Chapter 15
The Transformation of the German Electricity Sector and the Emergence of New Business Models in Distributed Energy Systems
Sabine Löbbe
André Hackbarth Reutlingen University, Reutlingen, Germany
Abstract
Threatened by rising competition and tightening margins, the German energy industry seeks for ways to avoid the commodity trap by offering distributed energy systems. The regulatory framework, changing customer preferences, and digitalization offer chances to tap so far unprofitable customer segments, and blockchain might further enhance efficiency. Innovative contracting and peer-to-peer services integrate and manage photovoltaic, cogeneration, and storage for homeowners, as well as recently, also for housing companies. Results show that competing business models of the various market actors—established utilities, battery providers, or independent start-ups—offer specific benefits for different customer milieus.
Keywords
distributed energy
utility business model
peer-to-peer energy community
contracting
prosumer
consumer preferences
Germany
1. Introduction
Induced by a societal decision to phase out conventional energy production—the so-called Energiewende (energy transition)—the rise of distributed generation acts as a game changer within the German energy market. The share of electricity produced from renewable resources increased to 31.6% in 2015 (UBA, 2016) with a targeted share of renewable resources in the electricity mix of 55%–60% in 2035 (RAP, 2015), opening perspectives for new products and services. Moreover, the rapidly increasing degree of digitalization enables innovative and disruptive business models in niches at the grid’s edge that might be the winners of the future. It also stimulates the market entry of newcomers and competitors from other sectors, such as IT or telecommunication, challenging the incumbent utilities. For example, virtual and decentral market places for energy are emerging; a trend that is likely to speed up considerably by blockchain technology, if the regulatory environment is adjusted accordingly. Consequently, the energy business is turned upside down, with customers now being at the wheel. For instance, more than one-third of the renewable production capacities are owned by private persons (Trendresearch, 2013). Therefore, the objective of this chapter is to examine private energy consumer and prosumer segments and their needs to derive business models for the various decentralized energy technologies and services. Subsequently, success factors for dealing with the changing market environment and consequences of the potentially disruptive developments for the market structure are evaluated.
The remainder of this chapter is organized as follows: Section 2 describes the German market, including its regulatory framework. In Section 3, major game changers in the Business-to-Customer (B2C) segment are outlined. This covers new consumer preferences and their effects on the market potential of distributed energy and energy communities. On this basis, Section 4 demonstrates emerging business models for distributed energy systems in Germany. In Section 5, key success factors of business models, as well as an outlook of the probable future market structure are derived, followed by the chapter’s conclusions.
2. The German energy market in transition
Induced by European law (Directive 96/92/EG), the liberalization of the German electricity market started in 1996. The adjoining process of amendments to the law and their implementation steadily increased competition. The process culminated in the amendment of the German Energy Industry Act in 2005 and its associated regulations, which required transmission and supply to be unbundled. This process was accompanied by introducing the legal framework for the supply and support of energy from alternative, decentral generating facilities in the early 2000s.
2.1. Market Structure
In the German electricity sector, generation, transmission, distribution, and retail activities are unbundled, resulting in 879 distribution system operators and around 1240 suppliers, so that the more than 47 million households and more than 3 million industrial and commercial customers can, on average, choose between around 100 different suppliers. The transmission grid at the highest-voltage level is divided into four autonomous zones currently operated by the transmission system operators: Tennet, Amprion, 50Hertz, and TransnetBW (Bundesnetzagentur/Bundeskartellamt, 2016).
The market share of the four largest utilities—E.ON, RWE, EnBW, and Vattenfall—in German electricity generation fell from 84% in 2008 to 76.2% in 2015. This change is taking place due to the increasing share of renewable resources being predominantly owned by new players. While the big four power companies own most conventional generation capacities, in 2012 they owned only about 5% of renewable resources (Bundesnetzagentur/Bundeskartellamt, 2016; RAP, 2015; TrendResearch, 2013). Furthermore, retail competition has been increasing in the last few years. In 2015 24.9% of household customers were supplied by a competitor, that is, not the default supplier, and the “big four” had a market share of 41% (Bundesnetzagentur/Bundeskartellamt, 2016).
To organize the corresponding processes between the market partners, a comprehensive energy data management to synchronize physical and financial flows is essential. Its backbone is a system of balancing groups, that is, the virtual energy-volume accounting containing any number of entry and exit points, managed by a balance responsible party. All producers and consumers are included into balancing groups to report and follow the balanced load and generation schedules. Unpredicted imbalances are settled by the transmission system operators. Finally, the distribution system operator concentrates consumption and production data and by default operates the meters (Section 2.3). The aggregated data is then transmitted to the respective market partners and the settlements between customers and suppliers, power companies and distribution system operators, or balancing group managers and transmission system operators are done (BMWi, 2015, 2016a).
