Providers, under pressure from new industry entrants, could look to move into the as-a-service market to diversify their offering
As the utility industry continues to undergo major transformation driven by decarbonisation, decentralisation and digitisation, an emerging business model, known as ‘energy-as-a-service’, is set to disrupt it further.
This broad umbrella term describes the growing sub-market of selling not only energy, but also technology, analytics, personalised services and even access to the grid.
“We are seeing more effort now to develop a new retail model than at any time over the last 100 years,” says James Sprinz, head of decentralised energy at Bloomberg NEF.
The trend is driven, in part, by advances in technology, and the desire of residential and business consumers to reduce costs and/or their carbon emissions. But also, says Mr Sprintz, by major European energy suppliers trying to claw back market share lost to renewables and new markets entrants, such as smaller players including Good Energy and Ovo Energy.
“Energy providers are looking at other things they can sell besides electricity, which has seen a large increase in capital in the market, as well as more mergers and acquisitions,” he adds.
Big Six moving into energy-as-a-service by acquiring new companies
In the UK, most of the Big Six energy suppliers have developed or acquired companies offering new services. Centrica, for example, in 2015 bought AlertMe, a smart tech company that provides energy and home-monitoring hardware and services, and Panoramic Power, which helps companies improve their operational efficiency.
In fact, according to a Bloomberg NEF report that tracked 30 selected companies’ activity in decentralised energy products and services, in 2017 there was an uptick in investments and partnerships in new areas such as battery storage and virtual power plants, but also in existing capabilities including energy management and micro-grids.
These companies are facing competition from outsiders, including Google, with its Nest offering, as well as startups, such as WATTY and ONZO.
“There are many companies looking to move into this sub-sector because digitalisation allows them to aggregate and control assets, resources and demand in a way that previously wasn’t possible,” says Professor David Healey, director of smart energy at WSP.
Though still relatively nascent, this market is poised to grow and diversify, especially with the continued emergence of electric vehicles and smart cities. According to Navigant Research, the energy-as-a-service annual market for commercial and industrial customers is expected to reach $221 billion by 2026.
This article also featured in The Times newspaper.