High penetration of distributed energy resources (DERs) will lead to further fragmentation of the power sector, both in the services offered and its value chain. Thus, successful future business models will be those that are able to create new products, establish more efficient pricing mechanisms and monetise services, which customers could no longer receive free-of-charge. We suggest that the principles of what is known as the ‘‘sharing economy’’ could be applied to redefine these products and manage the fragmentation of the industry while keeping transaction costs in check.
The important feature for business models is that DERs eliminate opportunities for implicit cross-subsidy between these attributes, exposing the presence of potential free riding among customers and making it difficult to lump all services into a single tariff. Therefore, the challenge for new business models would be to find a way to monetise the value of each of these attributes, separately, according to the consumer’s preferences.
Future electricity business models can borrow elements from companies that operate on the sharing economy principle. The analogy with the sharing economy is relevant in the organisation of the electricity sector as underutilised assets are the norm rather than the exception. Also, because technological advances could lead to a world of distributed autonomy in which no single entity has full information or is able to bring about collective coordination. Thus, the new role of utilities could be as a system integrator and platform provider.
The experience of regulating sharing economy firms can also illustrate the challenge ahead for electricity regulators. Representative companies from the sharing economy act in parallel to the formal sector, such as taxis or hotels, and in overregulated sectors. Most DERs operate behind the meter, alongside the formal power sector. Incumbent firms and regulators have not challenged new entrants’ behavior until they have achieved a noticeable market share. The same logic applies to incumbent utilities and regulators with a growing number of prosumers. The challenge for regulators would be to create functional markets, which can handle unbundled services and prevent technological lock-in. There is a risk of technological lock-in unless regulators stay abreast of innovations in the industry and act to prevent this.
The King Abdullah Petroleum Studies and Research Center (KAPSARC) published a paper that examines what new business models might arise by revisiting existing models in the electricity sector. The risk for incumbent utilities is the emergence of innovative new technologies that is taking place that may destabilise the industry with large sunk costs, and where infrastructure is already in place. KAPSARC suggest that utilities may evolve their business models and learn to compete in bilateral, platform-based markets that incorporate some features of what is known as the “sharing economy”.
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