My Startup Project

Favourite quotes:

Keynes: "the difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify....into every corner of our minds"

Schumpeter: "new ideas, unless carefully elaborated, painstakingly defended, and 'pushed', simply will not tell"

By promoting and capitalizing on the changing world of energy sector, we seek to build a business model that can add value to the Smart Grid Evolution that seems inevitable, at the same time economically viable and sustainable.

Note: Please look at the Video provided to better understand the concept of “Smart Grid”

The traditional electricity value chain consists of the generation - transmission-distribution-retail pathway from energy source (primary fuel) to end use. Energy and information flow in one direction, and all but the largest of customers play a passive role.

The introduction of smart grid technologies will add complexity to the network, moving power and information in multiple directions and enabling a host of new participants and business models. Distributed energy resources such as customer-owned renewable generation, plug-in electric vehicles and energy storage will extend the value chain to include assets operated closer to the end user. The end users themselves, who may be capable of providing some combination of demand response, power or energy storage to the system, will also be an integral part of the new value chain.

This re-characterization of the industry value chain (see Figure 1) will dramatically reshape the value proposition among energy, service and product providers, as well as customers of these enterprises and the value model of the industry as a whole (see sidebar, An evolving value chain). A value model is the combination of value provided to customers and the reciprocal value received from customers in return.

In the case of the electric power industry, the traditional value model involves customers receiving reliable and universal power at reasonable rates, for which they offer providers reciprocal value in the form of intermittent (usually monthly) revenue via “Net metering” or also energy banking via “Net Zero Metering”. This is commonly known as Renewable Energy Credits (REC) (see Figure 2).

Today, customers are demanding more from their providers than merely reliable power at reasonable rates. Our global utility consumer surveys show consumers want more control over their expenditures and environmental impact and more information about their energy usage – both in content and frequency. While customers are becoming more demanding, they also have much more to offer in return to power providers and other participants than just payment for energy consumed (see Figure 3).

Some of these new elements of reciprocal value are primarily operational in nature; demand response, load profile flexibility, and distributed power and storage (where the customer has these on their premises) allow for optimization of system performance and asset utilization. Others, such as information on energy consumption patterns, other consumer demographic and behavioral information, and access to personal connections/ networks for marketing purposes, are the foundation for new revenue sources for companies able to effectively leverage the information.

The flow and volume of information itself, along with new services it enables, are strong contributors to this continuous flow of new value. At present, there is little financial or operational value to the data generated by consumers (essentially total usage on a monthly basis) because it is too limited in scope and frequency of delivery to be of value to parties other than the electric provider’s own billing and operations departments.

However, the quantity, frequency and quality of data generated by consumers – and its usefulness to energy providers and third parties alike – are set to grow exponentially as smart grid infrastructure is deployed. Devices and software that capture, analyze and present this information to consumers and energy providers are already beginning to proliferate, and services that make use of this data are rapidly emerging. A smart grid in Chile with energy and information flowing in multiple directions will provide support for interactions among all ecosystem participants, facilitating the development and need for such an electric power industry multisided platform(s). This platform will link energy suppliers, service providers, device manufacturers, application developers and end users (residential/industrial/commercial). Each group of participants needs access to this platform to reach the other groups, but this platform does not substitute itself for any particular participant.

We will use a multisided platform model.

Multisided businesses provide benefits to the interacting groups – while profiting from the transactions – by increasing and capturing indirect network externalities (INEs). Figure 4 shows how a multistep process stimulates these INEs in a two-sided market. In the first step, growth in the number of potential customers on side one for complementary products and services on side two occurs. This leads to an increase in the quantity and diversity of complements made available by side two. Next, because side one users are favorably inclined to a wider variety of products and services on the other side, they are more likely to join the platform. This makes it even more attractive for side two to develop new complements, and the cycle sustains itself.

This can be (and has been) a successful and profitable way to innovate industry models, allowing for additional value creation and profits throughout the value chain. However, as the builders of broadband infrastructure in the United States learned in the late 1990s and throughout this past decade, the entities that construct and maintain multisided platforms aren’t necessarily the ones that will reap all of the profits generated by such a model. For example, companies such as Amazon,

Skype and YouTube benefited strongly from others’ investments in broadband network infrastructure without taking part in the capital outlay for that infrastructure.

Because of their enormous investments in smart grid and other improvements, today’s electric companies will, in a somewhat analogous fashion, be responsible for putting in place most of the infrastructure required for new industry participants to emerge. At the same time, it is likely that new electricity related business models that leverage the smart grid infrastructure will be launched by entities that did not make direct investments in it. While it is healthy for the industry as a whole to encourage innovation in new products and services, incumbent electricity companies must be aware of this likelihood.

Mapping out business models that take advantage of the new network-enabled capabilities will allow electric companies reap as much of the ecosystems’ new value as their ambitions permit.

