaces of online heating companies are emerging in Germany, France, and the UK, disrupting the traditional installer market channel. A variety of companies are edging closer to offering comfort-as-a-service. Customers in Switzerland, Austria, Benelux and the Nordics are seeing lower bills as their heating systems are dynamically tweaked to the needs of the electricity system.

Many ignore heat, as it is slow moving, hard to implement and frankly not as exciting as e.g. photovoltaics and electric vehicles. I think these are poor reasons to ignore heat, given the size of the value pools, and the criticality of comfort in buildings. Heat is definitely not easy, but as the energy and determination of innovators is starting to show in the market, the disruption has already started. And there is no doubt winning in ‘new energy’ will require a strong vision for ‘New Heat’.

If you'd like to chat about New Heat, get in touch via jon.slowe@delta-ee.com

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