We recently spoke to Raconteur, featured in Future of Energy, about Energy-as-a-Service. There is a lot to say about it and we wanted to add a few more thoughts.
In a nutshell, energy-as-a-service is a shift in the business models around how energy is produced and consumed, from paying per unit, to paying a monthly subscription for consumption. Think of cell phones: most people pay as a fixed-price package for data and calls, instead of per call or per text as in the early days.
Taking advantage of the growth in renewables, developments in energy storage, and technologies that permit better demand management, the energy-as-a-service providers can combine saving energy, producing energy and storing energy into a competitively-priced package for commercial, industrial or residential customers. The opportunity varies by segment: business-to-business customers are looking for efficient consumption that is balanced with microgeneration management. Business-to-consumer focuses on the energy needed to power smart homes and the rapidly growing market in electric vehicles.
In the current model, the interests of energy providers that charge by the kilowatt are not aligned to those of customers, who want a reliable service at a reasonable price. This tension is greater when you consider the full energy ‘trilemma,’ which includes reducing overall consumption for sustainability benefits, too. The energy-as-a-service model aligns these interests. By offering a tariff for an all-in service, power providers become a lot more interested in ensuring that customers are as energy-efficient as possible, match use to when renewables generation is at its peak, and store energy for use when rates are high. For large commercial and industrial customers, an outcome-based service that incorporates a diverse and renewable range of energy sources and management at a lower and fixed cost would be an attractive option.
We are starting to see movement in this direction. In our recently published report, Widening the lens: Big-picture thinking on disruptive innovation in the retail power sector, we cite a number of examples of how energy providers are using increasingly sophisticated technologies to spur innovation in all areas of the business: the back-of-house, the product offering and the customer experience. Energy providers are partnering with companies in different sectors (automotive, insurance, telecommunications) to create new ways of working, new products and services, and enhanced value for customers.
For example, utilities and power retailers work with auto companies to improve home generation and storage, and use advanced analytics to facilitate smart use of electricity. The result is improved reliability and more transparent prices for consumers. Turning battery packs into storage as a service means B2B and B2C customers can shift energy use away from the most expensive times. In another case, one power company worked with a telecoms company to offer customers bundled home services across their power, gas, phone and internet, and the convenience of a single bill. Firms are taking advantage of new technologies, such as blockchain, to create local peer-to-peer markets in renewable energy.
Energy firms are embracing the three trends of decarbonisation, decentralisation and digitisation to do something new that brings value to customers. The use of smart technologies on both the generation and consumption side permits a wider, and greener range of energy sources into the mix. Self-generation allows for the creation of microgrids and more efficient use. And the latest Internet-of-Things technologies permit a level of transparency and data-driven understanding of use that improves energy management for suppliers and customers alike. In all the examples we cited, the results speak for themselves.
These novel approaches are being rolled out around the world in small-scale trials and pilots. But we expect to see momentum gather pace in the coming years among the big players, with a shift from energy as a commodity product to services that include energy.*
*In a recent interview in the Sunday Telegraph, Claire Miles, the managing director of British Gas’ Connected Home offering, stated that “the ultimate aim is to transform British Gas into a ‘services company that also sells energy.’”
Duncan Barnes is a partner in Deloitte Digital, where he leads our utilities team in the UK, supporting our clients in navigating utility market disruption. He also leads our sales & service transformation teams, which help our clients to design and deliver great sales and service experiences using leading-edge digital technologies.