Our Platform proposed as an early initiative for Chile’s electric power industry to move towards a smart grid infrastructure, which we fully accept to be inevitable in the near future:

Up until now, the electric power industry has not had much reason to create multisided platforms because product delivery has been a purely physical process; both energy and information flow have been unidirectional; and the typical end consumer had little desire to communicate with providers other than for service provision, billing and problem resolution. All of this is changing.

One way value, information and money could be exchanged on this platform via an energy marketing portal, on which customers can shop for the best deals on power or for power that meets specific personal requirements (see Figure 6). The platform owner creates value by providing the end user with access to various applications (for energy shopping, energy management, etc.) in return for passive usage and preference data, which the customer has approved for use for these purposes. This is delivered back to the platform owner through the applications for aggregation and presentation for the other side of the platform, the energy retailer.

The retailer has access, through the platform provider, to a suite of applications to gain access to and evaluate the customer data. This information is valuable to the energy retailers, and they are willing to pay the platform owner for access to it to build marketing programs for products and services aimed at likely customers. Informed by the platform owner and the retailer-side applications, retailers communicate their best offers to the buyers seeking deals or new programs. Ultimately, the retailer gets return for its “investment” – paying the platform owner for access – in the form of increased revenues from consumers who value the programs and services they offer.

A slightly more complex example involves us as an information aggregator (see Figure 7). An information aggregator builds a relationship with end users by selling them (possibly at a subsidized price) energy usage display/management devices that are preloaded with useful applications, all of which are purchased from third-party developers. Thus we will serve as the link between device manufacturers and end users and between application developers and end users.

With appropriate permissions from consumers, the platform owner can also collect information about the end users’ energy usage patterns, build profiles and market those profiles to energy and non- energy (e.g., appliance) retailers. As with the energy marketing portal, the retailers are willing to pay for this information because of the benefits they accrue from it. The end users’ profiles also include information on demand response they are willing to provide; this can be exchanged with the energy retailers for payment as the need for such response arises. Thus, cash can flow in both directions between retailers and end users, with the transactions in both directions facilitated by the platform owner.

 

Extra readings on Platform Models

Platform Models

The term platform, as used here, refers to a common architecture (essentially, a design for products, services and infrastructure facilitating users’ interactions) and set of rules (protocols, rights and pricing terms) that provide a standard foundation governing transactions among two or more parties. In general, platforms provide a means for providers and buyers of products and services to interact and create value that could not be created otherwise. The platform lowers the costs of providing services by offering some level of standardization for transactions and reducing duplication.

In this sense, the electricity network was one of the earliest technology platforms. It provided a means for power generators to move their output to buyers, a means for buyers to accept delivery of the output, and a standardized technological specification.

Many platforms are single-sided platforms, with a seller at one end and a buyer at the other and, often, intermediaries (distributors) between them that transfer the product from buyer to seller without changing it substantively. The electric power network has historically operated as a single-sided platform. Until the advent of wholesale generators, the business operated as the simplest possible form of a platform – the manufacturer (generating utilities), by virtue of owning the entire value chain from the point of input of fuel to the point of entry into the user’s premises, sold directly to the customer with no intermediaries; in fact, some utilities also controlled the fuel production itself. The emergence of independent generators and pure energy retailers moved the power transmission and distribution network closer to a position where it did act in an intermediary fashion, transporting power from wholesalers for purchase and use by end users.

As new value is generated in the network through expansion of the value and reciprocal value exchanged, industry model innovators will develop new businesses that more closely resemble multisided platforms. In a multisided platform, there may be multiple types of buyers and/or sellers – in fact, a single party can be both a buyer and a seller.

A shopping mall is an example of a multisided platform: manufacturers, retailers and shoppers all benefit from having a single location where they can meet and transact business.

Malls provide common facilities, like restrooms and parking, which help lower costs to stores that otherwise would have to individually provide them. Since these economies help reduce costs to retailers, prices can be lower, benefiting shoppers.

A wider variety of stores and services brings more shoppers; more shoppers bring higher sales volumes for manufacturers and lower costs for retailers (and, in theory, also lower prices for shoppers). Thus, some element of network economy is bundled into the shopping mall value proposition. The platform owner (the mall operator) extracts some of this value in the form of rents to store owners and, in some cases, service fees to shoppers. (There are also organizations not directly involved in the mall transactions – credit card issuers, for example – that benefits and take revenue from the transactions.) But without all of the parties being involved, none would get any of the benefits.

Other examples of multisided platforms include newspapers (with readers serving as one side and advertisers another) and health maintenance organizations (with patients being one side and doctors and pharmaceutical companies serving as other sides). Yet another example is video games (with players being one side and developers, publishers, content providers, licensors, tools and middleware providers making up the other sides).