120213 cateura grenoble em smart grid toward which business models

Smart Girds : Toward which

Business Models ?

Olivier CATEURA, PhD. Professor of Strategic Management, Grenoble Ecole de Management

Head of the Advanced Master (MS) in Energy Marketing & Management (GEM & G-INP)

+33(0)6.75.07.73.16 – [email protected]

BEST - Winter School / Minatec. Grenoble, February 2012

Agenda

O.CATEURA. Grenoble EM. 2012/02.

Smart Girds & Business Models are :

Buzz Words…

Smart Grid Ireland – Word Cloud

=> Is it the good time to market ? How to address it ?


1.1 What is a Smart Grids ?

“A smart grid is an electricity network that

uses digital and other advanced technologies

to monitor and manage the transport of

electricity from all generation sources to

meet the varying electricity demands of end-meet the varying electricity demands of end-

users”.

• Use of Information & Communication Technologies (ICT)

• Real-time & bi-directional information (Utilities &

Consumers)

Source : International Energy Agency. (2011) Technology Roadmap – Smart Grids. OECD/IEA.


1.2 Smarter Electricity Systems

KEY POINT: The “smartening” of the electricity system is an

evolutionary process, not a one-time event.

Source : International Energy Agency. (2011) Technology Roadmap – Smart Grids. OECD/IEA.


1.3 Smart grid technologies areas

Source: Technology categories and descriptions adapted from NETL, 2010 and NIST, 2010.

KEY POINT: Smart grids encompass a variety of technologies that span the electricity system.


1.3a Smart Everything…. ?

• Super Grids

• Smart Grids

• Micro Grids

Idea from O.Cottet / Schneider Electric / HOMES Program.

• & Smart Buildings… !?


1.3b A Smart Grid Needs Smart Buidlings

http://www.institutebe.com/smart-grid-smart-building/What-is-a-Smart-Building.aspxO.CATEURA. Grenoble EM. 2012/02.

1.4 Main Characteristics &

Benefits of Smart Grids…• Enables active participation by consumers

• Accommodates all generation and storage options

• Enables new products, services and markets

• Provides power quality for the digital economy

• Optimizes assets & operates

The Smart Grid : An Introduction. US Dept. Of Energy.

• Optimizes assets & operates

efficiently

• Anticipates and responds to

system disturbances

• Operates resiliently against

attack and natural disaster

source www.nist.gov - National Institute of Standards and Technology (NIST)


1.5 Smart Grids are becoming

a Radical Innovation

Effect of innovation

on consumer habits

and behaviours

Major

Major

Innovationonline banking, Poste-it Notes

Radical

InnovationPC (IBM) , Online Bookstore

(Amazon) Download music site

(iTunes)

Smart

Grids !?

and behaviours

Minor

Incremential

InnovationABS, Washing powder tablets ,

Innocent drinks,

Strategic

InnovationLCD TV, Smart Cars, EasyJet, Ikea

Minor Major

Effect of innovation on

established firms’ competencies

Source : Markides & Geroski, Fast Second. 2005O.CATEURA. Grenoble EM. 2012/02.

Agenda


2.1 Context : Major Trends in the Energy

Sector (PEST analysis / Smart Grids)

– P : Competition in the energy sector (Deregulation)• Shared power between States / Utilities / Customer

– E : Growth of Energy Consumption (+50% by 2035 - worldwide)• Electricity growth : +100% by 2035 (80% non-OECD)

– E : Economic slowdown• Debt burden & social priorities : avaibility of cash.• Debt burden & social priorities : avaibility of cash.

– S : Climate Change Issues (New regulations)• Climate Change Mitigation & CO2 Reduction (Kyoto, EU –ETS)

• 3x20 priorities + EU Roadmap/Smart Meter by 2020. Decarbonisation by 2050

– T: Fossil Fuel Reduction & Investment in Renewables• European Strategic Energy Technology Plan (SET-Plan & Technology Roadmap)

– T : Technology Innovation• ICT innovations & availability of Smart Grids Technologies

• Growth of Electric Vehicules Projects


2.1a Stakes & Issues for the EU (Strategic Goal of the UE Smart Grid Research Agenda)

UE – EC (2007). Strategic Research Agenda For Europe’s Electricity Network of the Future. European Technology Platform Smart Grids


2.1b World Energy Consumption 1990 – 2035 (quadrillion Btu)

• Total world energy use rises from 505 quadrillion British thermal units (Btu) in

2008 to 619 quadrillion Btu in 2020 and 770 quadrillion Btu in 2035.