2.2. Support Schemes for Renewable Energy
In 2000 the regulation and support schemes for renewable energy generation were set up with the Renewable Energy Sources Act (EEG). The EEG introduced fixed feed-in tariffs for electricity from renewable sources, which were much higher than those for conventionally produced electricity and were guaranteed for a period of 20 years. Since then, the grid operators are obligated to prioritize electricity from renewables. Electricity consumers pay the arising costs through a surcharge, the EEG apportionment, which steadily increased to 6.88 €-cents/kWh in 2017, while the fixed feed-in tariffs were steadily reduced (Fig. 15.1).
Figure 15.1 Development of the installed capacity of Renewable Energy Sources Act (EEG)–compatible plants (in GW) and the EEG apportionment (in €-cent/kWh). (Sources: Authors based on data from Netztransparenz.de (2016) and Bundesnetzagentur (2016).)
In 2014 the EEG was amended, and for the first time caps in MW for each renewable energy source were set. Furthermore, since that time subsidies for large photovoltaic (PV) and wind sites are granted through tendering instead of fixed feed-in tariffs. Moreover, a “direct marketing” scheme was introduced, replacing the feed-in tariff, which obliges owners of larger installations to sell the produced electricity themselves or through a third party. Subsequently, the difference between the feed-in tariff and the revenues earned on the wholesale electricity market are rewarded. Additionally, self-generated and self-consumed power from solar panels is exempt from the EEG reallocation charge (small PV < 10 kW) or granted a discount (Hake et al., 2015).
In 2017 a further amendment of the EEG law came into effect, which exempts electricity from battery storages from the EEG reallocation charge and allows green electricity to be marketed regionally via a certification system.
As a consequence of this massive subsidization of green and distributed electricity production and substantial exemptions for many large industrial customers the average price per kilowatt-hour for residential customers more than doubled in the past decade to 29.69 €-cents in 2016, making them the second highest in Europe (Eurostat, 2016a). The largest share of the energy bill consists of taxes and levies, with a total of 54% for residential customers (BDEW, 2016).
As a consequence of the support scheme, the share of electricity produced from renewable sources increased to about 32% in 2015 (BMWi, 2016b) with about 1.5 million private and corporate producers; more than 6 times as many as in 2000, the starting year of the EEG (Fig. 15.1). They form an important potential for actors offering services to complement and optimize operation, management, and extension of their respective installations.
2.3. Smart Metering
For some of the emerging new business models in the energy market, especially the peer-to-peer energy networks and innovative contracting offers, the installation of smart meters is essential. In Germany, however, residential customers with consumption up to 100,000 kWh still are equipped with conventional electricity meters and billed based on a standard load profile. Thus, emanating from EU requirements, smart meters are to be introduced during a transition period of 15–20 years, equipped with bidirectional communication devices and automated and remote meter reading for ¼-h values. Based on the Act on the Digitisation of the Energy Transition, the smart meter rollout starts in 2017 for customers consuming more than 10,000 kWh and for subsidized renewable and cogeneration production larger than 7 kW. Those consuming more than 6000 kWh—about 10% of the market—are to be equipped with smart meters by 2020. For the remaining 90%, the technology is optional (BMWi, 2016c). This long transition phase does not attract business relying on smart meters and the real-time and high-resolution measurement of real electricity flows, such as the exchange of electricity in peer-to-peer energy networks. For the next years, two target groups will most probably be addressed with priority:
1. The still small group of prosumers as well as consumers with large consumption and/or production with obligatory smart meter installation.
2. All consumers demonstrating a willingness to pay for smart meters either as stand-alone option or as part of other energy products.
In contrast, most EU countries follow the European Commission’s rollout target of 80% market penetration for smart meters by 2020, so that at the end of 2016 almost one-third of the 283 million electricity customers in the European Union had a smart meter (Ryberg, 2016).
3. The B2C market: potentials and major game changers
The market potential for distributed electricity generation of private households is described in the following subsections. The analysis addresses, first, customer preferences as an important basis for the evaluation of future market potentials; second, the housing situation and the existing distributed energy solutions, as they form the fundament of predictions of future sales of PV and battery storage devices—the main technology installed in prosumer households—and, thus, also play a major role in various business models; and, finally, the emerging competition from energy communities, which are arousingmotivation for customers to switch their current suppliers and, hence, are transforming the economic landscape.
3.1. Target Groups and Customer Benefit
The knowledge about consumer preferences and requirements is crucial for the success of business models and the diffusion of innovations, such as smart meters or combined PV and storage systems. Therefore, a broad range of studies1 on a wide variety of related topics can be found in the literature. Interestingly the results regarding the decision criteria and product attributes found to be most important to energy consumers show a great correspondence, albeit the diversity of the analyzed products and services or behaviors: consumer investment decisions, preferences for specific technologies (e.g., home storage systems and smart home technology), green electricity, or specific producers (e.g., local energy communities), as well as reasons for switching the supplier and for participating in community energy or prosumerism.
Thus, and as also reflected elsewhere in this volume, the seven major consumer needs or expected benefits concerning distributed energy can be summarized as follows:
• Economy: Energy cost savings or increases in payments for energy production, secure investment, acceptable payback period, and return on investment (i.e., for assets, such as PV and cogeneration).
