Digital Electricity Space: Neoliberalism and energy saving capital Workshop. ‘Constructing and contesting spaces for low-carbon energy innovation’, School of Innovation Sciences, Eindhoven University of Technology, November 26-28, 2013 Michael LaBelle, Assistant Professor Central European University, CEU Business School and Department of Environmental Sciences and Policy
Outline • Universal Service to Competitive market • Energy (in)efficiency • Value creation from inefficiencies • New Tech and Business models
Universal Service, Chinese Walls and Competition “Privatization and deregulation combined with competition, it is claimed, eliminate bureaucratic red tape, increase efficiency and productivity…” (Harvey 2005, 65).
Energy (in)Efficiency and Competition Energy (in) efficiency ‘competitive choice’ market Erosion (confusion) of energy efficiency efforts Dis-embedding of utility removes territorial ‘responsibility’ Investment cycles shift from long-term to short-term • Oil Crisis 1970s • ‘Neoliberal prosperity’ • US: Some states mandate energy efficiency measures. • EU: Large national difference BUT savings and targets are not being met
Collapse of the utility model Turning Inefficiencies into opportunities
Failing business models: ‘competitive’ utilities • E.ON 2.0: Selling distribution and generation • RWE: Shrink business and consult (?) • EnBW,: Projects earnings from electricity generation will fall by 80% in the 2012-2020 period (The Economist 2013)
Innovators Dilemma • Focus on the most profitable customers and invest in the most profitable parts of their business while pursing large markets (C. Christensen, Craig, and Hart 2001; C. M. Christensen and Bower 1996). • Low value customers • Ryan Air and Wizz Air
System inefficiencies and regulations • “Resource inefficiencies are most obvious within a company in the form of incomplete material utilization and poor process controls, which result in unnecessary waste, defects, and stored materials” (Porter and van der Linde 1995, 122).
Monopolistic Hegemon to Competitive supplier? This value creation occurs in the spaces where utilities ignored due to their supply side and ‘push’ business model, which was focused on increasing demand and building more generation and reach universal geographic coverage.
Digits: Value creation from system inefficiencies - is the new business • Digitalization of the electricity grid opens the way to bundle value added tailored services to the electricity commodity and possibility contributes to reverse the traditional consumption-driven paradigm of the electricity sector (Giordano and Fulli 2012, 253). • Digitizing the energy infrastructure stems from the integration of communication into the grid and between devices. • The modernization of the grid, even for the monitoring benefit, such as simple meter reading, is leveraged by other companies to extract value.
Commoditize the Waste Commoditize and extend the production process; not just power plants but from verified energy savings and demand side controlling mechanisms. In the US a third of US households have a smart meter (Tweed 2012), with 27 million smart meters installed, with 77% done by investor owned utilities (United States Energy Information Administration 2013). The EU is rolling out smart meters to 80% of homes by 2020.
Business Models 3 Company models • SmarterE: Multiple waste streams in a buildings/facility • ID Energy: Focused on waste creation from machines • Opower: Focused on waste creation through consumer behaviors
Conclusion: Monetized Electricity Space • Territorial alterations: Universal and monopolistic service shift to ‘competitive’ open systems • Risk aversion and short term investment horizons • Energy inefficiencies become digital: Identification of waste streams and business models • Commodification of waste stream provides entrepreneurial opportunities for deploying new technologies
The business is in the inefficiencies • In the 1880s, Andrew Carnegie outlined the importance of accounting for each stage of the in-put/out-put of the production processes in steal making Slate Oct 15,2013
Game Changer: Risk and Competition • Get rid of the monopolies, competition will spur innovation and lower priced alternatives, thus benefiting consumers. • Risk aversion: No one wants to be responsible for a system collapse and blackout. • “The prospect of increased competition, along with an increased likelihood of cost disallowances under incentive regulation, means that regulated firms are no longer guaranteed cost recovery on their, largely irreversible, investments. Incentive regulation has shifted risk back onto share-holders, so that risk plays an important role in firm investment” (Guthrie 2006, 930).