GUEST BLOG: New business models for new electricity markets
The electricity systems are entering a new phase of transition. With the worldwide boom of renewable energy, decentralized and intermittent generation is taking over larger production shares each year. Now, the first effects on electricity markets are becoming noticeable in certain countries. In Germany, the renewable share in electricity generation exceeded 30% last year, severely challenging the traditional business model of the incumbent utilities. They suffer from declining revenue streams and dropping electricity prices on the power exchanges, due to the high renewable penetration.
How can energy companies, active in generation, transmission and distribution of electricity still earn money in a world where decentralized generation and renewable energy dominate? This question was addressed in a recent market survey by Büro F, a Berlin-based energy research consultancy. The study, titled “Energy Business Lab”, assessed the opinion of 42 experts – researchers, consultants and company executives – to delineate trends for the electricity business in the next five years.
Figure 1. source: Büro F. (www.burof.de)
The missing link: Storage and Digitalization
The results show that for most respondents, the cornerstone for new business approaches lies in the “matching” of electricity production with consumption. Technologically, two key elements were identified: storage (in particular battery storage) and digital interconnectedness. These elements are considered essential for the operation of the smart and increasingly renewable-based electricity systems of the future. In other words: storage and digitalization are the “missing link” between electricity supply and demand on new, decentralized, power systems.
Pool management and virtual power plants
What are the business models that can be derived from this finding? The survey indicates that successful players will be those with the ability to shift their activities from the conventional electricity utility model to a new, commercially more attractive model, called “pool management.” Pool management means the aggregation of various different electricity generation technologies into virtual power plants (VPPs). IT-based communication technologies, (big) data processing and new forecasting algorithms, can help VPPs accommodate large numbers of distributed, even very small renewable power generation entities and operate them efficiently as a cluster. By adding distributed battery storage and demand-side management into this scheme, VPPs are rendered flexible, like a large conventional power plant. Pool managers can commercialize the VPPs’ power output in the classical way on the electricity exchange and/or sell its flexibility on balancing power markets. Furthermore, increasingly popular applications for marketing VPP electricity are “peer-to-peer” platforms or the exchange of electricity on a regional or even local level.
Start-ups are entering the market
In Germany, but also in the UK and the Netherlands, companies have already launched their activities based on such new business models for new electricity markets: Next Kraftwerke, Lumenaza, Vandebron, buzzn, piclo and others. It still remains to be seen whether all these start-ups will be successful – but one thing is clear: with the increasing penetration of renewable energy, it is now the time to combine them with new business models based on digital and storage technologies. Only adopters of this trend will be among the winners of the next phase of the energy transition.
Short Bio: Dr. Bernhard Brand works as consultant for renewable energy projects, mostly in the Middle East and North Africa. He holds a PhD from the University of Utrecht, for which he received the 2016 DNV GL Global PhD Award in Renewable Energy and Grid Integration.