Switching perspectives: New business models for energy
The business models that brought the electric utility industry success in the middle of the 20th century are overdue for revisiting. Much of the basis for their foundation – one-way flow of power and information, declining costs associated with increased usage, undifferentiated and passive consumers, unlimited access to inexpensive carbon fuels for generation and regulatory protection from threats to the core businesses – has already shifted or will do so in the next decade.
To succeed in today's environment, fresh business models are needed, as well as changes in business architecture, protocols, rights and pricing terms to facilitate emerging products and services enabled by new technologies.
Any reassessment of business model, however, must accommodate key transformations in several areas:
- Governmental policy shifts: Efficiency, conservation and renewable generation are receiving tremendous attention from governments attempting to meet goals related to climate change, energy security, and economic and job growth. At the same time, most industry revenue models are still based on a careful balance of the fixed nature of capital expenditures and variable cost recovery.
- The emergence of new technologies: The introduction of smart grid and distributed generation and storage technologies will add complexity to the network, moving power and information in multiple directions. These technologies will also enable a host of new participants and business models – some of which will provide strong competition for existing revenue streams.
- Changing consumer demands: Consumers are demanding more from their relationships with their energy providers as they seek more control over their energy usage to conserve energy, save money and reduce their environmental impact.
These dramatic shifts all involve technological changes – changes that most energy providers understand. However, these shifts also require leaps into business model transformation that are new to most. Important decisions on how best to make these moves – and the resulting rise to prominence of companies that successfully do so – will occur over the next decade.
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About the author
John Juliano
Global Energy and Utilities Lead
IBM Institute for Business Value
IBM Global Business Services