A Flexibility Value Chain Battle is Looming

A flexibility Value Chain Battle is Looming

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The VPP ecosystem has evolved rapidly over the last decade. Next to the traditional aggregators we now see a huge landscape of players who actively move this market forward: from utilities to OEMs to traders to an infinite software vendor market.

How will the value chain and competitive landscape evolve? We observe two dynamic battlefields: vertically on the value chain and horizontally around the consumer attention.

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Vertical Battles

Where the classic integrated aggregator model (Enernoc, REstore, …) worked to get the earliest VPP implementations off the ground, the value stack has evolved quite a bit, most noticeably in Europe and the UK, the most advanced markets. Specialists are defending their positions and upward and downward pressure is occurring.

Upstream, close to the markets, we have seen monetization specialists successfully take a clear position. Companies like Enspired, Entrix, Esforin and Powerbot in Europe support the automated and algorithmic trading of wholesale flexibility. Many of them started by trading the capacity of utility-scale batteries for investors and, in the absence of significant flexibility market standardization, we expect the upstream segment to remain a fairly fragmented global patchwork of traders covering the various markets.

Downstream connectivity layers such as Enode have positioned themselves as abstraction layers on top of the OEM cloud jungle, making it seamless for end-users to give access to third parties. While they face pressure to more ‘deeply integrate’ in the OEM clouds downstream (and face ambitious and optimistic OEM sales teams accompanying the API documentation), it is clear that both pressure from consumers (who want to be able to share control of “their” DER to energy service providers) and from utilities to value ‘consent’ layers.

And in the middle? Once you’ve connected all your DER and have bulk system trading capability, you can’t just start shutting DER on and off. You need to carefully balance the finite energy capacity, user boundary conditions, asset lifetime and behind-the-meter economics. This is done by an emerging orchestration abstraction layer which allows traders to trade residential capacity in a reliable and coherent way. And yes, that’s where Beebop leads the way.

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Horizontal Battles

Who owns the customer relationship? Who gets the customer’s attention?

While this an old question in the world of B2C internet applications, in the energy world this rings a tad moot as there historically was not that much ‘customer attention’ to start with. Checking your bill once every few months used to result in a consumer attention span of minutes in a year for the average consumer. A 2016 study came to 8 mins per year. Poor utilities.

Will things change? One driver for this may be the combination of two things. One is increased electrification, through which electricity bills may rise 3-fold as EV chargers, heat pumps and other devices triple the electricity consumption. Now some will pay attention. The other is the expected rise of electricity cost (whether through raising of grid tariffs or energy prices) to finance the energy transition. The combination of both should draw consumers to a more active role around their energy management.

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But who will win the customer?

The past decade has seen great advances in device connectivity. IoT is out of vogue, but OEMs ranging from manufacturers of cars, EV chargers, batteries and inverters have invested heavily in the internet connectivity of their devices. The basic outcome of this is a slew of energy often disjointed management applications which offer consumers transparency and (basic) control over their devices. An app from your inverter manufacturer to monitor your PV production, an app from your EV to manage charging, an app from your utility for your bill. Many of these OEMs hope that, with a “land & expand” strategy, their controller will become the home energy management system for the whole household.

On the value front, these OEMs are moving to offer services to their customers, for instance by allowing automated grid tariff management, smart charging, optimizing the self-consumption of rooftop solar PV etc.

Utilities have been navigating this changing landscape with a variety of strategies ranging from “wait and see” to forging partnerships with OEMs to the acquisition of home energy management companies.

One disadvantage OEMs have is that they face barriers to accessing value “in front of the meter”. Indeed, it’s one thing to shift power to “low grid tariff” moments on an automated basis, but a completely different thing to use that flexibility to monetize in energy trading markets. Here is where, for now, the utilities hold a strong defense as they can ‘access’ more value for the flexibility than OEMs. But OEMs are often more advanced digitally, have more customer intimacy than a utility and have more ownership of the controls & data of the devices.

In the coming few years we see “progressive utilities” (typically installers of DER and energy service providers) leading the way. Utilities still sit at the center of gravity in the flexibility ecosystem today, mostly due to regulatory structures, information advantages (e.g. knowing their customer’s energy contracts) and being the historic ‘trusted party’ for consumers on their energy.

We expect that increasingly OEMs will become increasingly relevant to the end consumer. Brands like Tesla have obvious advantages and are closest to unlocking the full value for the end-consumer.

As connectivity and market regulation progresses further, we would expect in a few years from now a wide variety of banks, telcos and consumer-facing technology companies are offering energy services as well. Today, there are quite a few banks and telcos already who offer smart meter insights or home energy efficiency advice...flexibility is closeby.

So again, who’s going to win in this ever expanding ecosystem? Hopefully all of us. There will be upward and downward ambition on the value stack and fierce competition for customer attention. But if we’re serious about our common purpose fighting climate change, we need to partner, work together, allow some overlap and deliver in the markets, as soon as possible.

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Onwards, together!

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