For the past several decades, shifts in the internet ecosystem have been mirrored in the energy and utilities ecosystem.
During the Web 1.0 era—where information flows were mostly unidirectional—we had what might be called Utilities 1.0, defined by centralized, planned generation of electricity (largely using fossil fuels) connected to distributed and fluctuating consumption via a unidirectional network.
We are currently in the Utilities 2.0 era, which has brought distributed renewable generation and engaged prosumers equipped with micro-generation, battery storage and electric vehicles. The network is now bi-directional, and both demand and supply are fluctuating and unpredictable. (Similarly, Web 2.0 emphasizes participatory structures and interoperability.)
Web 3.0 refers to the “third generation” of the internet, defined by decentralized data and apps and distributed trust and governance. We are on the verge of entering the era of Web 3.0 and, consequently Utilities 3.0 (see Figure 1). This new era will introduce fundamental shifts in the utilities market structure. Business models that have been stable for decades will quickly become obsolete. Utilities market players need to understand these disruptions and evolve to be able to survive and excel in this new era.
A Utilities 3.0 Customer Journey
To visualize the Utilities 3.0 era, let’s consider what a consumer journey might look like 10 or 15 years from now.
Our utilities customer (let’s call him Cameron) has just moved into his new home. In today’s world (Utilities 2.0), assuming that Cameron is in a deregulated energy market like the UK or Australia, he can choose between different local energy suppliers. His company of choice offers him a limited number of generic products (flat vs. dynamic pricing, etc.). Once Cameron indicates his preferences and energy usage, the energy supplier sends him a quote and Cameron signs a contract. During the duration of his contract, Cameron receives a monthly bill for his usage.
In a Utilities 3.0 world, when Cameron moves into a new home, he updates the personal data on his digital wallet, which notifies his active membership-based energy marketplace of his move. Based on his location, past usage and the details of his new home, his energy marketplace’s dApp (decentralized application) shows him personalized offers. When he selects an offer, the dApp sets up a smart contract that enables peer-to-peer energy trading with other active prosumagers in the energy marketplace. He can immediately begin purchasing energy. If he has energy generation (for example, solar panels) and/or storage capabilities at his new home, he can also immediately begin selling energy.
Seamlessly integrating with Cameron’s digital wallet, the dApp automatically buys energy based on market prices and demand forecast. The dApp enables Cameron to store energy in his home battery when electricity prices are low, and use or sell that energy when energy prices are high. The AI also recommends energy usage optimizations (for example, automatically charging his EV or running his IoT-enabled dishwasher at times of low market prices).
A market-wide DAO (distributed autonomous organization) is responsible for tracking imbalances between the energy consumed from the grid and purchased in the marketplace. Any applicable charges are settled seamlessly through the smart contract. All usage information, financial transactions, certificates and guarantees of energy origin are stored in a secure, decentralized manner using blockchain.
Crucially, at no point does Cameron interact with an intermediary such as an electricity supplier or an energy exchange. He is not bound by a long-term contract, and all transactions are automatically triggered and settled. In deregulated markets, in the most radical future scenarios, the role of the energy supplier/retailer might simply disappear. In regulated markets like in some parts of the United States, where utilities are vertically integrated, retail operations might need to be completely replaced by alternative business models.
Business Models to Win the Utility 3.0 Era
As Cameron experienced in his Utilities 3.0 customer journey, digitalization, decentralization and democratization will define the Utilities 3.0 era. Distributed renewable generation will outstrip centralized generation, and we will see a decentralized and disintermediated energy ecosystem underpinned by an empowered “prosumager” (a consumer who produces electricity through micro-generation and manages fluctuations through local storage). The network will be multi-directional, and supply and demand will be balanced continuously using AI, resulting in a state of managed unpredictability. The key technology shifts of Web 3.0 will provide the building blocks for Utilities 3.0. Blockchain, smart contracts and DAOs will obviate the need for intermediaries and enable generators and prosumagers to buy and sell electricity via peer-to-peer trading. Smart contracts and DAOs will also enable rapid settlement of energy transactions and imbalances.
What will this paradigm shift mean for utilities themselves?
Utilities market players need to capitalize on the trends and advantages of decentralization and disintermediation, rather than be displaced by them. Amid the Utilities 3.0 transformation, energy suppliers may find that their business model of buying electricity wholesale and selling retail is at risk, as prosumagers directly transact with other prosumagers, consumers and generators on a peer-to-peer network. Suppliers will need to diversify by providing energy services such as aggregation, energy advice and energy infrastructure services, rather than just selling energy as a commodity.
Energy exchanges will need to alter their business models to complement the decentralized energy marketplace and peer-to-peer trading of energy products and services. Centralized electricity generators—for example, nuclear generators or hydro facilities—may need to equip themselves with new technologies that not only enable them to sell on decentralized energy marketplaces, but also rapidly identify and leverage new trading platforms as they emerge. Local microgrids will provide energy security for isolated communities. Transmission and distribution network operations, meanwhile, will continue to manage the wider grid, maintain its physical assets and ensure its balance and safety.
However, they will also need to fully understand and be able to interact with and support the decentralized energy ecosystem. System operators may not need to calculate energy imbalances, as settlements will be calculated by DAOs and settled through smart contracts.
As the transition to a Utilities 3.0 ecosystem accelerates, market players will need to think beyond the roles that they have played for decades and reinvent themselves with fundamentally new business models. This reinvention will be good for customers, who will benefit from cheaper energy as well as more accessible products and services. In general, the utilities ecosystem will become more transparent, responsive, lean and customer-centric. The market players who proactively build their business models around these new paradigms will be the ones who drive the future of energy.
Head of Domain & Consulting – Utilities, ECO & GIS, Wipro
Shirish has worked in the utility industry for more than 28 years. He is a Global Head of Domain & Consulting business for Wipro’s Utilities, ECO and GIS sectors. He has championed and architected many large transformation deals working with clients across Power, Gas and Water sectors globally and worked across continents including Australia, UK, Germany, US, Middle East etc. As an industry leader for Wipro’s Utilities, ECO & GIS Shirish’s priorities are to help customer develop and operationalize Digital and Operational Technologies for Business Transformation, Data Monetization and New Business Models.
Enterprise Transformational Leader – ENU, Wipro
Diptarka has worked in the utility industry for more than 20 years. He has led large engagements across business transformation, strategic consulting and architecture, working with utilities clients from UK, Canada, Australia and Germany. In his current role, he uses his experience to assist utilities in maximizing value while transitioning to the digital utilities of the future.
Luke Sykora - Content Writer, IDEAS