• Autonomy: Self-sufficiency, independence from incumbents, possibility to (actively) participate in the energy transition.
• Community: Desire to share and to integrate into a community (democracy and codetermination).
• Ecology: Energy savings, emission mitigation, environment and resource protection (renewable energy), and possibility to promote certain energy sources.
• Regionality: Regional or local production and ownership structure of supplier (energy community, municipal utility, and power company).
• Comfort and safety: Accessible, trouble-free, and time-saving service or personal assistance (all-inclusive or care-free package), reliability and trust-worthiness of the supplier (transparency), data security, and privacy.
• Technology: Individualized offers (mass customization), technical interest (do-it-yourself), or simplicity of technology (plug-and-play).
Moreover, customers can be found in specific milieus with similar lifestyles and value systems. One of the typologies is the so-called “Sinus milieus.”2 Within these milieus, five consumer segments strongly support the Energiewende (BMUB, 2015) and turn out to be promising target groups for products and services in decentralized energy:
• “Established conservatives” compose 10.2% of the German population. They are the classic establishment with its sense for responsibility and success ethic, aspirations of exclusiveness, and leadership. Their homeownership rate is 57%.
• “Liberal intellectuals” represent 7.3% of the German population. They are the fundamentally liberal, educational elite with postmaterial roots, and desire for self-determination. Their homeownership rate is 54%.
• “High achievers” constitute 7.4% of the German population. They are the efficiency-oriented top performers and stylistic avant-garde with global economic thinking and high IT skills. Their homeownership rate is 49%.
• “Movers and shakers” compose 7.2% of the German population. They are the unconventional creative avant-garde, hyperindividualistic, digitally connected, and mobile, looking for new frontiers. Their homeownership rate is 41%.
• “Social ecologists” represent 7% of the German population. They are globalization skeptics, idealistic, critical, and aware consumers with distinctive ecological and social conscience. Their homeownership rate is 40% (Sinus, 2015; GIK, 2015).
Accordingly, these consumer segments show the highest rates of solar installations for heating purposes already (except for the “movers and shakers”) and are also those preferring regional electricity suppliers most (GIK, 2015).
In total, results show that the most important target group can be described as being environmentally aware, male homeowners with high income and high educational level, having an above-average technical interest and good knowledge or experience with renewable energies, and living in suburban and rural areas (Soskin and Squires, 2013; Oerlemans et al., 2016; Gamel et al., 2016; Kalkbrenner and Roosen, 2016).
Moreover, in the current situation—high liquidity in the financial market in conjunction with low interest rates—an important target group is attracted by alternative financial investments in assets and investment-driven products and services, such as decentralized energy systems, either directly or through crowdfunding. For instance, the typical home storage customer is in his beginning 60s, desiring to spend his money for a somewhat reasonable cause in his own premises.
As also described by Johnston et al. in this volume, electricity consumers, especially the young, affluent, and environmentally committed, prefer not only renewables, but also renewables from local sources. In this context, research suggests that consumers are willing to additionally pay around 1 €-cent/kWh for green electricity without specific provenance, and about 3–4 €-cents/kWh for regionally or locally produced electricity, especially if it is generated by energy cooperatives or municipal utilities instead of power companies (Reichmuth et al., 2014; Sagebiel et al., 2014; Rommel et al., 2016).
3.2. Market Potential
Homeowners are the most promising target group for decentralized energy services. This incorporates combined PV and storage systems, but also microcogeneration and heat pumps. However, compared to other countries, Germany in 2015 was characterized by a comparably low ownership rate of 43% (Destatis, 2013)—in contrast to almost 70% in the EU (Eurostat, 2016b) and 63.5% in the United States in 2016 (USCB, 2016)—so that only about 30%, that is, about 12 million German households, own a single-family house.
The other 70% of the population are tenants and apartment owners and, thus, are restricted or not able to purchase a decentralized energy system due to their housing situation. To address this large potential, new products and services for housing companies and tenants are currently developed, such as energy delivery for tenants—energy produced on the premise, using a combination of PV, cogeneration units, and batteries.
In 2015 in total more than 1.5 million PV systems with a solar capacity of about 40 GWp and about 34,000 battery storage units were installed in Germany (BSW, 2016). This represents only a small fraction of the total market potential for PV and batteries, which amounts to around 300 GWp and 300 GWh, respectively, overall translating into a €400 billion business (Rothacher, 2016).
Given the ambitious political goals and rising customer demand, the market diffusion for PV alone or in combination with battery storage is expected to continue in the upcoming years. In 2015 about 40,000 PV installations (<10 kWp) and 18,000 battery storage units were newly installed in German households, with retrofits accounting for only 10% of the latter. Today already, increasing battery adoption rates in the course of the installation of new PV drives the demand so that researchers expect a steady acceleration of battery sales figures up to around 50,000 units/year in 2020 (Ammon, 2015; Bräutigam, 2016). However, it is expected that from 2021 onward, when the fixed feed-in tariffs for solar electricity expire for the first PV installations, retrofits will start to increasingly push storage demand. Depending on the scenario assumptions (future development of battery adoption rates and retrofitting rates), in 2020 130,000–230,000 storage systems can be expected in total in Germany, as can also be seen in Fig. 15.2 (Hagedorn and Piepenbrink, 2016).
