A combination of physical hardware and assets, software, products and services, and networked actors, Energy Cloud platforms sit at the confluence of highly disruptive technologies and enable new business models supporting multi-sided value exchanges.
Mackinnon Lawrence, Contributor
In the power and utilities industry, evolving customer demand, accelerating technology innovation, and the rollout of progressive regulations and policies point to a transformation well underway. Linear value chains supporting one-way power flow from centralized generation to end customers are already giving way to a digitized, networked, and dynamic energy ecosystem supporting two-way power flows. Customer choice (optionality), innovation, and agility will command a premium. At Navigant, we call this the Energy Cloud 4.0.
The Energy Cloud describes a world in which the quantity of power flowing through the bulk grid is significantly reduced, but transactions across the edge of the grid sharply increase.
A shift that puts more value in customer-centric activities will occur along with a reshuffling of market share among incumbent energy companies and new market entrants. Emerging Energy Cloud platforms such as Smart Cities, Building2Grid, and Integrated Distributed Energy Resources (iDER) will fundamentally change the way the world buys, sells, values, and regulates electricity.
What does this mean for a renewables industry now firmly entrenched in the global energy system? Quite a lot.
A transition to a multi-dimensional clean, distributed, mobile, and intelligent grid could ease the gridlock of current binary thinking between fossil fuels and renewables in policy design (e.g., the Trump Administration’s public support of coal). The Energy Cloud will facilitate the deployment of a much broader portfolio of solutions to meet customer interests.
Sizing Up the Renewable Energy Transformation
Today’s energy industry is merely in the first phase of transformation. Renewables have succeeded in establishing a substantial foothold in the global power sector:
• More than $330 billion was invested globally in clean energy last year
• China alone plans to invest $400 billion in renewable power by 2020.
• Global capacity of installed wind power reached 55 GW at the end of 2017
• Solar prices are falling. A recent auction in Saudi Arabia yielded bids of $0.02/kWh for PV.
Jim Robo, CEO of NextEra Energy said in a recent earnings call that by the early 2020s, it will be cheaper to build more renewables than to continue running legacy coal and nuclear plants. That is a big deal.
With grid parity on our doorstep, traditional utility customers will continue to spearhead demand. Over 120 global companies have committed to sourcing renewable energy for 100 percent of their operations through the RE100 initiative.
Emerging community-focused transactive energy systems like LO3 Energy’s Brooklyn Microgrid Project are expected to generate billions in software-related investments, technology integration, and fees over the next decade while extending the benefits of clean energy across local communities.
In the Energy Cloud, greater interconnectedness across energy sub-systems will support an even greater penetration of renewables while helping to address increasing supply and demand imbalances. Traditional utility business models —generation, transmission, and distribution of electrons — will extend beyond the grid into buildings, communication infrastructure, and transportation.
The Platform Imperative: Trillions are At Stake
The Energy Cloud transformation requires a holistic approach to strategic planning. Organizations must begin to examine all of their energy systems while also remaining nimble in the face of rapid change. Disruptors, meanwhile, should target nodes of innovation across customer-centric Energy Cloud platforms to capture a greater share of the massive revenue at stake.
A combination of physical hardware and assets, software, products and services, and networked actors, Energy Cloud platforms — Integrated DER, Building2Grid, Transportation2Grid, Internet of Energy, Transactive Energy, Neural Grid, and Smart Cities — sit at the confluence of highly disruptive technologies and enable new business models supporting multi-sided value exchanges.
The Smart Cities platform, for example, describes the integration of technology into a strategic approach to improve sustainability, citizen well-being, and economic development in urban centers. Smart Cities platforms will require new networks for collaboration between cities, utilities, and other energy sector players, as well as transportation providers, building owners, telecommunication companies, and technology suppliers. Navigant Research estimates that the urban transformation and smart cities platforms will enable a market worth more than $1.5 trillion over the next decade for smart services across urban energy, buildings, mobility, and other city operations.
While business models focused on Energy Cloud platforms are still in development, what these platforms will enable is a portfolio of value-added solutions. These include selling products, delivering services, building relationships, facilitating access to third-party offerings, collaboration, and more.
Today’s most profitable organizations — Google, Amazon, Facebook, and Apple — are not just a collection of resources and capabilities, instead they are a set of platforms. Value is increasingly created through the stickiness of a platform and integrated solutions rather than differentiated products. Actors may play one or several roles, but those that control or facilitate the platform have greater opportunities to scale their business rapidly.
Platform Orchestrators Will Win
In an increasingly networked grid, market control no longer emanates from centralized generation and transmission, but the center of dynamic customer networks. Organizations that orchestrate these networks will increasingly compete to both widen and deepen connections across platforms and the broader Energy Cloud ecosystem. In turn, orchestrators are more likely to insulate themselves from competition (and disruption).
Platform orchestration will require the renewables industry to move away from a siloed asset-focused mindset. In the Energy Cloud, it will be increasingly difficult to scale and build a sustainable business around individual technologies. Margins on rooftop solar, wind power, and fuel cells, for example, will erode faster going forward. Orchestration (not necessarily ownership) of integrated asset networks is what will unlock the full value of these platforms and their underlying technologies.
Ultimately, with direct competition among diverse players increasing — traditional utilities, oil & gas, telecom, tech giants, asset builders — energy service providers must deliver on an expanding portfolio of benefits. This moves beyond today’s imperatives of safety, security, affordability, and reliability to include sustainability, optionality, convenience, and flexibility. The the renewables industry should embrace these attributes now, while at the same time move toward more individualized power products and services. These are the table stakes of the next phase of industry transformation.
Mackinnon Lawrence is a director at Navigant.