Re-Imagining Business Model Opportunities in the Utility Sector: Aligning business collaboration opportunities to SmartGrid technology developments and architecture

Importance and Key Contribution This paper focuses on exploring multi-sided business models and the resultant business strategies and collaboration opportunities that reside within these the smart-grid utility domain. The... [ view full abstract ]

Importance and Key Contribution
This paper focuses on exploring multi-sided business models and the resultant business strategies and collaboration opportunities that reside within these the smart-grid utility domain. The unbundling of energy markets and emergence of renewable energy technologies have and continue to rapidly change the energy system (generation, storage, delivery and consumption) landscape. With the realization of the SmartGrid and emergence of a flexibility market, both information and power flows in multiple directions within the value chain resulting in sophisticated new business platforms emerging to support the capture and exchange of information between value chain stakeholders to improve efficiency, introduce new services, leverage consumer participation and to increase the business model profitability for value chain actors in a sustainable, environmental friendly way. Given the high likelihood of continued technological improvement to SmartGrids, and the multi-directional flow of energy and data in the network, new business platforms are emerging that are multi-sided providing support for interactions and flow exchanges among all ecosystem participants that create value (Hagiu, 2014).

Research Question & Method
By roadmapping the opportunities between the smart-grid stakeholders the objective of this research paper is to capture the identified opportunities, needs, opportunities, barriers, standards, and challenges faced by the stakeholders in the multi-sided SmartGrid platform.

Underscored by an applied research strategy, this research paper is based upon the EU-funded FP7 Mas2tering project (Multi-Agent Systems and Secured coupling of Telecom and Energy gRIds for Next Generation smartgrid services) [FP7 – 619682. Project website available at http://www.mas2tering.eu/] which is tasked with developing an innovative information and communication technology (ICT) platform for the monitoring and optimal management of low-voltage distribution grids by integrating last mile connectivity solutions with distributed optimisation technologies, while enhancing the security of increased bi-directional communications. Cognisant of the paradigm shift in utility business modelling to align with ICT technology platform advances, the project specifically aims at enabling new collaboration opportunities between grid operators, telecom and energy companies, both from technology and business perspectives.

To explore business strategies and collaboration opportunities in SmartGrid multi-sided business model, the research approach consists of a series of inter-linked value related analyses, conducted through a series of pan-European project workshops, in addition to qualitative (interviews) and industry consultations under the following components:
• Value Flow Analysis;
• Value Proposition Generation;
• Value Chain Delivery Analysis;
• Value Chain Capture;
• Constraint Analysis.

Findings
Turning to the output and contribution of the research paper, the research process has resulted in the development of an innovative multi-sided business analysis tool which has been deployed within the Mas2tering project which has identified 19 business model opportunities to investigate surrounding district flexibility management services. These opportunities are separated into primary and supporting business models. Primary business models are those that directly relate to the grid efficiencies possible by unlocking consumer/prosumer flexibility. Supporting business models are those associated with entering or facilitating the ecosystem. The business model opportunities are intentionally disaggregated to facilitate the identification and consideration of market analysis aspects, strategy options and collaboration opportunities.

Theoretical Base
A business model describes the rationale of how an organization creates, delivers and captures value (Osterwalder and Pigneur, 2010). According to an IBM white paper on business model innovation as related to the SmartGrid (Valocchi, Juliano & Schurr, 2010) the first great business model innovation in the electric power industry was set in motion over a century ago with the move from small local plants delivering power over short distances to central generating plants delivering power over great distances via high-voltage wires employing a grow and build philosophy that provided near universal access to customers. In the study of business model types, this “Utility” business model is a named category of business model that is synonymous with the providing of a service for periodic (typically monthly) revenue. Since its introduction, this business model has remained largely unchanged. However, recent government policy shifts, advances in information technologies, the proliferation of renewable energy technologies, the trend toward home and transport electrification, and changes in customer preferences, have created the need/opportunity for a paradigm shift in this classical utility business model.

Valocchi, Juliano & Schurr (2010) argue that a new series of market leaders will emerge and will be those who successfully navigate a business model paradigm shift over the next decade. The utility business model can be considered “one-sided” meaning that information and energy flow is unidirectional from the utility to the end customer. An innovation to the existing business model is for it to become “two-sided” or “multi-sided” implying information and energy flows in both directions or in multiple directions between end customers and the traditional energy market actors. A second innovation to the business model is for it to become “platform-based” meaning that the business model services interdependent customer segments in an ecosystem concept.

Many platforms are single-sided platforms, with a seller at one end and a buyer at the other and, often, intermediaries (distributors) between them that transfer the product from buyer to seller without changing it substantively. The electric power network has historically operated as a single-sided platform. However, as new value is generated in the network through expansion of the value and reciprocal value exchanged, industry model innovators are tasked with developing new businesses that more closely resemble multisided platforms. In a multisided platform, there may be multiple types of buyers and/or sellers and, in fact, a single party can be both a buyer and a seller. While customers are becoming more demanding, they also have much more to offer in return to power providers and other participants than just payment for energy consumed. Some of these new elements of reciprocal value are primarily operational in nature; demand response, load profile flexibility, and distributed power and storage allow for optimization of system performance and asset utilization. Others, such as information on energy consumption patterns, other consumer demographic and behavioural information, and access to personal connections/networks for marketing purposes, are the foundation for new revenue sources for companies able to effectively leverage the increased information and existing infrastructures.

Within this context, Mas2tering adopts and develops a multi-sided platform business model surrounding the district manager/flexibility operator/aggregator and a Smart Info Home Gateway at the customer premise. This platform supports an ecosystem of smart grid technology adoption and the development and entry of third party service providers. A local aggregator is (partially) between the consumer/prosumer and the upstream energy system actors. There are multiple types of buyers and sellers and a single actor can be both. There are additional actors in the ecosystem not depicted. These include telecom data services, security services, ESCO energy management services to end users and ancillary service providers. In comparison to the traditional utility model, the complexity of the ecosystem is significant. Energy, information and revenue flows can happen in various combinations. Indeed, the nature of value has changed as there are far more types of reciprocal value and combinations of actor exchanges to deliver value. Moreover, as new types of reciprocal value will be generated, new value added businesses and services and new participants to the ecosystem that traditionally would not have been directly involved in the industry will emerge. Consequently, the value capture opportunities available to the ecosystem participants within a multi sided business platform will continuously increase, as will the complexity of the business models to capture and exploit that business value opportunity.

Implications
Mapping collaboration and business opportunities in the SmartGrid utility domain will offer practical relevance to Europe’s Energy, Smart-Grid and ICT sectors and contribute to informing policy development in this domain policy perspective. To date, the Mas2tering project has identified 19 business model opportunities to investigate surrounding district flexibility management services. Beyond the core SmartGrid domain, the pioneering multisided business model analysis tool developed offers a practical means for stress testing and validating opportunities associated with evolving business models.

References
Hagiu, A., (2014) ‘Strategic decisions for multisided platforms’, MIT Sloan Management Review, 55(2), p.71-80.
Osterwalder, A., Pigneur, Y. (2010) ‘Business Model Generation’, self-published, Available at http://www.businessmodelgeneration.com/book.
Valocchi, M., Juliano, J., & Schurr, A. (2010), IBM White Paper ‘Evolution: Smart Grid Technology Requires Creating New Business Models’ [Online] Available at http://www-935.ibm.com/services/multimedia/Switching_perspectives.pdf [accessed 15/02/2016].

business models, multi-sided platforms, innovation, collaboration, SmartGrids [ view full abstract ]

business models, multi-sided platforms, innovation, collaboration, SmartGrids