Figure 15.2 Number of photovoltaic (PV) systems and batteries and a forecast of their development until 2025. (Source: Authors based on Bundesnetzagentur (2016), Hagedorn and Piepenbrink (2016), and Kairies et al. (2016).)
Small-scale CHP systems are the second cornerstone of distributed energy generation in the household sector, as they do not suffer from volatile energy production patterns, such as PV. The market potential for minicogeneration units (<50 kWel) and micro-CHP systems (<2 kWel) is predicted to amount to 23,600–32,800 and 132,000 installed units in 2020, respectively, depending on the scenario, that is, the assumed rate of refurbishment and adoption rate of modern heating technologies (Adolf et al., 2013).
Heat pumps offer the possibility to absorb the volatile renewable electricity for supplying buildings with heat. Their market volume is projected to lie between 1.61–2.37 million installations in 2030 (BWP, 2016).
3.3. Competition
The market for decentralized energy is further influenced by green-energy suppliers, cooperatives, and crowdfunding platforms, as all compete for the same customer groups. For instance, the market for green electricity products is very competitive. In 2013 19.1% of German customers purchased green electricity (Bundesnetzagentur/Bundeskartellamt, 2016). The market leader, LichtBlick SE, has about 500,000 residential customers, followed by another roughly 10 competitors with more than 100,000 customers each (E&M, 2016). However, after years of growth, induced by the Fukushima disaster, the market currently languishes.
Instead of changing the power supplier or tariff, proponents of distributed and green energy have the possibility to directly invest in renewable energy generation and/or energy efficiency projects through cooperatives or crowdfunding. In 2015 around 860 cooperatives were operating in Germany (DGRV, 2016). However, following 15 years of growth, the number of cooperatives stagnates, mainly due to a change of the regulatory regime. In contrast, the crowdfunding investment volume in green-energy projects grew by 167% to €6.9 million in Germany in 2015 (Crowdfunding.de, 2016).
3.4. Game Changer: Energy Communities
Recently, energy communities based on peer-to-peer energy networks have started to emerge (see also Johnston et al. as well as Koirala & Hakvoort in this volume), trying to attract the consumer groups described in Section 3.1, desiring ecologically and/or authentic, verifiable, and trustworthy regionally generated products and suppliers. These customer preferences and the advancing digitalization foster the collaborative and intertwined production and consumption of (user generated) physical and nonphysical goods and services through transactions, such as renting, swapping, borrowing, trading, and financing (Hamari et al., 2015). Such networks first emerged in computer applications, where peer-to-peer architecture is defined as follows: “In a P2P architecture there is minimal (or no) reliance on always-on infrastructure servers. Instead the application exploits direct communication between pairs of intermittently connected hosts, called peers.” (Kurose and Ross, 2010). Thus, the main characteristic of a community is the lack of a central instance that handles, organizes, or observes the interactions between peers, which, on the contrary, are directly connected with each other. Once a peer sends information to the network it is available to all connected peers, which also have access to the same set of functional abilities. Therefore, peer-to-peer energy networks can usually be found at the grid’s edge, that is, the lowest-voltage level, close to the majority of consumers (Thompson, 2013).
The base case of a peer-to-peer energy network—transactions between individual users made by use of a provided online platform—is depicted in Fig. 15.3.
Figure 15.3 Base case of the peer-to-peer electricity distribution network.
Within this framework, distributed producers represent the sources of energy and supply electricity to the network. Producers are characterized by the amount of energy they produce, the volatility and predictability of supply, the cost of production, and controllability. These parameters lead to operational options for trading via price signals and grid operation via switching commands, given precise and real-time meter data (BMWi, 2014). In a peer-to-peer environment, this information can be made available through the entire network.
On the other side, consumers are the sink of energy in the network and currently acquire electricity from the power company or platform provider, paying for the amount of energy used. Integrating these consumers in the information flow of the network also enables demand-side energy management measures, such as schedulable load shifts; price optimizations, for example, with real-time pricing; or increases in energy efficiency (see also chapters by Gellings and Haro et al. in this volume).
The so-called prosumers, who both produce—mainly based on PV systems—and consume electricity, are in the focus of peer-to-peer business models. Storage technologies are increasingly integrated, opening chances for further revenue and rent seeking by shifting the moment energy is released to or used from the grid. In this case, local micromanagement based on the aforementioned network information is essential, as it allows the prosumer to use the energy for themselves first and store the surplus to optimally release it to the grid—for example, at a profitable price.
Main market actors are the service providers of the peer-to-peer platforms, coordinating the distributed producers and consumers of electricity. Assuming the physical or grid layer as given, the service provider implements a virtual layer through his online community. This way, he enables the information flow between consumers and producers/prosumers. Moreover, he supplies services like market communication and balancing group management (Burger et al., 2016).
