Who needs retailers in a peer-to-peer energy market?
Before I suggest a way forward, let’s consider the impact of the off-grid movement on the energy retailer. Much of the discussion around the impact of disruption on utilities overlooks this segment of the market but its fate may be even direr than that of the networks.
Retailers face an urgent need to redefine business models as disruptive technologies, particularly blockchain, tear down their traditional value proposition. Until retailers attain the much-discussed and sought after status of the “energy advisor’, their role is essentially a settlement function. But when consumers can generate their own energy – and use blockchain to trade and transact among themselves – who needs that middleman?
We’ve already seen the disruption to traditional retail models in industries such as vacation accommodation and taxi services. Energy retailers may be next. The trend to go off-grid is being adopted at community-scale, driven by advances in technology and the demands of today’s empowered and educated consumer.
The Brooklyn Microgrid (BMG) is perhaps the most exciting initiative of how peer-to-peer trading has created a democratized and “hyper-local” energy market. Part of New York’s ‘Reforming the Energy Vision’ program and run by LO3 Energy, BMG links the solar energy generated by 60 residences and businesses in a virtual trading platform where participants, who are still also connected to centralized generation, can sell excess energy to each other via blockchain.
Other initiatives are taking off in communities where many people still don’t have access to a central electricity grid. Bangladesh, a pioneer in micro finance and micro solar, has seen a boom in what is called “swarm electrification”. Local nanogrids and microgrids allow homeowners to sell surplus electricity to each other in small increments using their cellphones. When the consumer is empowered to buy and sell electricity with their peers, retailers increasingly look like a relic from a simpler time.
Will utilities play a game of Survivor?
As the landscape irrevocably shifts, electricity networks and retailers face disruption enabled by technology but powered by the consumer. Both players risk irrelevance unless radical changes are made now to seize a new role in the future energy world. But what if the salvation for one segment is secured only at the detriment of another?
For example, network utilities may step into the peer-to-peer trading space, providing the digital platform that facilitates energy trading and transacting. Similarly, energy retailers could become supply and demand aggregators, transacting in ancillary service markets – in essence, eroding some of the networks’ role in maintaining a stable grid.
What is certain is that the current model of networks and retailers will not exist in the very near future.
Follow on Twitter @EY_PowerUtility and visit the EY website for further sector insights at ey.com/connected.