By Rodrigo Rabetino.
The power electricity sector is undergoing a transition driven by renewable generation and digitization. Technologies are causing a seismic shift, paving the way for smarter grids empowered by connectivity. Integrating hardware, sensors, and software, smart grids enable a highly interconnected system that encompasses distributed resources, self-generation, microgrids/energy communities, smart metering and consumption control, energy efficiency and storage, and demand aggregation and management.
The transformation is reshaping the industry structure and roles within it. The traditional paradigm of selling electricity through centralized generation is disrupted. Moreover, electricity has become more of a commodity difficult to differentiate in integrated regional markets, in the context of increasing costs. Consumers are now becoming prosumers, actively participating in generating electricity; the transition is socio-technical rather than simply technological. Newcomers entering local markets introduce innovative technologies and disruptive competencies. Where regulations and policies are in place (still a bottleneck in many contexts), new roles emerge, including aggregators and virtual utilities, who capitalize on the opportunities created by technological change.
Conservative utilities may struggle to adapt to this new context. They possess experience, customer relationships, and industry knowledge. They may lack behind in some crucial aspects to stay competitive. They must not only reconfigure their resources and capabilities, embracing big data management and analytics, artificial intelligence, machine learning, and other emerging technologies but also face many challenges linked to digitalization (e.g., cybersecurity and technology selection) while finding innovative ways to position themselves in this evolving landscape. The shift calls for higher-order capabilities for sensing opportunities, seizing new business models, and transforming organizational structure and routines in once-traditional organizations.
Business model innovation opportunities powered by digital technologies are countless but challenging. Even more challenging at the regulated value chain linkages (e.g., DSOs) than, for instance, for electricity retailers. Still, business model innovation is always complex, particularly radical innovations, and requires trial and error, experimentation, and stakeholder engagement. Inadequate regulation and challenges to finding strong business cases for novel technologies may limit progress. Companies can explore their own new models, scan competitors or look at analogs in other industries (e.g., banking or telecommunications) in search of alternative models.
The breadth of emerging business models is broad but they probably share common elements to be considered. First, consumers are no longer passive but active participants, fostering long-term relationships and co-creation seems essential. Second, value propositions must evolve beyond cost-centric approaches toward servitization, a paradigm shift where service-based digital offerings can open up untapped business opportunities in unexplored areas. Companies can offer smart solutions that leverage connectivity, sensors, and the vast amount of generated data. Solutions can focus on reducing costs risks, emissions, and complexity, or enhancing consumers’ comfort. Energy efficiency and saving offerings, demand response and energy management services, and various other energy-related services such as life-cycle EV battery changeout, and home-related convenience services, among others, are viable avenues for growth. Third, key activities and processes should focus on customer-centered organizations and digital technologies and capabilities, embracing flexibility, lean processes, interdisciplinarity, and entrepreneurial spirit. Revenue models shift from asset-based returns to data-driven X-as-a-Service profits, relying on intangible assets and knowledge.
In summary, to thrive in this rapidly evolving landscape, traditional utilities must sense and seize opportunities, adapt, and unlock their full growth potential. Agility and flexibility seem essential. By embracing digital technologies, exploring innovative business models, and locating consumers at the forefront, utilities can shape the future and redefine the way we generate and consume electricity. If they fail to adapt, perhaps, Google, Microsoft, or Amazon can be your next electricity provider.
About the author:
Rodrigo Rabetino is a seasoned educator and scholar with over 20 years of teaching experience in strategy, business models, entrepreneurship, and, economics along with servitization. He currently serves as a teacher in the master’s programme in Strategic Business Development and the master’s programme in Smart Energy at the University of Vaasa where he imparts courses on business model development.
In his role as a Professor in the Strategic Business Development research group, Rabetino’s research focus is on servitization, business model innovation, and strategic management. His contributions to academia have been published in renowned journals like the International Journal of Operations and Production Management, Regional Studies, International Journal of Production Economics, International Journal of Management Reviews, Industrial Marketing Management, Technovation, Journal of Business Research, Journal of Small Business Management, and Research Technology Management.
His papers can be accessed on his profiles at Research Gate, Google Scholar, and ORCID. Rabetino’s vast body of research includes numerous peer-reviewed international journal articles and book chapters. His latest papers examine critical areas such as smart solution development, managing digital servitization, strategy-as-practice research, and public-private partnerships for energy transition and sustainable development.
Rabetino’s research impacts go beyond academia, providing crucial insights for business development, strategic management, and operational efficiency in the world of business. He continues to work diligently towards making noteworthy contributions to the knowledge pool of Strategic Business Development.