3.4.1. Limitations of Communities in the Energy Sector
Referring to the above-mentioned IT-centered definition of a peer-to-peer architecture, the delivery or swapping of electricity should be relinquished to consumers and producers entirely. However, today no such “pure” individualized peer-to-peer business models can be found in the German market, or elsewhere, as pointed out by Koirala & Hakvoort in this volume. This is due to the following reasons:
• Regulatory requirements cannot be fulfilled by individual consumers so far, especially regarding trading and billing, so that the support of service providers is mandatory.
• Residential customers are for the most part not yet equipped with smart meters.
Therefore, platform providers or their key partners currently resume these tasks for their customers (BMWi, 2014). They physically trade energy to optimize revenues and to guarantee security of supply. This means that currently producers and consumers are matched in a virtual layer, but the energy is sold to and bought from the service provider. However, the energy market offers other ways of differentiation, based on the aforementioned customer preferences: community-based models collect the generated electricity and redistribute it, either on a national level or within local communities. This is depicted in Fig. 15.4. In a “pure” peer-to-peer network producers would connect and sell directly to their consuming peers, a feature that could be enabled by the blockchain technology, as described in Section 4.4.
Figure 15.4 Options for energy communities.
3.4.2. Lessons Learnt From Established Peer-to-Peer Business
As other industries possess more mature community-based services, it is worthwhile to derive lessons learnt from these. One of the best-known examples is Airbnb, a multisided online marketplace for homestays, founded in 2008 and at present with a market share of nearly 10%. Hosts accommodate guests at relatively low prices, so that in Europe Airbnb rentals are about 30% cheaper than hotels (Capital-Redaktion, 2016). Trust in the platform, hosts, and guests is crucial. Therefore, Airbnb provides the website, sets standards, and offers a host-protection insurance, a community and a 24/7 service. Marketing, search engine optimization, social media promotion, and integrated third-party services, such as a currency calculator or a charging infrastructure with Tesla, are key activities (Korosec, 2015). Key resources comprise a well-networked and structured digitalized community. The community cares for competition between members, as hosts and guests rate each other. Airbnb’s revenues consist of service fees for bookings, which amounted to $900 million in 2015. The company expects to become profitable in the near future (Chafkin, 2016). Table 15.1 summarizes similarities and differences between Airbnb and peer-to-peer electricity networks.
Table 15.1
What Peer-to-Peer Energy Networks can Learn From Airbnb
| Airbnb | Energy peer-to-peer | |
| Regulation | Important; country specific | Very important; country specific |
| Market potential | Global | Limited to size of the electric grid |
| Customer benefits | Hosts: Revenues and acquaintances Guests: low price, “feeling at home” |
Producers: sharing, revenue maximization, and autonomy Consumers: green and regional product and community |
| Revenue streams | Service fee for bookings | Membership fee and energy rates |
| Cost structure | High share of fixed costs | High share of fixed costs, energy data management, and marketing cost |
Obviously, both industries differ physically regarding the role of the electric grid as physical and organizational intermediary. Moreover, the energy sector is influenced more strongly by regulation than the accommodation sector—especially concerning prerequisites that have to be met in the area of billing and market communication—and characterized by a high uncertainty regarding the future political framework. However, important lessons for the energy industry can be drawn from similarities of both sectors:
• Emotional benefits to attract and retain customers are important.
• Trust in and authenticity of the platform provider is key: website, energy-management software, apps, etc., need to be accessible, flawless, and secure; an excellent service, based on a well-networked and structured digitalized community, is essential.
• Gaining relevant market share and a consistent growth strategy is vital to amortize high fixed costs in IT, processes, and marketing.
4. Emerging business models for distributed energy systems
4.1. Overview
New business models in distributed energy in Germany have begun to emerge from the following groups of companies:
• Independent start-ups, such as Buzzn, providing a peer-to-peer platform based on distributed resources, resulting in a high level of independence from incumbents.
• Utilities offering contracting and community products linking comfort and safety arguments with green and local production features, such as EnBW.
• Start-ups with financial support and corresponding control of utilities, such as Beegy, linking a high credibility as a relatively independent actor with access to resources and know-how from the established players.
• Battery suppliers, such as Sonnen, offering contracting products and energy communities that add value to their storage products, for example, the optimization of production, consumption, and storage or the sale of balancing services based on an aggregation of customer batteries.
• Service providers offering white-label products for peer-to-peer communities and energy management services to established players, for example, Lumenaza, a start-up with intense cooperation with EnBW.
As all offers are based on digitalized services with high upfront cost, all actors have a vital interest to gain market share. Utilities further participate to retain and gain customers, to optimize their portfolio and to learn from innovation. The business models focus on peer-to-peer communities and contracting packages for distributed energy, as depicted in Table 15.2 and laid out in the following subsections.
