Master's thesis research on the key considerations for electric utilities to reinvent in the evolving energy landscape.

1. Reinventing
Electric Utility
Business Models
Master’s Thesis:
Research in a Nutshell
By:
Manu MENON
MSc. in Strategy & Organisation
Consultancy

2. Executive Summary
2
Digital technologies enable
reinvention
• By renewing relationships
with consumers, suppliers,
& employees
 Ensures short-term gains
& better prepares for long-
term challenges
Macro trends & capabilities are
changing utility landscape
• Renewables adoption is
increasing
• Aided by distributed
energy & ICTs
 Reinvention essential for
long-term business value
From upstream to
downstream focus
• End-user distributed
generation provides new
untapped opportunities
• Utilities are in good
position to capitalise
 Provides new areas for
value generation
Manu MENON

3. Agenda
3
Comprehending the paradigm shift
Proposed business models reinventions
1
2
New developments & key Success factors3
Strategic considerations & recommendations4
Manu MENON
1 2 3 4

4. 4
Renewables addition (2004 – 2013) Global energy mix (2013)
78%
19%
3%
Fossil fuels
Renewables
Nuclear power
Solid improvements in renewable
power capacity
Small, yet significant in a world
dominated by fossil fuels
Renewables adoption is increasing steadily
Global status of renewable energy
REN 21 Renewables 2015 Global Status Report
800 GW
1, 560 GW
+ 760 GW
REN 21 The First Decade 2004 - 2014 Report
2004
2013
Manu MENON
Paradigm shift 2 3 4

5. Renewables growth nurtured by healthy policies
worldwide
5Manu MENON
REN 21 Renewables 2015 Global Status Report
Paradigm shift 2 3 4

6. Business
model
reinvention
Increasing
renewables
Availability
of DER
Future-
proof ICTs
Macro trends & capabilities paving way for the
paradigm shift
6
Renewables growth aided by modern technologies
Long-term
business value
Improvements in
distributed generation
Advances in energy
storage & electric
vehicles
Availability of
state-of-art ICTs
Environment-
conscious consumers
Evolving industry
dynamics
Key drivers Deciphering macro trends
Transformation in energy landscape is imminent
State of Utilities Survey USA (2015)
82%Yes
No
Change in business models in 20 years?
Manu MENON
Paradigm shift 2 3 4

7. From unidirectional value chain into highly
participatory networks of value
7Manu MENON
Power
generation
Power
transmission
Power
distribution
Energy services
(retail)
End-users
Power
generation
Power
transmission
Power
distribution
Energy
services
End-users
Distributed Energy Resources
Information
devices
Information
services
Prosumers result in bi-directional flow of energy & info
Emerging electric utility value chain
Traditional electric utility value chain
Paradigm shift 2 3 4

8. 8
Strength Weaknesses
• Continued dependence on
fossil fuels (perceptions)
• Lack of exp. managing
small-scale assets
• Already existing expertise
on renewables
• Existing base of
consumers and suppliers
• Increasing demand for
renewables – growth
rate of 8.3% (2015, UN)
• Complementing tech.
• Expand downstream
presence for new ways of
value generation
• Improve renewables mix
piloting new small-scale
models
• Extend tie-ups with
suppliers & new entrants
to share risks
• Market new offerings
effectively tapping into
environment-conscious
consumers
• Erosion of revenue
streams
• Failure to generate value
through new offerings
Opportunities
Threats
Strengths Weaknesses
Essential to capitalise on strengths to harness new
opportunities
Analysing utilities’ strategic options in changing landscape
Paradigm shift 2 3 4
Manu MENON

9. Agenda
9
Comprehending the paradigm shift
Proposed business model reinventions
1
2
New developments & key Success factors3
Strategic considerations & recommendations4
Manu MENON
1 2 3 4

10. Unravelling business model (BM) reinventions
Manu MENON 10
Key
Processes
Profit
Formula
CVP
Key
Resources
Distributed
Energy
Manager
(DEM)
2 business models reinventions proposed to complement changing environs
Johnson, Christensen, & Kagermann BM framework
Key
Processes
Profit
Formula
CVP
Key
Resources
Clean
Energy
Manager
(CEM)
Business models1 3 4

