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Smart Power Business Models for a Smarter Grid By Guest Editorial Jun 8, 2010 - 12:30:11 PM
Editor's note: I first met Peter Fox-Penner in the early 2000s, just as the Smart Grid was getting off the ground. On his own and with colleagues from The Brattle Group, he has since made many seminal contributions to the national dialog. But I think his new book, Smart Power: Climate Change, the Smart Grid, and the Future of Electric Utilities, is the most important thing he has done yet.
Peter's book is not just required reading. It is required re-reading. Twice at a minimum, especially the chapters on new business models. As I have discussed elsewhere, finding better business models is the Smart Grid’s biggest challenge. Peter's book is the most insightful and accessible exposition of this problem and its potential solutions. -- Jesse Berst
By Peter Fox-Penner
The Smart Grid sector is hands down the fastest growing sector of the utility industry with unprecedented capacity for innovation. Smarter grid applications will redefine how utilities interact with customers using improved pricing and energy efficiency. Greater control technologies will reduce black outs and increase reliability. Distributed generation, including fuel cells and solar panels, will continue to grow steadily, especially in community-scale installations. Adopting and adapting to these changes will be one of the most absorbing changes the industry will face for the next 20 years.
This vast potential also makes the Smart Grid a highly disruptive technology. Full deployment of the Smart Grid will require massive investments in technology at a time when energy efficiency reduces utility sales. In the coming decades, the utility industry will need more than pilots and business cases to realize the full potential of the Smart Grid –it will require a whole new business model that places energy efficiency at the core of its operations.
In my new book, Smart Power: Climate Change, the Smart Grid, and the Future of Electric Utilities, I explore business models that reflect the new roles and abilities utilities may assume given Smart Grid technology: balancing and dispatch of energy across a changing grid and management of advanced end-use technologies for energy consumption. This work builds on my work and that of many colleagues at my consulting firm, The Brattle Group.
In one potential model, the Smart Integrator, regulated utilities prosper by operating energy delivery and information networks utilizing enhanced Smart Grid controls. Customers would choose between power providers and energy efficiency contractors while Smart Integrators provide dynamic price and control signals and maintain balance between supply and demand at every level of the system.
The delicate economic balancing act already required of today’s grid operators is destined to become far more difficult. Increased renewable resources and distributed generation will impact supply while the addition of electric vehicles charging and residential applications will further complicate demand patterns. The Smart Integrator would become the grid’s much needed traffic cop: running Smart Grid programs, enabling customers to shift their electricity usage, or swapping power in and out of the grid from distributed sources.
In a second model, Energy Services Utilities would move away from selling electricity as a commodity and would instead sell the services electricity is used for, such as heat and light. A customer-service-centric model, as opposed to the pipes-and-wires Smart Integrator, the mission of the Energy Services Utility would be to provide the lowest-cost energy service to its customers. To do so, customer’s bills would list hours of services used and the costs of each, providing incentives for customers to select the best technologies. As an ideal provider for energy efficiency programs, Energy Service Utilities may find themselves leasing or owning the end-use hardware in homes and businesses.
It’s not clear which model utilities will adopt – perhaps a mixture of both. Both of the models I explore position utilities to redefine themselves profitably and enable the full benefits of the Smart Grid to be realized in an era of greater energy efficiency and carbon limits.
For more information on Smart Power visit www.smartpowerbook.com and www.brattle.com.
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