Table 15.2
Customer Benefit of Emerging Business Models for Distributed Energy Systems
| Product/service | Energy delivery | Contracting/packaging | ||||
| Peer-to-peer delivery | Regional peer-to-peer delivery | PV & storage, cogeneration | Local energy for tenants | |||
| Customer benefit | Producer | Consumer | Producer | Consumer | ||
| Economy |
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| Autonomy & community |
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| Ecology |
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| Regionality |
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| Comfort & safety |
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| Technology |
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| Examples described in this chapter | B2C: Buzzn, Lumenaza | B2C: White label for suppliers, cooperatives, etc.: Lumenaza | B2C: Sonnen | |||
Notes: Level of additional customer benefit compared to standard energy delivery. 
= High, 
= medium, 
= null or very low.
4.2. Peer-to-Peer Energy Delivery
Peer-to-peer delivery is offered on national and regional scales. In total, market volume of these offers is still limited. In 2016 the number of contracts of all providers should be well below 10,000. Two out of a multifold of examples are explained further.
4.2.1. National Peer-to-Peer Energy Delivery
The number of players offering national community delivery is limited. One of the most prominent examples is Buzzn. Fig. 15.5 shows the distribution of participants in the “Buzzn Community” across Germany; being producers, consumers, or both.
4.2.2. Regional Peer-to-Peer Energy Delivery
As outlined in Section 3.1, customers tend to pay higher prices for regionally produced electricity. Many players, therefore, develop corresponding products, as demonstrated by the next example, which offers a two-stage distribution system.
4.3. Innovative Contracting
At first place, contracting is an established product in a slightly growing market. In 2011 around 45,000 on-site contracting services, including delivery, installation, and maintenance of heating devices and the delivery of energy over the entire lifetime were sold in Germany (Prognos, 2013). However, distributed energy leads to a relaunch and new product development. Today, packaged components also include renewable production, heat pumps, or storage devices. The offers are either based on existing installations or address consumers with old or without respective installation in place and include storage, energy management, or smart home devices. Some of the business models additionally incorporate the participation in a virtual power plant, where the load of the customers and the delivery of the producers are aggregated and optimized and the residual energy is bid into wholesale markets to gain revenues. Examples cover the business models of Sonnen, which is described below, and Next, which is focused on in the explanations by Steiniger in this volume.
Suppliers encompass about 500 utilities, energy service companies, or facility managers. For example, 30% of larger municipal utilities offer storage devices in combination with on-site renewable production. Smart home products, virtual power plants, and demand-side management solutions grow dynamically (Prognos, 2016). In the following, the business model of Sonnen is characterized.
Sonnen, as well as its competitors, constantly adapt their business models to consumer demand and changes in the regulatory framework. Four examples are described here.
4.3.1. Storage Cloud
Some battery suppliers promise independency from utilities via a “storage cloud.” Customers can store their self-produced, but unconsumed solar power virtually in a centralized battery and consume this electricity later on. The customer pays a monthly fee for utilizing these virtual cloud services.
4.3.2. PV Leasing and Contracting
House owners provide their roof surface to the contractor who installs and operates a PV unit. The house owner pays a fee for this service and generates electricity with this rented PV. The product makes use of the current regulatory environment, reduces the effort for the customer regarding installation and operation, and corresponds to customers’ desire of being energy self-sufficient. These products show sales figures with increasing growth rates.
4.3.3. Flat Rates
Willingness to pay for flat rates tends to be higher compared to pay-per-use tariffs, so that expected margins are higher as well (Ascarza et al., 2012; Lambrecht and Skiera, 2006). Moreover, the share of fixed costs of electricity prices rises with increasing production from renewable energies. Consequently, costs are becoming more projectable, so that fixed prices can be guaranteed for longer time spans. This yields a considerable number of new products and business models, as demonstrated in the Sonnen example.
These new offers relaunch contracting products and unlock new target groups. Concerning the Sinus milieus, the “established conservatives” and the “liberal intellectuals” seem promising due to their high homeownership rate and interest in ecofriendly, easy-to-use, and care-free solutions.
4.3.4. Local Green Energy for Tenants
To address the large potential of tenants and flat owners described in Section 3.2, new business models are being developed. House owners are enabled to offer energy generated on-site—for example, with PV or cogeneration units—to their tenants directly, without using the public grid. The product consists of this self-produced energy plus the delivery of the residual load. Services include project development and realization, operation, maintenance, and energy delivery. Competitors incorporate housing companies, utilities, and energy or metering service providers. The product appeared around 2014, and already in 2016, almost 40% of the larger municipal utilities included it into their portfolio (Prognos, 2016). In total in 2016, in around 80 projects local energy for tenants from PV and cogeneration units was delivered to about 15,000 apartments. The growth potential is high, as PV systems so far have been installed mainly on single-family houses and not on apartment houses. Regulation meanwhile supports the business model, resulting in a positive, but unstable outlook of 700–900 mainly PV-based projects until 2020 (TrendResearch, 2015).
Profitability of such products depends on the subsidy schemes for renewable energy and cogeneration, turning it into a “rent capture” business model (Al-Saleh and Mahroum, 2015). Its value proposition for tenants contains a convenient access to locally produced and community-based energy and independence from utilities. For housing companies, the model generates additional revenue and supports an ecofriendly image. Contractors are able to gain loyal customers and support regional value creation.