11. Models tested through comprehensive qualitative
research
Manu MENON 11
39%
32%
29%
Utilities Suppliers Consultancies
Qualitative research at a glance
Industry profile Markets surveyed
Research provided expert insights to converge theory & practice
28 executives spread across 15 countries
Business models1 3 4

12. DEM’s CVP effectively targets new arenas for value
generation
Manu MENON 12
Johnson et al. BM framework & qualitative research (I/V)
Clean Energy Manager
• Utility serves as the 1 stop all-
in-one solution for consumer’s
DER needs, including financing
• Ensures clean energy & DER
benefit even without significant
initial investment
• Provides consumers cheaper
utility produced clean energy
from renewable sources
• Provides benefits without DER –
solar panels, wind farms, etc.
64% view this transition favourably
Distributed Energy Manager
Business models1 3 4
“Almost every serious utility is looking at new business models to be proactive.”
- Vice President & Head of Digital Customer Experience,
Capgemini Consulting, France
67% view this transition as
non-value adding

13. Trial & error required to ascertain profitability
Manu MENON 13
Johnson et al. BM framework & qualitative research (II/V)
Clean Energy Manager
• Revenue through DER services,
sale of extra electricity, & RoA
of small-scale assets
• Costs on installing &
maintaining DER, state-of-art
ICTs, & alternate energy
sources
• Traditional revenue streams
intact + additional revenue
from premium on clean energy
• Costs on maintaining new mix
of renewables + improved ICT
infrastructure
76% believe DEM could be profitable
Distributed Energy Manager
Business models1 3 4
“DER will have multi-layered effects. It requires new investments for its integration.
And, simultaneously, it can also adversely affect the voltage reliability of operation.”
- Assistant Director,
Elektro Maribor d.d, Slovenia
32% believe CEM could be profitable

14. CEM’s key resources in line with current BMs
Manu MENON 14
Johnson et al. BM framework & qualitative research (III/V)
Clean Energy Manager
• Technical expertise of DER
services and large no. of small-
scale renewables
• Reputed brand & excellent ICT
infrastructure
• Technical know-how of
renewables & large-scale
renewable energy sources
• Reputed brand and good ICT
infrastructure
Distributed Energy Manager
Business models1 3 4
“DER will be a disruption, but it will take time as it needs distributed storage to be a
success.”
- Telecom Manager, Smart Grid
Iberdola, Spain

15. CEM’s key processes also based on current BMs
Manu MENON 15
Johnson et al. BM framework & qualitative research (IV/V)
Clean Energy Manager
• Financing, installing, operating,
& maintaining DERs
• Access to capital and renewed
financial modelling
• Enhanced long-term customer
relationship with
“personalised” branding
• Focus on short-term
relationship as price charged
per kWh
• Financing, installing, &
maintaining new renewable
sources
• Differentiated marketing of
“green” energy
Distributed Energy Manager
Business models1 3 4
“Energy services are becoming as important as the commodity itself and
decentralized production is becoming the new normal.”
- Key Account Manager: commodities, renewables , & efficiency services
EDF Luminous, Belgium

16. A few more expert excerpts
Manu MENON 16
“Electric evolution has to be done in several fields: retail & distribution. Both efforts
have to be coordinated as the retailing companies require certain Smart Grid
solutions provided by the DSOs to be able to offer new energy products.”
- Telecom Manager, Smart Grid
Iberdola, Spain
“Buying clean energy contract from a supplier has an advantage only on the image
of the utility. It doesn't pay off.” (Concerning distribution utilities)
- Key Account Manager: commodities, renewables , & efficiency services
EDF Luminous
“DER situation will be highly different from country to country: lot of off grid solar to
be expected in Africa, numerous other renewables in Germany, decentralized &
highly competitive environment with ageing networks in the US, etc.”
- Field Marketing Director
Schneider Electric, France

17. CVP
Profit
Formula
Key
Resources
Key
Processes
Amidst uncertainty DEM’s overall ratings show
good potential
Manu MENON 17
Johnson et al. BM framework & qualitative research (V/V)
Clean Energy ManagerDistributed Energy Manager
Business models1 3 4
CVP
Profit
Formula
Key
Resources
Key
Processes
Research not conclusive, but executives’ preferences point towards downstream
focus for reinvention

18. Agenda
18
Comprehending the paradigm shift
Proposed business model reinventions
1
2
New developments & key success factors3
Strategic considerations & recommendations4
Manu MENON
1 2 3 4