• Energy use in non-OECD nations increases by 85 percent in the Reference case, as

compared with an increase of 18 percent for the OECD economies

http://www.eia.gov/ US Energy Information AgencyO.CATEURA. Grenoble EM. 2012/02.

2.1c Electricity consumption growth

2007-50 (BLUE Map Scenario)

KEY POINT: Emerging economies will need to use smart grids to efficiently meet rapidly

growing electricity demand.

Source : IEA, 2010 & International Energy Agency. (2011) Technology Roadmap – Smart Grids. OECD/IEA.O.CATEURA. Grenoble EM. 2012/02.

2.1d Deployment of electric vehicles

and plug-in hybrid electric vehicles

Source : IEA, 2009 & International Energy Agency. (2011) Technology Roadmap – Smart Grids. OECD/IEA.

KEY POINT: Major economies with large personal vehicle sales will need smart grids to enable

the effective integration of electric vehicles to their electricity grids.


2.2 Smart Grid is an answer to :

• Low carbon economy

• Based on decentralized renewables energy

• Focused on energy efficiency & service quality

It’s a important need for emerging economies,

but available and affordable now in developed

countries


2.2a Example : Denmark : the smart grid

experiments

The Smart Grid : An Introduction. US Dept. Of Energy.

2.2b Transmission links between Denmark & Nordic countries

KEY POINT: The Nordic electricity system successfully

integrates large amounts of variable renewable energy in a

regional grid by making use of interconnections.

2.3 Mini – Quizz… Guess :

Who are the Top 3 Countries for Smart

Grids Investment 2010

• 1 : Investment :

• 2 : Investment :

• 3 : Investment : • 3 : Investment :


And the Top 10 ?• 4 :

• 5 :

• 6 :

• 7 :

• 8 :

• 9 : France !

• 10 :

2.3 Top Ten Countries / Smart Grids

Investment 2010

http://www.gereports.com/top-10-countries-for-smart-grid-investment/O.CATEURA. Grenoble EM. 2012/02.

2.4 Examples of Smart Grids Pilots

& Demonstrators• In China : USD 96 billions by 2020,

– State Grid Corporation of China.

• In the US : USD 4,5 billion to grid modernization, – including 3,48 billion for technology integration + 435 million for regional SG

demonstrations + 185 million for storage.

• In India : USD 400 million pilot programs (Hayana, Mahashtra & Gujarat).

• In Australia : AUD 100 million for « Smart Grid, Smart City ».• In Australia : AUD 100 million for « Smart Grid, Smart City ».

• In Europe : Edison & EcoGrid (Denmark / IBM), HiperDNO (Spain, UK, Slovenia), EU-DEEP, Address, Open Meter, OpenNode…

• In France : 300 000 smart meters Tours – Lyon (Linky) => 35 M

– Demonstrators : Premio (Lambesc/PACA), NiceGrid, IssyGrid, Lyon Confuence -NEDO,

– And GreenLys…


• A Smart Grid for Grenoble & Lyon, by 2015.

• 1000 residential cutomers, 40 offices &

buildings

Lyon - Confluence

• 12 partners : 39 M€ (including 9,6M€ by

French State, via ADEME)

Agenda


3.1 The financial stake

• The Global Smart Grid Market : – US $ 10.5 billion in 2009 to a high point of $35.8 billion in 2013

(Pike Research, June10)

– US $ 57 billion by 2016 with a CAGR of 13% over the next five years. (src : Lucintel, Dec.11).

– US $ 81 billion by 2016, from $23 billion in 2011 at a CAGR of – US $ 81 billion by 2016, from $23 billion in 2011 at a CAGR of 29% from 2011 to 2016 (src : Research & Markets, Feb12).

– US $ 376 billion by 2025 (Innovation Observatory)

– € 480 billion (IEA), by 2035

– € 15 billion - France (EEGI – European Elec. Grid Initiative)

Who will pay for it ?


Even if

predictions can

also be very

optimistic…

Like it was in Like it was in

2009…

Src : Zpryme, 2009.


3.2 Smart grid projectsGeographical distribution

of investments and

project categories

219 Projects

5.5 billion € - July 2011.

http://ec.europa.eu/dgs/jrc/index.cfm?id=1410&obj_id=13670&dt_code=NWS

This figure does not include the

total budget of the Swedish smart

metering program (estimated

budget €1.5 billion).


3.3 Smart Grids are helping to manage

• Energy issues (peak load management & energy efficiency)

• Climate change (reduce GHG emissions)

• Competition (DSM – load shedding & dynamic pricing)

• Security (integration of EnR, storage, electric vehicule)

Who will pay for it ? Who will capture the value ?


