Detecon Opinion Paper Smart Energy: New Values from the Energy Networks of the Future Success Factors for New and Established Providers

8/7/2019 Detecon Opinion Paper Smart Energy: New Values from the Energy Networks of the Future Success Factors for New

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Opinion Paper

Smart Energy: New Valuesfrom the Energy Networksof the Future

Success Factors for New and Established Providers

2011 / 02

We make ICT strategies work


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Smart Energy: New Values from the Energy Networks of the Future

Opinion Paper 2 Detecon International GmbH

Table of Contents

1 Executive Summary.............................................................................................32 Future Energy an Industry in transformation .................................................... 43 Information products as a part of smart energy...................................................64 Management of the smart energy ecosystem .....................................................85 Conclusion and recommendations .................................................................... 106 The authors .......................................................................................................117 The company.....................................................................................................12


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1 Executive Summary

Todays energy market is getting ready for big changes. Renewable energy, cross-borderregulation, and the integration of completely new uses, such as electric cars, are the drivers

in this development. The old fashioned centrally controlled electricity networks are changing

into decentralized, intelligent smart power grids. This change is not limited to the core area of

the industry, the energy supply industry, but will have a particularly strong impact on the

interface with the customer. Clients will demand more transparency, control and freedom of

choice in an increasingly competitive market. Value added services based on the information

provided by the smart power grids will be a key factor enabling energy providers to maintain

and develop their customer bases.

The smart power grids of the future will be characterized by rapidly growing volumes of

information. A variety of business models which emphasize information products, so called

data centric business models can be envisaged. These business models offer a

differentiating value add, open up new, independent sales potential, or even allow for

additional income based on third party offerings. An analysis of such business models allows

the allocation of a financial value to the information available in smart power grids. This can

in turn provide the foundation for strategic decisions concerning the development of

communication and information technologies along the power grid providers value chain.

These new business models are not just an opportunity for the established market players,

but are also open to new entrants. This will lead to the development of a value added

network which can be called the smart energy ecosystem. As we have learned from other

industries, the complete control of such a network is not vital. It is much more important to

hold key positions and to supplement ones own competences through the selection of theright partners. The IT infrastructure will play such a key role because it enables the

collection and processing of the data in the intelligent power grids.

The positions of the market players in the value added networks of the future will depend on

each companys overall business strategy, their culture, their existing infrastructure, and their

own competencies. The development of the companys current position towards data-centric

business models and effective partner strategies is a task which must be started today, as

only this will ensure that required investments are made in the right areas.


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2 Future Energy an Industry in transformation

There is a fundamental transformation looming ahead in the energy market. Centralizedpower generation and strictly hierarchical power distribution networks will be superseded by

intelligent, decentralized power generation and smart power grids. Once this transformation,

a topic much discussed under the name of smart energy, has been completed the energy

sector will be characterized by a large number of smaller new providers and a start-up

culture replacing the existing exclusive group of heavyweight market players.

The development of electricity networks towards smart grids is now being driven by the ever

greater use of renewable energy sources. The increasingly decentralized production of

electricity and the additional demand for intelligent load management systems within the

networks are the most important factors generating pressure for change. On top of this there

are regulatory issues concerning market liberalization and energy conservation. These

drivers will dominate the transition to the smart grid in the medium term.

In the long term however, it will be technical developments at the interface to the customer

which will drive the transformation of the energy market. Transparency concerning the type

and volume of power consumption as well as the ability to actively control demand is a

customer priority. With the trend initiated by Apple towards apps for every imaginable

purpose - from the gimmick of a virtual vuvuzela, the submission of insurance claims, or the

app store for the future electric Audi A2 - it is only a matter of time until energy-related apps

appear on the market.

It is almost impossible to predict today what will be made possible by such new apps in the

energy sector. The key added value of apps for the customer will be the networking of all thedevices connected to the power grid and their control, independent of the users location.

Smart meters and smart homes are already the subject of frequent discussion. There is also

a chance that greater transparency will improve the energy industrys image in the

customers eyes, as power will no longer be regarded as a commodity but as something

much more valuable.