19. New entrants tapping into emerging downstream
solutions
19
EnerNOC
• CVP: Allows consumers
to resell capacity during
peak demand
• PF: By reselling energy.
Profits shared between
customers & firm
• KR & KP: ICTs on end-
user network. Tie-ups
across supply chain
Clean Energy Collective
• CVP: Installs & maintains
medium-scale consumer
owned DER at ideal locations
• PF: Electricity sold directly to
utilities
• KR & KP: Remote metering
systems to credit consumers &
operational tie-up across
supply chain
BeeGY
• CVP: All-inclusive solution
for DER needs
• PF: Charging for DER
services
• KR: DER expertise and
suppliers
• KP: Consultation, planning,
installation, etc. for DER
Electric utilities have to step up downstream offerings piloting new models
Examples of emerging BMs in Johnson et al. framework
Developments & KSF1 2 4
Manu MENON

20. Immediate tactical consideration: leveraging digital
Manu MENON 20
Developments & KSF1 2 4
Why utilities must enhance digital capabilities?
New areas for value generation... ...extend across utility value chain
Employees Suppliers
Consumers
Smart grid technologies
Big data management
Multi-sided platforms
Internet of Things (IoT)
“Always connected” consumers
Digital technologies will serve as an effective precursor for BM reinventions

21. Utility digital initiatives are three-pronged
Manu MENON 21
Renewed customer experience & operational excellence
enables BM reinvention
Customer
Experience
Utility digital
initiatives
Business model
reinvention
• Connected devices &
applications
• IoT, energy efficiency
management, etc.
• Final step making use
of functionalities
provided by digital
technologies
• Integrated supply chain
with extensive
supervision & control
across the network
• SCADA, FLISR, sub-station
monitoring, etc.
Operational
excellence
Developments & KSF1 2 4

22. Digital capabilities modernise operations from
front-end to back-end
Manu MENON 22
SuppliersWho ? EmployeesConsumers
Transcend
existing
barriers
Why ?
Co-create
innovation
Enhanced
direct access
Integrated
operations
systems
How ?
Revamping
productivity
Data
intelligence &
applications
Following stakes across value chain critical
Why?
Who?
How?
Engagement of these 3 stakeholders dictate customer experience & operational
excellence
Developments & KSF1 2 4

23. Digital tech. provides immense opportunities for
generating new value
Manu MENON 23
Key levers for utility digital transformation
Consumers EmployeesSuppliers
IoT & big data
• Smart meters ,
connected devices &
big data provide new
platform for gaining
customer info
Big data
• Enables integrated
supply chain
management & closer
collaboration
Productivity
• Improves collective
intellingence essential
to grow and evolve
utility business
Digital Experience
• Applications to
manage consumtion,
online presence etc.
helps meet & monitor
new expectations
Smart grids
• Enables extensive
monitoring & control
throughout electric
network (integral for
renwables adoption)
Collaboration
• Co-creates innovation
by fostering
crowdsourced
solutions
Developments & KSF1 2 4

24. Agenda
24
Comprehending the paradigm shift
Proposed business model reinventions
1
2
New developments & key success factors3
Strategic considerations & recommendations4
Manu MENON
1 2 3 4

25. Energy not going to be a commodity anymore, but a
service
Manu MENON 25
Where to
play?
How to
play?
How to
win?
Downstream
focus
Energy as a
service
All-in-one
energy solution
Upstream focus
Energy as a
commodity
Cost leadership
Current model Future model
Recommendations1 2 3

26. Spearhead reinvention by restructuring organisation
& leveraging digital
Manu MENON 26
Leapfrog downstream
offerings
Leverage digital
proficiencies
Revamp
organisation
• Capitalise on new
applications &
functionalities from
back-end to front
• Extend superior
supervision & control
over entire electric
network
• Enhance organisational
agility with new
departments for
downstream offerings
• Undertake external
partnerships, venture
capital, etc.
• Crowdsource employees
to co-create solutions
• Proactively develop new
DER solutions after
extensive pilot projects
• Lock-in consumer
support for DER
• Focus on long-term
consumer relationships
1 2 3
Recommendations1 2 3

27. The end.
M&A Project_Group 2 27
Special thanks to all executives for their valuable inputs!
Manu MENON
manu.menon@edhec.com