Business Model Changes in the Energy Industry

What will the future of the energy landscape look like? It’s difficult to say with certainty, but the best indicators of the industry’s future are the emerging technologies and financial innovations that are changing the way that energy is generated, transmitted and used.

Technology and distributed resources are transforming energy supply and customer demand

Many energy consumers are shifting from purchasers to producers, generating their own energy through technologies like rooftop solar. Others purchase specific attributes of energy, like zero carbon emissions, from private energy service companies (ESCOs) that offer renewable energy certificates (RECs). These consumers no longer need to rely on a traditional full service or retail provider to deliver a standard service or product.

New entrants into the energy market put more pressure on existing business models of energy providers. Arcadia Power, an ESCO, provides a national clean energy program that allows consumers who don’t have access to a local solar farm to invest in solar RECs. By scaling community solar to accommodate a national customer base, Arcadia has eliminated customers’ reliance on utilities to provide solar options. Many consumers will already be participating in such programs by the time their local provider can offer something similar.

In addition to shifts in energy supply, customer demand and utility operations are affected by the introduction of distributed energy technologies. Behind-the-meter storage, the transition to smart grids, distribution system management and remote energy monitoring are becoming increasingly necessary in order to manage distributed energy resources and deliver a seamless user experience.

New financing and transaction models are increasing consumer options

Innovations in financing and energy transaction systems are also driving disruptions in energy delivery. New financing options give customers more control over their energy choices. The latest commercial-scale energy efficiency technologies are now offered through companies like SparkFund through an ‘efficiency-as-a-service’ model. Instead of allocating capital for new energy technologies, businesses can purchase a monthly subscription to use Sparkfund’s energy-efficient technologies. This allows them to save money and energy without committing to a long-term investment in technology that may become outdated as innovation progresses. Angela Ferrante, the chief marketing officer of Sparkfund, added, “By expanding customer access and minimizing the risks of selecting, maintaining and paying for new energy technology, Sparkfund’s subscription model is changing the status quo for how energy efficiency solutions are delivered.” Joule Assets provides energy efficiency for small businesses with on-bill financing, while Sealed does the same for the residential market and minimizes the energy savings performance risk with innovative residential energy efficiency insurance.

Blockchain technologies may impact industry players by facilitating energy transactions within defined communities without the oversight of a grid operator. LO3, a technology startup focusing on person-to-person energy exchanges that uses blockchain as a platform, may allow distributed energy to be automatically valued and traded among energy producers and consumers within microgrid communities.

What next?

Industry participants and regulators are keeping an eye on developing trends. For the industry to thrive going forward, financial and technological innovators, incumbent participants, and regulators will have to work collaboratively to create a new industry business model. While it is impossible to know what that new model will look like with any certainty after the disruptions play out, it is clear that everyone will have to learn from the successes and failures in the industry and confront difficult questions during the process. Will there be a shift in ownership of the customer relationship between utilities and alternative power providers or some other entity? Will distributed energy systems allow customers to bypass traditional providers? What will reliability look like as more diverse and distributed resources comprise the grid? How will stranded assets be addressed?

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