Disruptive business models: making the new world order work for you

Energy companies are going to be hit by a range of disruptive business models, but for the fleet of foot it should be an opportunity as well as a danger, says Nigel Timperley.

The West’s energy industry is coming under pressure to change and innovate at a frantic pace on account of a whole range of drivers that interact with each other in complex, unpredictable ways. Policy change, IT and technological developments, growing customer power, vertical market convergence and geopolitical factors are all playing a part. Energy companies know they have to react but, caught in the headlights of oncoming crisis, are freezing when decisive action is most needed.

However, all is not lost. Indeed, utilities will still have a critical role in the 21st century, provided they reinvent themselves as credible energy services businesses – and learn to depend less on their legacy, commodity-only business models.

So how should energy companies respond? Against a background of such flux, utilities may appear to many to be out of touch and resistant to change. Attempts to diversify by cross-selling to huge customer databases have met with mixed success. And rising wholesale costs and the erosion of generation revenues (owing to legacy site closures and renewables penetration) are adding pressure to the profit and loss account’s bottom line.

Inevitably, the gathering clouds are lined with a few flecks of silver. Increased market volatility may give experienced energy traders fresh opportunities, and there are reasons to believe the deployment of intellectual capital in emerging markets may yet yield new revenue streams.

Beyond this, utilities retain a huge amount of political clout because they play a vital role in ensuring the secure and effective operation of strategic national resources during a time of massive change. And technological change presents an opportunity to develop new business models, many of which build on suppliers’ unquestionably valuable incumbent position. The energy bill may seem prosaic, but its very existence legitimises a discussion about ways of helping customers to use energy better. By developing this conversation into something new and more relevant to the 21st century, utilities, we believe, will continue to operate both as profitable businesses and guardians of our energy future.

To achieve this transformation, utilities must learn to innovate, with the focus being on business model innovation rather than unlikely, “bleeding-edge” technical implementations.

As a result of a year-long study into 107 innovating energy service companies, Delta-ee has identified 11 disruptive business models that can keep energy companies relevant in the 21st century.

Looking at just four of these, we can see how well-placed utilities are to win in the new energy services markets, provided that they innovate now.

The first disruptive business model is “turning data into insight”. Data analysis solutions providers such as FirstFuel or kWIQly.com can provide remarkable levels of insight that transform a customer’s energy usage profile at low cost, and with little risk to supplier or customer. Yet these companies openly admit that their best route to the customer is through the energy company, which already owns the supplier relationship.

The second is “enabling customer participation in the value chain”. Time and again we found that companies like Jules Energy are able to get their customers to take action – in this case, to trade their energy demand via Jules’ back door into the market – and thereby create value for both customer and supplier. Again, Jules aims to partner with utilities as its path to the customer, thus locking in the utility’s relevance for years to come.

The third is “no capital outlay – pay as you go solutions”. Capital investment is a huge barrier to customer engagement yet energy companies have operated a pay as you go business model for years. By partnering with energy companies, building energy management innovators like Porta Capena could provide solutions to customers that are a natural extension of the way they already buy energy today.

The final one is “driving out cost by aggregating demand”. A whole swathe of demand response-based solutions are coming to market, with energy companies best placed to exploit and trade the opportunity. Demand response-based supply propositions from companies such as start-up Tempus Energy show how effectively this can be done.

Delta-ee’s 2015 Energy Services Innovation Study showed that energy services innovators have now moved beyond learning from trials and demonstrations to learning from customers. The snowball of change is gathering pace and there is a risk that energy companies are left behind.

However, we also concluded that it is not too late – and that utilities are well placed to jump on the best opportunities, provided they move soon. The key question is: which business models – and therefore which investments – make most sense? Finding the answer will be critical in determining success or failure in the years to come.

Nigel Timperley, Delta Energy & Environment