To summarize, products for energy delivery and contracting are adapted to new customer demands and to regulatory framework. This is further supported by future technological opportunities, such as the blockchain technology.
4.4. Outlook: Business Models Based on Blockchain Technology
As also reflected in other chapters in this volume, future business models envisage the provision of a virtual marketplace where peers are able to trade their energy products, reaching from very individualized offers to regular supply agreements on a bilateral basis, based on digitalization, prosumage, and the appreciation of customers.
To develop such a “pure” peer-to-peer network, regulatory and technological changes are needed. One solution for the latter could be the blockchain technology, which underlies the better-known cryptocurrency Bitcoin (Nakamoto, 2008). Blockchain is a cryptographically secured distributed database system operated by a peer-to-peer network. Its main purpose is to keep track of transactions between the peers in the network, while guaranteeing the integrity of the single transactions and the whole system at the same time. The lack of a central authority that controls and verifies the transactions, such as a bank in the area of financial services, opens up manifold possibilities to accomplish these transactions.
Thus, unlike the current and common situation where an intermediary is needed, the verification process is provided by the blockchain and executed by the entire network (Fig. 15.6). To keep track of every single transaction they are time stamped and recorded. After a given time interval a block is created by proof-of-work—a computationally intense process called mining—guaranteeing that the created block cannot be manipulated without spending an even greater amount of computer power into rerunning the mining process. As a result of this proof-of-work, the validity of the blocks and transactions in the blocks can easily be determined. As soon as the block is verified, it is added to the blockchain, referencing to the preceding block in the chain. In this way, transactions can be tracked backward through the blockchain. With every new transaction performed and block added, the chain grows (Sieverding, 2016).
Figure 15.6 Operating principle of the blockchain technology.
P2P, Peer-to-peer.
P2P, Peer-to-peer.
In peer-to-peer energy networks, the provider offers an online platform, while a decentralized network based on blockchain handles the transactions without an intermediary. So-called smart contracts, which are to be arranged between peers directly and verified by the blockchain, take over the role of the central authority. Producers are able to trade their energy themselves and prosumers can share their energy consumption and production with other prosumers (Lacey, 2016). Smart contracts could, for instance, include the energy quantity, date of delivery, and price. As a consequence, the system can gain in flexibility, pace, and accuracy because tasks are to be increasingly automated or even substituted by smart contracting. Additionally, costs could be reduced. Thus, implementing blockchain technology could be a key success factor of decentralized energy applications (Sieverding, 2016).
However, blockchain technology is in a very early development stage in the energy industry. In Germany, blockchain-based projects comprise, for example, the regional green certificate “GrünStromJeton” and RWE’s electric mobility solution “Share & Charge” (Burger et al., 2016; Sieverding, 2016).
5. The transformation process
Based on the previous sections, success factors for the development of peer-to-peer business models can be derived and their impact on the development of market structures can be assessed.
5.1. Success Factors
The recent experience with peer-to-peer networks and innovative contracting offers in the energy industry is reflected in Fig. 15.7. The business models described in the previous section are all placed in a considerably changing market and regulatory environment, linked to the assumption of growing market potentials and the belief to create substantial added value for the customers.
Figure 15.7 Transformation process gives rise to development of “question marks.”
To develop a sustainable market position, the following success factors need to be considered, similar to those highlighted by Woodhouse & Bradbury in this volume.
5.1.1. Marketing
The more the energy business is decentralized, that is, divided into smaller units, the more the customer becomes part of the value chain as a producer or a storage provider, and, consequently, the more the customer becomes the focal point. Marketing has to be based on the needs and motivations of well-defined customer groups. Results from the literature (Gangale et al., 2013; Herbes and Ramme, 2014) and own research conducted in 2016 show that so far, value propositions of suppliers of energy products and services focus on rational arguments:
• information about technical features,
• price advantages,
• ecological arguments, and
• comfort and ease of use.
In this environment marked by an overflow of replaceable rational communication, offers with actual unique selling propositions and outstanding benefits, covering emotional consumer needs (such as independence and autonomy), contribution to social well-being, and to the energy transition (see Section 2.2 for details), are able to attract customers. The following considerations indicate directions for a customer-oriented marketing mix:
• For peer-to-peer electricity networks, a consistent “us-strategy” is key. This necessitates shaping the community based on the needs of the network members, integrating offline and online marketing channels. However, the Sinus milieus “high achievers” and “movers and shakers” might be more interested in “real” grassroot approaches.
• For contracting products, the “established conservatives” and the “liberal intellectuals” seem promising customers, due to their high homeownership rate and interest in ecofriendly, easy-to-use, and care-free solutions.
5.1.2. Digitalization, Customization, and Size
The dividing line between success and failure in the long run is size. Virtually all products and services based on distributed energy, from energy data management, data analytics to community management, must be based on digitalized processes. In the digitalized world, average costs drop with a growing number of customers. This enhances concentration in service delivery, as services can be copied and scaled up without additional cost, so that the costs per unit of a dominant market player drop faster, when sales grow, than those of his competitors. Therefore, maximizing the number of customers and chargeable services is key to gain noteworthy revenues. In this context, it is fundamental to balance the efficiency of processes and economies of scale on the one side and the individualization of the customer dialogue on the other side.
