New Business Models for Clean Energy

• Lead Faculty: Michael Gevelber, Robert Kaufmann, Nalin Kulatilaka, Pirooz Vakili
  

We believe full realization of benefits of the Smart Grid will be met by integration of cyber-physical assets with new, networked business models. It will be this Smart Grid Business Platform that foster an accelerated adoption of clean energy technologies, smarter choices by consumers, and new economic opportunities.

Synergies of combining the cyber-physical infrastructure, e.g. communications, sensor networks, and smart appliances, with the electric power system, along with innovative new markets will enable the grid greater flexibility, enhanced security and reliability, improved operational efficiency, and situational awareness.

Green Revolution 2.0. A Sustainable Energy Path – by Nalin Kulatilaka

Inhibitors to Investments and Adoption

We believe that widespread adoption requires much more than requisite technologies. Even with a superior system, it is no easy task disrupting the status quo of existing capital equipment, habits, business practices and models, markets, and regulation. The list of challenges is long:

• Integrating existing systems and technology with innovation in new technologies
• Developing new services and business models to deliver value to end-users
• Restructuring policies and the regulatory environment to facilitate the transition to smart grid solutions and enable value capture
• Developing intelligent systems that leverage synergies between intermittent generating resources and interruptible/schedulable loads
• Providing incentives for user behavior changes needed to use new capabilities
• Developing new markets that signal timely price information to all participants (including end users) of the widely distributed network
• Creating financing vehicles that facilitate investments in distributed energy resources
• Developing standards that allow smooth integration and spawn innovation in the emerging smart grid ecosystem

Our Proposal

We believe that these myriad market forces are creating a paradigm shift in the energy industry that challenges the viability of traditional business models. Whereas many environmentally friendly technologies encounter barriers to widespread adoption when considered in isolation, the barriers can often be overcome through synergistic management. For example, wind generated electricity may see its widespread adoption hampered by increasing costs of fast capacity reserves required to safeguard against wind generation’s intermittency. Similarly, high penetration of electric vehicles may be checked by the cost of the requisite distribution network capacity expansion.

We propose leveraging synergies, such as coordinated smart charging of electric vehicle batteries that both mitigate the intermittency of wind power and ease congestion in the distribution network. Indeed, most clean energy technologies, including roof top photovoltaics, distributed storage, thermal energy conversion, and conservation, offer sustainable solutions when combined with real-time markets enabled by the requisite cyber infrastructure for real-time information.

Furthermore, new networked business models must use markets and innovative contract forms to connect generators, transmission and distribution systems, developers and end-users. We believe that such business models are vital in directing investments to deploying existing and emerging clean energy technologies and creating incentives for more prudent end-user behavior. Such business models are critical to motivating the evolution of public policy and real time electricity markets which in turn is key to wide spread and sustainable adoption of clean energy technologies.

At its core, these new business models, leveraging capability platforms that deploy both intelligent products and services, can foster significant network effects. The real time information flow created by intelligent systems that span both the transmission and distribution infrastructure and the user communities will enable new work flow designs, spawn highly distributed service based organizations, sustain innovation at the product level, and perhaps most critically, give rise to new market structures that use price signals to facilitate more efficient behavior. The combination of the new products, services and related markets will lead to a significant transformation across the entire energy value chain. The resulting ecosystem will adopt clean energy technologies while fostering new businesses, creating new jobs and ultimately empowering society to reach new heights in energy conservation and sustainability.

Components of the Smart Grid Business Platform

Smart technologies composed of cyber-physical assets

• The distribution system can turn the grid into a dynamic system.
• Technologies can respond to information about energy prices and grid conditions by adjusting energy consumption.

Smart rates create markets

• Demand response provides opportunities for consumers to reduce their energy bills; it can recognize and reward the shifts in risk.

Smart decisions using intelligence

• Information to consumers/agents will enable smart choices.

Smart organizations and new governance and policy

• It can change relationships between utilities, customers and regulators as well as enables changes to business/work practices, behavior and habits.

Smart services with granular segmentation

• Customized services can be based on quality differentiation.
• “Packetized” energy allows for services based on interruptible usage and intermittent generation.