A major element providing the basis for these apps will be information gathered in the future

along the energy sectors value chain - power generation, transmission, distribution,

metering, and sales. As increasingly intelligent components are put into use, information will

be created or received and processed at all stages of the value chain. This will give rise to

an information value chain running in parallel to the service provision.

The use of the collected data for purposes going beyond the straightforward control of the

grid will lead to completely new tasks and applications, such as data aggregation or the

presentation and processing of data for customers. As a result a broad range of new

business models will spring up at the interface with the customer, attracting new market

players start-ups as well as established companies from the IT and Internet world such as

Google or Microsoft. This process has already started.


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This means that the existing market players in the energy sector are facing daunting

challenges. On the one hand, they must adapt their business models and networks to stay in

line with current influencing factors such as intelligent load management and regulatory

frameworks. This is forcing them to make investment decisions with far-reachingconsequences right now, in an atmosphere of considerable insecurity with respect to

markets and technologies. On the other hand, they must also consider long-term aspects

which will demand the development of completely new competencies.

Smart energy value added services close to the customers, such as energy apps enabling

efficient utilization of resources, should play a key role in investment decision-making. Such

value added services will create tangible competitive advantage in an increasingly

competitive market. New business models for these value added services will not develop

their full impact until complex value networks with a large number of market players have

been developed. Investment decisions made today must take both the information-based

value added services of the future and partnering strategies into consideration.


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3 Information products as a part of smart energy

As we have already seen, the energy industry is facing a far-reaching transformation. Salescompanies in particular will benefit from the significant competitive advantages offered by

value added services in order to retain and win customers, and as an additional source of

income. At present it is difficult to say when these new added value services will become

established, what their scope will be, and when new revenues will be generated. Yet the

investment decisions related to smart energy technologies must be made now. The question

arises as to what types, quantity and quality of information should be collected and

processed. For example: the frequency with which a smart meter is read must be

determined. Frequent reading of the meters will generate enormous quantities of data, and

high costs. However, less frequent readings may make it impossible to take advantage of

many value added services because the data generated is not detailed enough..

Thus, for the necessary investment decisions to be made today the future value of the

information generated must be estimated. Experience with data-centric business models

from other industries can be taken as analogies to calculate this value. There are basically

three forms of information product: as differentiating added value for an existing product, as

a marketable service with its own turnover, or as a platform product for the generation of

third-party revenues such as advertising income.

One company which rigorously utilizes data-centric business models by analyzing user data

is Google. The search engine operators spell check program is based on the evaluation of

millions of typing errors made during the entry of key words on the Google Web site,

enabling the company to develop what is presumably the best spell checker in the world at

low cost. The quality of the Google service lures millions of users to the web site every day,bringing in billions in advertising revenues every year. Since Google already has substantial

experience in working with data-centric business models, it is no surprise that the company

has recognized the potential inherent in smart energy. The product Google PowerMeter

offers customers a gauge showing their energy consumption data on the Internet, provided

that the utility company supports the function. The precise nature of the business model

Google is pursuing is still not clear, but it seems certain that they are aiming to secure a

leading position in the energy markets of the future.

The success of regulatory authorities in liberalizing the electricity market will increase

competition between the various electricity providers. All of the competitors have reliable

electrical power at their disposal, and there is practically no difference in quality between the

companies products, so differentiation is only possible in terms of price and the range of

value added services being offered. Value added services can build on the increased

availability of information in the intelligent energy grids of the future. One simple example is

the real-time display of electricity consumption data for consumers on a web portal. This

service can be further refined by offering comparisons with the consumption values of

similar households or by giving tips for the conservation of energy. Since this service could

help the electricity providers to retain customers or even to acquire new ones, it will be an

important competitive factor.


