Scrambling the Eggs in the Energy Value Chain

Low energy prices, weak demand, and costly regulatory drivers are scrambling the eggs in the energy value chain but the recipes in traditional utility business and regulatory models prevent customers from creating a better tasting omelet.

Technology advances and the ingenuity of non-energy industry players promise quick and easy omelet recipes offering endless mealtime possibilities. Loaded with your favorite meats and vegetables (read: added cost services) these omelets are sure to satisfy.  But will customers see the value from the new dishes on the energy menu?

  • Will the energy utility go the way of mobile phones? We’ve seen this movie before! In 1984, the Bell Telephone System was broken up into regional carriers.  Technology advances in cellular communications competed head to head with traditional landlines.  Fast forward to today—landlines are a dying business line.  Mobile phone companies ruthlessly compete with each other to aggregate customers.  And the most influential ‘phone company’ isn’t one—it’s Apple!  The graphic above shows you Duke Energy’s view of the rapidly changing energy industry future.
  • Will our energy future focus on Smart Homes, Smart Cars, and Smart Buildings? Navigant’s Energy Cloud: Emerging Opportunities on the Decentralized Grid white paper describes an energy industry transformed into a modular microgrid powered network of networks far more sophisticated than the traditional grid model today. The multiple mega-trends transforming our energy future is expected to be cleaner, distributed, and will use the Internet of Things and cloud computing to deliver smart, predictive to prescriptive self-healing services. Stuff is happening fast to rewrite the rules of the traditional energy market place as profoundly as it did to mobile phones, newspapers, airlines, retail, computing and other industries.
  • Will energy cost savings be worth the hassle for customers? Oracle is acquiring OPower at a 30% premium over its stock price of $10.30 per share, which is less than half of Opower’s $23 IPO price in April of 2014. This is both a good price for OPower and a great value for Oracle. Oracle gains access to OPower’s behavioral science apps for energy efficiency and demand response strategies that enable utility customers to use energy data to compare their energy usage to other users. The bet is customers will take action to save energy and thus money.
  • Who is the customer for these new energy services? Big energy data applications are music to the ears of Oracle investors seeking to leverage cloud computing and enterprise software solutions. Opower focused on scalable energy efficiency programs by partnering with leading utilities ranging from National Grid in the East to Pacific Gas & Electric in the West.  Utilities are working on their own models of the future.
  • Will utilities be permitted to reinvent themslves? Southern California Edison is developing a consultancy business model with a white paper titled “The New Energy Future – Challenges and Opportunities in Corporate Energy Management.” Among the findings: a quarter of companies do not accurately understand their total energy spend, and 94% believe there are remaining opportunities for them to save.  SCE’s new unregulated business is focused on serving these corporate business needs.
  • Will Community Customer Aggregation targeting residential customers work? Community Choice Energy (aka Community Choice Aggregation) has been taking hold in California, with Marin Clean Energy (2010), Sonoma Clean Power (2014), and Lancaster Choice Energy (2015) currently offering service. CleanPowerSF (San Francisco county) began service in April 2016 and Peninsula Clean Energy (San Mateo county, targeting 10/1/16) are among several new Community Choice Energy options coming soon.  Community aggregation enables cities and counties in California to create ‘joint powers authorities’ to offer group purchasing of renewable energy resources to residential customers in their jurisdictions. The incumbent investor owned utilities hate the idea, of course, but have been unable to derail the law empowering it.

Taken together these experiments are rapidly altering the energy landscape, but success is by no means assured. But doing nothing also seems an unlikely option.

Stay tuned.

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