Business Model Innovation In Electricity Services: A Comparison of Developing Models

Lux Research’s Grid Storage team recently profiled Mera Gao Power and OMC Power, who are both developing micro power plants or microgrids in India. Although the two companies have different strategies, they do share business model similarities in that they are offering electricity-as-a-service for residential customers. Mera Gao Power follows the lighting utility service model, in that it owns and installs the lighting in a subscribing household. Similarly, OMC Power provides lanterns and power boxes that it owns and distributes to its lighting or electricity subscribers. The subscription model employed incents the enterprises to sell as little power as possible across its customer base. Despite the relative small scale, the model begs for comparison to the traditional utility business model: selling as much electricity as possible and charging per delivered kilowatt-hour.

There are some programs which have enabled utilities to support investment in energy efficiency and distributed generation, however by and large utilities are in the business of selling as much electricity as possible. The desirable model would incent utilities to provide cost-effective, cleaner, more reliable electricity at the lowest delivered price. What could such a model look like?

Some have suggested that the model would emulate a lighting utility model in that a utility would get paid for the lighting, cooling, and heating services it provides, not on the delivered electricity. There are numerous concerns surrounding implementing the switch to such a model and its operational challenges, but perhaps the most glaring is how a centralized utility would gain ownership and control of equipment inside households and businesses. The likelihood of such a model being implemented in the medium-term business horizon is slim, and as such, Lux Research is actively exploring new business models that may allow utilities to play a role in a more decentralized generation and distribution system.

One model that is promising is the concept of a microgrid-as-a-service. In this model a utility would work with existing industrial or large groups of residential customers to implement a microgrid. In a certain capacity this model already exists today, and Pareto Energy is looking to work with utilities to implement microgrids for large customers like universities who already have generation assets outside of utilities’ control. Thus the microgrid-as-a-service model allows for utilities to gain sticky customers who previously would be seeking or have already developed self-generation assets.

If utility controlled microgrid development does begin to take traction, it could offer the first test beds for business model innovation in supplying customers’ electricity services. In order to implement a microgrid, a utility is already beginning to decentralize its operations, and gains more control of the end consumer’s consumption. In this capacity, the microgrid-as-a-service could be paired with the lighting utility model to ensure electricity services are delivered to the most efficient devices as possible. 

In such a proposed model, there would be a steep learning curve and difficult negotiations with the entities who subscribe to a microgrid, but it would allow for the utility to build additional revenue streams from the services it provides, such as equipment upgrades. While far from being a reality, the pairing of a lighting utility service model with a utility-operated microgrid-as-a-service model could enable new opportunities for utilities while providing a service that is cleaner, more reliable, and potentially more cost effective than the centralized approach used today.