Distributed energy: Press accelerate to win the smart energy race

This article was first published in Utility Week

As energy bills continue to rise for businesses and homes alike, customers are inevitably seeking to reduce their costs, meaning the installation of new energy technologies in homes and businesses is ever growing.

The business case for distributed energy makes more sense than ever, but customer experience is lagging as it is complex and hard to navigate. This creates a growth opportunity, with a class of early leaders combining investment, technology, and new business models for customer benefit. Companies who make technology choices compelling and customer experience simple will win in the new market and accelerate the adoption of low carbon technologies that are needed.

Early adoption of distributed energy technologies

Although customer engagement with energy cost saving and climate change is at an all-time high, in an energy system designed decades before the internet, customers are struggling to save money and become sustainable. Distributed technologies, however, have the potential to transform customers into productive contributors to their own energy.

The smarter energy economy arrives

By 2025, the UK government envisages there will be a ‘smart energy market’ benefitting from smart meters, better customer switching and half-hourly electricity settlement. Each will enable customers to better understand their energy use, access the best value smart tariffs and fully participate in flexibility. For energy and technology providers this presents an opportunity to simplify the customer experience across technologies. This will provide the basis for longer, energy-as-a-service relationships across multiple technologies, energy needs and flexibility reward.

Savvy customers will proactively reduce their energy supply bills through technology, finance the upfront costs, and receive reward for their usage flexibility. However, not all customers can add technology to their premises, and some cannot access finance. This creates an opportunity to innovate and avoid customers being left behind and stuck with higher energy bills. For example, community energy projects – including shared ownership stakes in renewable generation – are areas of further growth, with community solar growing quickly in the USA. Sharing electric vehicle chargers with others in the community is another area that may grow in popularity.

The evolving role of the energy provider

With customers becoming partially self-sufficient in their energy and contributing flexibility of use to the energy system, the role of energy suppliers will evolve. New types of value provider are emerging to help the customer manage their costs with, for example, EV charging, or customers are being supported to maximise their reward for flexibility. These new value providers may both collaborate and compete with traditional energy suppliers. Additionally, the whole sector is anticipating greater involvement from the device manufacturers themselves.

The next five years will see a profound shift in business models from traditional energy supply towards energy-as-a-service. From an initial explosion in technologies and service providers, solution value will converge over time, and providers will exit. This competitive race, and its maturity, will determine the leaders of the smarter energy economy.

The new pillars of smart energy competitive leadership

Future customer energy relationships start with securing leadership in distributed energy. As this sector scales quickly, it’s time for technology and service providers to form and execute growth strategies that secure market leadership. There are five key pillars new leaders should combine into their competitive strategies:

Customer propositions – delivering financial cost savings to customers by using their flexibility to support the energy system will be a source of competitive advantage. Leaders should remove the integration complexity across the individual distributed energy technologies to create simple, engaged customer experiences. Engaging through mobile devices to show growing financial and sustainability benefits for both the consumer and their communities, will build confidence and participation in energy network flexibility markets.

Growth strategies – delivering the competitive opportunity first, and at scale, by creating an integrated go-to-market plan. As distributed energy technology and service providers evolve from the start-up phase into fast scale growth, leaders should create the enabling go-to-market plan for their target competitive market share covering their supply chain, processes, data, talent and financial requirements.

Staged investment – showing how growth strategy will be delivered through an aligned financial plan that provides investor confidence to invest against the maturing stages of market and business growth. Navigating through start-up phases, fast growth and market maturity has peaks and troughs of revenue and cost that do not align precisely. As cashflow is vital to the delivery of growth strategies, leaders need to form a realistic, granular financial plan with clarity on challenges and growth drivers that enhances investor confidence at each stage of business growth.

Technology management – turning early-stage development of technology into scalable, integrated platforms through agile development approaches, while ensuring regulatory compliance. With distributed energy technologies and flexibility markets evolving in parallel and standards emerging in parallel with customer adoption, leaders need to treat propositions as an ever evolving ‘beta’ version. Thus locking in core functionality and accepting change as a constant source of competitive differentiation. Standardising access to data and an iterative value creation process will provide leaders with the building blocks to continually innovate.

Operational execution – delivering across a range of requirements from supply chain management to securing the right talent and skills. With the distributed energy opportunity now recognised and growing customer adoption of the technologies, there is a race to be the winners at scale. To seize momentum, leaders should focus on fast paced innovation, talent empowerment and a technology-services development culture. Start-ups with this culture should focus on how to maintain as they scale growing business demands, while existing organisations may need to separate out this area to avoid a traditional, linear culture, making them too slow to compete.

Distributed energy will change our global energy sector, with customers everywhere seeking the same benefits. The race to be a leading provider at scale creates a need for materials, talent, and investment beyond country borders. The opportunity is there for those who provide technology and services, but not everyone can win and achieve customer adoption at scale.

Many of the technologies needed are already mature, with innovators constantly pioneering. Now the opportunity is to breakthrough from technology potential into customer adoption at scale. These technologies will remain operational for many years once deployed, and the customer data collected will identify further savings. By focusing on end-customer benefits, providers will have a longer-term relationship in which the customer can invest further in new technologies.