New business models for electric utility companies

Abstract

Abstract Business modelling is a valuable strategic tool in times of business transformation and thus a useful concept to reflect on the future of electric utilities. Today, this sector finds itself in the midst of a dramatic transformative change with powerful and potentially disruptive drivers such as renewable and distributed energy production or the -smart- power grid. In the electric utilities industry, innovation hasn-t played a major role in the past. However, business model innovation - which is defined here as a major transformation in the way a company delivers value - will be of central importance for utility companies as their current business model is outdated. For new business models, information and communication technology, -big data-, and multisided platforms will be decisive elements. Three radically new (in the sense of game-changing) downstream and service business models which could allow utilities to play a central role in future energy markets are discussed in this Master-s thesis: In the -Energy Generation Manager- model, the utility supports customers in their efforts to generate their own energy supply. The -Distribution and Storage Manager- is a smart grid platform model in which the utility controls and balances the distribution and consumption of energy within self-sufficient regional networks. In the business model -Energy Efficiency Partner-, the utility helps customers to manage efficiency in energy consumption in a holistic approach by using intelligent measurement, control technology, or storage and generation units. Based on an evaluation of these three models via expert interviews, electric utilities should experiment with all three (and of course also other) models since - under the right circumstances - they can all offer big opportunities. Theoretically, the most attractive model seems to be the -Distribution and Storage Manager- model, but it is also the most risky one. Utilities should therefore concentrate on the -Energy Generation Manager- and -Energy Efficiency Partners- models in a first step, as they offer clearer monetization logic which can be implemented easier. At the same time, their new business development and experimentation efforts should focus on the -Distribution and Storage Manager- model, as this one holds the biggest disruptive potential. Although these radically new business models might look attractive, it was noted that - at this point - they are still very much in their early-stages and that none of them seem to offer a financially viable alternative (yet) for utilities to totally replace their current business of producing, distributing, and selling electricity. It is therefore likely that new business models will have to coexist with the prevailing one for quite some time. In the years to come, utilities are thus well advised to use mapping exercises, experimentation, and effectuation in order to evaluate and test possible new business models. Implementation will cause a lot of organizational stress, as these new business models will, with all probability, lead to a cannibalization of the traditional revenue streams.