5.1.3. Entrepreneurship
Entrepreneurship means to take risks, for example, in financing a growth period. The acquisition of a relevant market share is the basis for longer-lasting success, even more so in markets driven by digitalization. One important instrument to handle this risk in the intertwined world of energy is risk sharing between customers and partners. All products and services for contracting and peer-to-peer-communities have to deal with this risk allocation. This covers the risk of future regulatory development, the development of spot and balancing market prices, or the management of warranties of assets, such as PV installations or storage devices, their availability, operation, and maintenance. Sharing the risk means to define equilibriums based on diverging contract durations with different partners, corresponding cost and price structures and components, all based on data analytics. As the Sonnen example and others demonstrate, German market actors are currently starting to gain experiences with these components on a broad scale.
5.1.4. Realization and Adaptation
Finally, it is good to have a good idea, but it is its realization that makes the difference. Accordingly, in an increasingly competitive environment, it is vital to be there at the right moment and to be fast. This encompasses strategic, structural, and process-oriented business development. Incumbent utilities are struggling to be ready with the right product at the right time in high quality, integrating new business via internal development, incubators, and open innovation.
5.2. Future Market Structure for Distributed Energy Systems
Future market structure is determined by centralization of services on the one hand and the motivation of different shareholders on the other hand.
As demonstrated in Section 4, business models so far are realized based on centralized energy delivery and backstage processes. Innovations, such as blockchain applications, can contribute to a more distributed delivery and control of processes.
Moreover, some innovation, especially in the peer-to-peer business, originates from a for-benefit motivation of the initiators, where profits potentially are subsumed to a social goal. Then, other business models are initiated in for-profit–orientated companies, where any social good is subsumed to the goal of shareholder profit (Kostakis et al., 2016). “The emerging and disruptive P2P economy is led by profit-driven corporations, such as Airbnb and Uber, but they owe their innovative business model to initial local civil organizations seeking to maximize the value of their resources” (Wainstein and Bumpus, 2016). As Fig. 15.8 demonstrates, most providers in the energy industry can be found to be profit-oriented companies, but companies like Buzzn started with motives of sharing and doing “something useful.”
Figure 15.8 Typology of competitors in digitalized business models.
Based on the concept of Kostakis et al. (2016), “netarchical capitalism” and “distributed capitalism” differ in the distribution of control over the productive infrastructure, with both being profit-oriented. Companies uniting centralized governance with peer-to-peer infrastructures comprise, for instance, Airbnb or Sonnen. Distributed companies with peer-to-peer infrastructure and profit-orientation comprise Bitcoin, “Share & Charge”, and Lumenaza. “Resilient communities” and the “global commons” are oriented toward societal, nonprofit benefit. Wikipedia and Buzzn are good examples for global and nation-wide initiatives, respectively. “Resilient communities” encompass movements, such as car sharing and renewable energy cooperatives.
As long as customers pay for a superior, authentic, and convincing offer, “resilient communities” and the “global commons” might stay in the market. However, with intensified competition efficiency and commercialization will be crucial for success. This does not necessarily imply moving toward profitability as a key objective in general. However, each and every single process needs to meet professionalized standards and benchmarks, so that the economic principle penetrates the business. The core interest is to develop a relevant market share for covering costs and generating value for stakeholders.
6. Conclusions
In a decentralized energy market, the view changes from a production–networks–trading–sales model toward a sources–storage–sinks model. Within this context, the energy business is becoming more intelligent and diverse and value generation partially migrates from central production to the customer’s premises. The customer becomes the focal point. This development is heavily supported by German politics with an ever-changing regulation in the past 2 decades.
Thus, in constantly changing niches, with customers getting more knowledgeable and emotionally involved—seeking for participation, codetermination, and self-sufficiency—competitors nurture peer-to-peer business or innovative contracting services. While some solutions for homeowners have been in the market for a few years now and the main part of the newly launched products and services focus on single-home households, the segment of flat owners, as well as housing companies and their tenants offer an important potential—especially in Germany with its high rental rate—that currently is almost entirely untapped. Competitors comprise start-ups and incumbents, large and small utilities, energy service companies, storage provides, e-commerce, or IT companies. Success will be closely linked to the ability to develop and realize a clear strategy in turbulent times regarding technological development—especially sector coupling, smart grids, and blockchain technology—and political interventions, indispensable customer orientation, and a ceaseless quest for efficiency and effectiveness.
As also pointed out by Cooper in this volume, for incumbents, integrating “old” and “new” business, skillfully building upon innovation via start-ups or via vigor from inside the company, will be crucial, whereas newcomers need fast growth and access to customers. Obviously, cooperation is the supreme discipline toward sustainable entrepreneurial solutions in this fragmented and decentralized energy prosumer environment.
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