Remember : This is a Black out…The USA…

14th August 2003

NY Region in the

black…

Imagine the cost

in 2012 ?

It’s a business

threat but also a

great opportunity,

it depends how you

are…http://www.ptd.siemens.de/artikel1003.htmlO.CATEURA. Grenoble EM. 2012/02.

3.4 Business Models ??

(2) Network &

Value Chain

(1) Offer & Value

Proposition

Costs &

Targeted

Customer

• Smart grids = Value creation

through the electricity grid

management

• It can be :

– Top Down / Macro. State’s

(3) Profit Formula

RevenusCosts &

Assets

– Top Down / Macro. State’s

vision.

– Bottom up / Micro.

Company’s vision

• Who will assume the

investment ?

• Who will capture the value

and get the revenues ?

• The main benefits are going to be the TSO (Transportation System Operator) & DSO (Distribution System Operator)…

• But other actors are interested in the process…


3.5 Smart grid product providers

KEY POINT: A broad range of product and service providers who have not worked

together in the past will have to collaborate in smart grids deployment

Source: Canmet Energy/Natural Resources CanadaO.CATEURA. Grenoble EM. 2012/02.

http://www.greentechmedia.com/images/wysiwyg/research-blogs/taxonomy-large.jpgO.CATEURA. Grenoble EM. 2012/02.

3.6 Who may be the winners &

who may be the loosers ?

• A lot of actors (energy equipment, ICT, IS consulting…) willhave products and services to sell…– Aggregators (ECS in the US; EnergyPool (=S=), Voltalis in FR…

have a interesting business models (customer are paid for not using electricity)

• TSO & DSO should have the regulation and collected fees to assume the investment (even if the sunk cost will behuge)…

But one will have to adapt deeply its offerthanks to Smart Grids….


3.7b Which consequences for Utilities ?

(1-) With less energy to sell, the revenues willdecrease

(2+) With higherinvestment costs & assets will rise

(2) Network &

Value Chain

(1) Offer & Value

Proposition

Costs &

Targeted

Customer

assets will rise

(3-) The Profil Formula is in danger

The Business Model of Utilities has to

change…

(3) Profit Formula

RevenusCosts &

Assets

• Telecoms & IT firms are readyto provide new services (energy saving -5/-15%) through the energy in-house box.


3.7b Which consequences for Utilities ?

• What will be the new Customer Value Proposition for Utilities ?

• How to sell energy efficiency ?

• How to develop new services ?

• How to share the value of Smart Grids ?• How to share the value of Smart Grids ?

The price of electricty should rise rapidely (hopefully, for Utilities)

It should allow to shift from Volume to Value

• Will customer be willing to paid more (and how much) ?


Agenda


4.1 Main Issues to Tackle…

• Investments in Network Infrastructures

• Interoperability of communications standards (Smart metering)

• Constraints on network operators & utilities business models

• Privacy (data management) and security issues

• And identify which business model will be yours !


4.2 Needs & Recommandations

• Political stability & regulation– « Do you want to know what keeps me up at night? Not my

programmers. Not my investors. Not my health care costs. It’s state regulators »

CEO of Smart Grid Leading firm. In Peter Fox-Penner, Smart Power.Climate Change, the Smart Grid, and the Future of Electric Utilities

• Involve the « Prosumer »• Involve the « Prosumer »– from energy consumer to > e-aware > e-manager > energy partner

• Learn & Build up on experiments & R&D– Crossing the Chasm (G.Moore) Niche strategy.

• Shared standards– Collective work & shared investments


To go further…

• IEA Smart Grids Technology Roadmap– www.iea.org/papers/2011/smartgrids_roadmap.pdf

• JRC Report Smart Grid Project in Europe– http://www.smartgridinformation.info/pdf/4516_doc_1.pdf

• Global Smart Grid federation– www.globalsmartgridfederation.org

• EDSO for Smart Grids• EDSO for Smart Grids– www.edsoforsmartgrids.eu/

A book :

• Fox Penner Peter (2010) Smart Power. Climate Change,theSmart Grid, and the Future of Electric Utilities. Island Press.


Smart Girds : Toward which

Business Models ?

Olivier CATEURA, PhD. Professor of Strategic Management, Grenoble Ecole de Management

Head of the Advanced Master (MS) in Energy Marketing & Management (GEM & G-INP)

+33(0)6.75.07.73.16 – [email protected]

BEST - Winter School / Minatec. Grenoble, February 2012