Why the Energy Transition Demands Energy Company Business Model Innovation

Much of the discussion about the transition to a net zero electric power system focuses on technology. This is understandable. The shift from a system dominated by large central station power plants powered by fossil fuels to one that is far more decentralized and decarbonized can only happen successfully with significant technology advances – everything from more efficient wind, solar, and energy storage to improved load and weather forecasts to grid support from bidirectional electric vehicle (EV) chargers.

Research and development (R&D) is critical to improve existing technologies and create valuable new ones. It also plays an important role in innovation around energy company business models, which is another critical component of achieving 2050 net zero targets. The challenges and opportunities companies face in adapting their existing business models to a rapidly changing energy landscape are significant and wide-ranging. 

EPRI recently completed an exhaustive analysis exploring future energy company business models. Over the next year, EPRI will publish a series of 12 white papers that highlight challenges in evolving  business models and the opportunities that come from doing so. The papers will also examine factors that need to be assessed in making decisions to change business models and provide tools and guidance to maximize opportunities and minimize  risks in the energy transition. The main purpose of the papers is to initiate discussion and debate among executives so they can develop a business model strategy uniquely suited to their situation. 

The first four papers were published in late 2023 and early 2024. Perspectives on Transforming Utility Business Models: Towards Net Zero outlines the landscape and imperatives driving change as well as the reminder that energy companies have choices in how they navigate change. Those choices include the role they want to play, what markets and customers they want to serve, and the types of products and services they need to develop to serve existing customers, attract new ones, and still serve societal goals. 

Other papers will address questions that arise when energy companies weigh the suitability of new types of business models. Other topics previewed include business models that align with customer and policy drivers and the questions they raise. 

Horizon scanning and forecasting

A crystal ball would come in handy to guide business model decisions because it would provide a clear view of the threats and opportunities companies face. Since there are no energy transition crystal balls, companies must do their best to gather insights and information that present possible future scenarios. Fortunately, this can be done in a systematic, structured, and disciplined way, which is the subject of the recently released EPRI white paper, Horizon Scanning and Forecasting. 

Horizon scanning utilizes a common set of characteristics to uncover both likely industry developments as well as those that extend outside current planning and thinking. A structured approach to horizon scanning includes three components:

• Looking ahead involves collecting information that stretches beyond typical planning and decision-making timescales, such as how long-term climate change scenarios may impact electricity demand and grid resilience and reliability.
• Looking across means including information and trends from outside but adjacent to the energy industry. For example, the electrification of nearly all aspects of transportation has implications for electricity demand and grid reliability. 
• Looking around is about expanding information to integrate in business model decisions beyond even adjacent industries, like transportation. This could include developments in artificial intelligence (AI) and machine learning (ML) to understand how they could both threaten and optimize electricity system operations.

Business models for innovation

Innovation has always been a constant in the energy industry. Technology advancement is continuous, but innovation in regulatory frameworks, business models, and commercial offerings has accelerated in recent years as deregulation and the prioritization of decarbonization have intensified competition and the centrality of customers. Today,  innovation is expected, although it takes place within unique policy and regulatory environments that may widen or constrain what is possible.

Regardless of the environment in which utilities operate, innovation is an important element in business model development and transformation. Perspectives on Transforming Utility Business Models Paper 2: Business Models for Innovation describes how different types of companies can follow a model for innovation that helps them achieve their business objectives. This can be accomplished with effective innovation lifecycle management through its many stages. The paper provides a description of each of the stages of innovation, from the scanning and scouting of innovation projects through their approval, funding, execution, and ultimately, adoption as business as usual. 

Business models for Net Zero

Perspectives on Transforming Utility Business Models Paper 3: Business Models for Net Zero grapples with questions energy companies face as they explore strategies to manage the so-called energy trilemma of supplying safe, resilient, and affordable electricity while maintaining financially sustainable businesses.  

The paper describes both the drivers of change as well as the extraordinary uncertainty faced not only by leaders but also regulators and other industry stakeholders. 

With so many uncertainties and so much complexity, it can be a challenge to even begin the process of assessing how future business models should change. A good place to start is with a thorough self-assessment and use those learnings to initiate internal conversations about appropriate business model strategies.