Is the Distributed Energy market ready for a new approach?
The future is ever more individualised – not just for energy but just about anything. We are seeing that in the market now. People and institutions want more individualisation. Throughout history we always had individualisation with hand-made bespoke goods. That was until economies of scale post industrialisation offered mass market affordability with a compromise best summed up by Henry Ford: “Any colour as long as it’s black”. Choice got better with market segmentation of needs and solutions, but now with the internet age we can have true customisation of products (a one-off digitally printed book for £50 – incredible!). With the Internet of Things, we can have individualised services too. We experience this every day via our smartphones. This is spreading more widely to energy for instance, where distributed energy captures the efficiency benefits of heat and power being used near its point of production. This helps meet sustainability criteria as well as better comfort and service for the user. Technology, EU policy, member state incentives, industrial policy etc. combine to provide great building scale solutions from photo voltaic panels to heat pumps. But how long will the incentives last? And yet these mostly “island solutions” could be even more effective if they were linked together as projects (economies of scale) and solutions (smart operations).
But there is a problem as soon as you try to combine projects and smart operations. There is a sharp rise in complexity. This means higher costs for both customers and suppliers in procurement, and yet the solution elements tend to be smaller so opportunities for returns are reduced! This explains why traction is low in distributed energy infrastructure generally and especially Smart infrastructure.
A recent solution to this issue has been to conduct a very detailed technical city master plan that usually costs the city n x £100k (money they don’t have) but is mostly unimplementable due to little appreciation of timing of investment with redevelopment opportunities amongst the complex stakeholder environment (city, citizen, businesses, public sector, investors). This has meant that solutions retreat into silo thinking with cheaper bi-lateral conversations and so island solutions predominate.
I wrestled with this problem when writing E.ON’s smart city strategy. My breakthrough moment came when I realised that it would not just be the city customer that would gain if they ran their procurement with all suppliers in the room (hence avoiding cost of multiple evolving conversations). But also the suppliers would gain if all stakeholders were invited too. Then the city can capture individualised requirements and opportunities and co-create the solutions at the same time. Of course, a healthy dose of pragmatism is needed with plenty of 80/20 rule applied. But this should be far better than £100k of slides gathering dust on a shelf.
The next breakthrough came when I realised that such an approach was a catalyst to achieving real individualisation by moving away from transactional procurement and towards a marriage of aligned interests and shared success. A successful city needs continuity of evolving solutions and capture of embedded know-how. It does not want a revolving door of suppliers as the city delivers a 20 to 30 year investment programme of connected solutions. And so the SmartKlub business model was developed.
But three important questions remained:
- What would the cities think?
- If they like it, how to pay for it?
- SmartKlub requires strong corporate backing but independence from any controlling interest to be fair. How to achieve this?
To get the answers to these questions, continue reading our SmartKlub blog.
P.S. The cities we spoke to loved it and E.ON backed us with seed investment!