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The successful development and provisioning of information services by either the energy

provider or a third party will open up new sources of income. One possible model in this case

is a company which, for a monthly fee, gives tips on conserving energy and monitors the

savings after implementation. More complicated fee models could be envisaged as well,such as one in which the monthly fee which is linked to the savings made does not

actually become due until an agreed level of energy saving has been reached. Even more

complex would be models in which a service based on electricity is sold and no longer the

power itself. One example here would be the provision of an energy-efficient refrigerator and

payment of a monthly fee by the consumer for the refrigeration service, but no longer directly

for electricity and refrigerator. All of these models make use of the detailed consumption

information and improved energy consumption models made available by means of the new,

intelligent power grids.

Business models in which the additional income is generated from third parties, and not from

the consumers or the utility company, can also be envisaged. A simple case would beadvertising income from a web site providing power consumption information. These models

are particularly interesting because the consumption data leads to insights into the habits of

the consumers: for example whether the members of a household leave their home during

the day or whether the washing machine and stove are primarily used in the mornings can

be assessed to a certain extent from the power consumption data. A big priority must be

given to the observance of data protection aspects when implementing such scenarios. But,

under the assumption that the framework conditions relating to the anonymity of data, user

consent, and high levels of data security are set, it is easy to imagine that new opportunities

and new markets will arise here. An eye must be kept on both technological developments

and social discourse on this subject.


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4 Management of the smart energy ecosystem

The new business models can certainly be used by market incumbents, but they will alsoattract new players who have the necessary competence in the processing, utilization, and

preparation of data. In addition, there will be new market participants who will utilize two-

sided markets for their business models. Two-sided markets are characterized by the

inclusion of third parties. These may be advertisers or external solution providers from other

industries such as automotive.

The new energy market will develop into an increasingly complex network of relationships

with interlacing flows of revenues. The value chain dominated in the past by the traditional

utilities will turn into a value network as illustrated in Figure 1 schematically using the most

important market players and their relationships to one another..

Direkte EinflussnahmeIndirekte Einflussnahme

Existierende Beziehung

AlternativerVertrieb

Dritte/ Wer-bekunden

SonstigeStakeholder

Regulierung/

Behrden

Service

ProviderLieferanten

Energie-versorger

Endkunde

Neue Markt-teilnehmer

AlternativerVertrieb

Dritte/ Wer-bekunden

SonstigeStakeholder

Regulierung/

Behrden

Service

ProviderLieferanten

Energie-versorger

Endkunde


Direct Influence

Indirect Influence

Existing Relationship

Rise/Creation of New Relationship

Suppliers

Endkunde


ServiceProviders

Regulation/Government

Agencies

UtilityCompanies

CustomersOther

Stakeholders

AlternativeSales

New MarketPlayers

Third Parties/AdvertisingCustomers

Figure 1: Example of a Value Network for Smart Energy. The customer is at the center of the network.

The dominant market players must succeed in orchestrating the network to the benefit of the customer.

In view of the increasing complexity of the smart energy ecosystem, its active management

will be vital to the survival of all market players.

The basis of such active management will be a tailored partnering strategy which determines

the companys own position and ambitions, identifies suitable, complementary market

players, and defines the rules governing the way the partners deal with one another. In

alignment they will be able to put together attractive offers and complement each others

competence areas at low risk. Partnering means zeroing in on specific areas of value

creation as a rule those outside of the companys own competence and having these

performed by third parties or in cooperation with other parties to create an attractive market

offer.


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Experience from other industries indicates that the complete control of the ecosystem is not

decisive; instead, one must hold the key positions enabling the overall design of the system

and the access to smart energys most lucrative opportunities. In view of the great

importance of information and the sharing thereof, an IT infrastructure which can collect,aggregate, and provide data to the partners will play a key role.

IT platforms can be designed as proprietary or open systems. Generally speaking: the more

open a platform is designed, the more application developers eager to come up with

innovations will join in. And the broader the base of the platform, the more scaling effects

can be realized by both utilities and application developers. So a third-partys application,

once developed, can run on many different networks. The analysis of consumption data is

then also improved due to the increased volume of data available.

The overriding principle for the development of a partner strategy is that it must fit the

company and its overall business strategy. The right decisions about partners cannot bemade without a vision of ones own strengths and ones own role in the smart energy

ecosystem. A sales company, for example, will place greater value on all applications with

close contact to the customers. A proprietary consumption data gauge could be such a key

position in this case. An open approach would tend to be more appropriate for the operator

of measurement points.


