Not long ago, our COO, Peter Müller-Brühl, visited the Recharge’s thought leaders Summit in Hamburg. Here’s what he had to say afterwards. OPINION piece by Peter Müller-Brühl
In a similar way to Airbnb’s business model, electricity providers will pool distributed generation and storage assets to provide services, rather than kWh.
When I set out my vision of the post-industrial “platform” energy system at Recharge’s Thought Leaders’ Summit in Hamburg earlier this month, I could clearly see some raised eyebrows. To put it simply, my assumption is that electricity in the future will be free. Yes, you read it correctly: electricity will be free. But since nothing in life is free, you will still be paying for something. And that something will be a service.
You might think that this is a “distinction without a difference”. But, if you are a utility, understanding this new business model will make all the difference between future prosperity and being outflanked by “energy space invaders”. Take this example: the biggest hotel group in the world, Hilton Hotels and Resorts, founded in 1919, has more than 5,400 properties and a market capitalization of $22.4bn. On the other hand, Airbnb, one of the biggest hospitality platforms in the world, was founded in 2008, has zero properties and an estimated value of $38bn.
Similarities between energy and hospitality, as well as other platform business models, might be closer than you think. Just as many households might have room to spare some or all of the time, more and more households will have some kind of energy generating or storage device. In fact, research shows that the number of “behind-the-meter” assets is projected to rise from 73 million worldwide in 2016, to more than 120 million by 2020. These are assets such as solar panels, heat pumps, batteries, electric vehicles (EVs) and storage heaters.
To understand how new platform business models will be different from traditional ones, let’s take a look at what an energy utility business looks like today: it is first and foremost about owning large energy assets and supplying “end points” with a commodity; it is about your most profitable customers being those that don’t switch. And it is about 40-year innovation cycles in power generation and grid transmission. I would call it the “€ per kWh” model.
On the other hand, the future energy world is about managing access to a large number of behind-the-meter assets. So instead of running large power plants, it is about providing a service (heat, power, EV transport). Instead of providing kilowatts it is about having regular, engaged customers. Finally, it is about rapid product and service innovation, instead of selling the same product for decades. I would call this the “€ per service” model.
The key question is how to get from one model to the other? Just as broadband, wi-fi, smartphones, and IT technology has unlocked the power of platform businesses, so we at GreenCom Networks believe that connectivity of behind-the-meter assets (combined with metered consumption and other data sources) will be key to setting up new business models for the energy world.
One of our projects, for instance, involves setting up and running an energy community, which acts not just as a virtual, but as a real power plant, with real electricity to use and sell. The only difference is that instead of being a large, centralized and conventional power station, our plant is comprised of hundreds of solar panels and storage batteries across a number of households in various locations.
This “cellular” power plant of the future, supplemented by a distributed storage facility, could enter into a number of economic scenarios, including bidding for supply, backup capacity and domestic service offers. Participants in this energy community both add value to the community, with their own generation and consumption profiles and also receive value, in terms of savings on their bills. And the community as a whole has a role to play in driving down CO2 emissions.
But, connecting behind-the-meter hardware, though crucial, is not sufficient for a successful energy platform business. Our experience tells us that just as any successful platform business analyses user data, so the energy retailers of the future will have to analyze user behavior to offer customers the best possible service, leading to a network effect. And the analysis will go way beyond binary energy “on/off’” data, including customer lifestyle preferences, time-of-day patterns, and other information that is indicative of how and when customers use electricity and energy based services.
For instance, does the electricity use in the household spike during weekends, when there is football on TV and a Sunday roast is in the oven? Or are weekends usually “low consumption” because the customer leads an outdoorsy lifestyle? All of this will be crucial in formulating the right tariff and winning and retaining customers.
Which brings me to the final point, something that engineers running the world’s energy utilities would be well advised to note: you can have the best hardware and the best data, and yet it takes that extra bit of magic to come up with the right service.
After all, even Airbnb started out offering short-term living quarters with breakfast included, business networking opportunities — and boxes of cereal! In other words, instead of the usual slow and cumbersome R&D strategies, the platform business model encourages rapid innovation and learning by doing.
At GreenCom, we sometimes call this model “spaghetti and walls”. You will have to throw a lot of cooked spaghetti at many walls to see what sticks. You will have to connect many devices, look at internal and external data, and then try a number of services and tariffs to see which best suit your customers.
You can either embrace this time as the most exciting time since Tesla invented AC transmission (and by extension modern electricity networks), or you can stick your head in the sand. The choice is yours — but the prize is open to all.