A centuries old contract
The universal access to an uninterrupted power supply has been an indisputable social right in modern Europe. While we were going on with our normal consumption patterns, our power suppliers were working to seamlessly fulfill our predominantly1 inflexible power demand. This “back-stage” balancing relied on high investments in grid infrastructure and (relatively) flexible generation facilities. Given the monopolistic nature of the power provision business, integrated energy utilities were in turn allowed to pass these investments through the regulated tariff, thus charging us for our inflexibility .
Hit by a perfect storm
Over the past decade, two concurrent phenomena have started to increasingly challenge this historical agreement: the growing penetration of renewable generation and the market liberalization:
- The intermittent, unpredictable and often distributed nature of renewable generation is significantly increasing the volatility of power supply, thus challenging its capability to match demand. Even highly flexible gas-fired plants  find it difficult to keep up with wind speed and sunshine variability
- The trend towards market liberalization and unbundling of vertically integrated utilities is making it more difficult for utilities to defend high power prices. By 2015, 53% of Swiss consumers eligible for free-market access (>100MWh/year) had decided to switch to free-market energy purchases 
The digital lifeboat
While the above phenomena are exacerbating the need for DSI (Demand Side Integration), it is the rampant development of digital technologies that is providing utilities with tools to address these issues, by enabling a smart grid. In a smart grid, an electric system able to host two-way power and information transfers between a high number of grid participants , consumers can receive real-time pricing information in order to modulate their demand in a way that optimizes their own cost-convenience function. While a universal smart grid is still a visionary concept, both utilities and new energy players have started to invest in this direction.
A Swiss utility takes the lead
BKW Energie AG, one of the three major energy utilities in Switzerland has decided to gradually transition to an energy services business model , by turning its consumers into active market participants, with a number of dedicated initiatives:
- PowerFlex: Designed in collaboration with ENERnoc, an established US DSI developer , PowerFlex acts as a broker for power consumers on the balancing energy market. The platform monitors power prices and sends customized real-time production adjustment suggestions to the K-Boxes installed at each consumer’s facility, thus allowing them to monetize their flexibility
- FlexLast: Beyond dynamic consumption, FlexLast enables inertial consumers, such as commercial refrigerators to act as buffers for the energy grid, by storing energy at excess generation, to then consume it in times of shortage. The project was piloted in collaboration with IBM (whose European research headquarters are based in Zurich), MIGROS (one of the main Swiss retailers) and the national grid operator SwissGrid 
- Home Energy: As Swiss consumers increasingly turn into PV producers, BKW is providing them with an intelligent way to manage their own generation and consumption behaviors. This is done through a central controller that dictates the way solar power is distributed in between home appliances (including electric cars), stored or sold to the grid.
What comes ahead?
In 2015, BKW has reported a 34% growth in revenues from energy services (incl., but not limited to the ones listed above), from 320 to 430 CHFM , partially offsetting the decay of their traditional business. However, the actual success of these business models is still highly uncertain, given both adoption and profitability challenges. Potential “side effects”, such as net increases in energy consumption are not excluded either . I think the company should focus on the following areas:
- Proving commercial feasibility of the solutions, and customer’s willingness to pay, given the very small share of energy costs in Swiss consumers’ budgets
- Aggressively campaigning DSI’s contribution to the transition to clean energy, given Swiss citizens’ environmental awareness and drive
- Fostering their existing relations with the (still regulated) consumers (it is a lot easier to convert an existing customer, than one you’ve already lost)
- Strategically managing their R&D activities, as well as acquisitions and partnerships in a way that mitigates their dependency on technology players
While its new journey has just begun, I strongly believe BKW’s decision to embrace the energy transition is setting it up to become one of Europe’s future leaders in energy services.
1 Exceptions existed for large industrial consumers, and mostly outside Europe
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