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5 Conclusion and recommendations

Todays power supply market is on the threshold of massive upheavals. It is far from clearwhat new business models will ultimately prevail for sales companies and what the energy

supply market will really look like. Yet important investment decisions must be made today.

We recommend a strategic approach so that such decisions can be taken on a solid

foundation.

Evaluate the information along the future energy value chain. New business models

related to smart energy can be utilized to assign a value to information. A scenario-based

approach of this kind will despite the great uncertainty concerning the shape of the future

energy markets permit investment decisions to be made today.

Prepare to utilize new business models in intelligent energy networks. As competition

for the customers increases and scaling effects in sales start paying off, you should be

prepared to utilize the new data-centric business models. So take advantage of the current

period of uncertainty to get ready.

Choose selected key positions in the value added networks of the future to use as the

pillars of your operation. It is neither necessary nor even possible to control the complete

smart energy ecosystem. But you can occupy key positions. Pay especially close attention to

the IT infrastructure.

Place your trust in partners who meaningfully complement your own competencies. If

they occupy key positions in the energy value chain, partners can complement your

competencies and help to minimize your risk. So you should be drafting and implementing apartner strategy for the future value added networks today.


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6 The authors

Andr Seltitz is a Senior Consultant in the Competence Practice Information Technology atDetecon International GmbH and specializes in IT-focused business strategies. He has had

more than five years of ICT experience in the industry itself and in consulting work. In his

current projects, he has been concerned with market changes in the sectors M2M

communications and IPTV.

Dr. Felix Kalkum is a Business Analyst in the Competence Practice Information Technology

at Detecon in Bonn. After receiving a degree in physics and mathematics at the University of

Bonn, he earned his doctorate in applied optical physics in Bonn. His work at Detecon

focuses on the analysis of future technology-driven business models, especially on the

energy markets.

You can reach Dr. Felix Kalkum by calling +49 228 700 1973 or by sending an e-mail to

[email protected]

Dr. Volker Rieger is a Partner at Detecon and head of the Competence Group Technology

Portfolio Strategies. He has had fifteen years of professional experience on the ICT markets

and concentrates his consulting work on innovative business and technology strategies. His

clients include national and international technology and service providers in the sectors ICT

and energy.

You can reach Dr. Volker Rieger by calling +49 228 700 1920 or by sending an e-mail to

[email protected]


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O i i P 12 D t I t ti l G bH

7 The company

We make ICT strategies work

Detecon is a consulting company which unites classic management consulting with a high

level of technology expertise.

Our company history is proof: Detecon International is the product of the merger of the

management and IT consulting company Diebold, founded in 1954, and the

telecommunications consultancy Detecon, founded in 1977. Our services focus on

consulting and implementation solutions which are derived from the use of information and

communications technology (ICT). Our clients in virtually every industry from all around the

world benefit from our holistic know-how in issues of strategy and organizational design and

the use of state-of-the-art technologies.

Detecons expertise bundles the knowledge from the successful conclusion of management

and ICT consulting projects in more than 160 countries. We are represented globally by

subsidiaries, affiliates, and project offices. Detecon is a subsidiary of T-Systems

International, the business account brand at Deutsche Telekom, so we profit as consultants

from an infrastructure spanning the globe and which is maintained by a major international

player.

Know-how and Do-how

The rapid development of information and telecommunications technologies has an

increasingly decisive influence on the strategies of companies as well as on the processeswithin an organization. The adaptations which consequently become necessary affect

business models and corporate structures, not only technological applications.

Our services for ICT management encompass classic strategy and organization consulting

as well as the planning and implementation of highly complex, technological ICT

architectures and applications. We are independent of manufacturers and obligated solely to

our clients success.

Detecon International GmbH

Oberkasselerstr. 2

53227 Bonn

Phone: +49 228 700 0

E-mail: [email protected]

Internet: www.detecon.com

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Detecon Opinion Paper Smart Energy: New Values from the Energy Networks of the Future Success Factors for New and Established Providers