Technological Disruptions and Service-Based Business Models in the Power Sector
About the Project
The Electricity Sector Transition KAPSARC initiative examines the challenges and opportunities of technological innovations in the electricity sector and their impact on policy choices and business models. Like many other countries, Saudi Arabia is undertaking a major electricity sector liberalization which will shape its socio-economic development and crucially affect the government’s wider economic diversification strategy. The Electricity Sector Transition initiative seeks to draw from international experience and discussion to inform and provide practical guidance for policy practitioners and other key stakeholders, as they grapple with the related policy and implementation challenges.
Electricity markets around the world are facing significant challenges from the demand and supply side of the industry. From the supply side, distributed energy resources, usually owned by third parties, are forcing utilities to re-evaluate their business models; while developments in information and communication technologies, such as smart metering and blockchains, are enabling new opportunities for both existing and new players on the demand side.
This confluence of factors is driving a transition from the notion of electricity as a traded commodity to an ingredient of an ecosystem that offers a wide range of flexible services – related to electricity consumption or production – that consumers want and are willing to pay. Three broad themes underline this shift in the electricity value proposition:
Future business models in the power markets will probably not be centered solely on electricity. Consumers may not be interested in products that only save electricity, but rather on products that deliver new services that have the collateral benefit of saving electricity.
Some of these services would be at the intersection between energy, finance and internet access. This would require new forms of regulation, developed in tandem with market offerings rather than constrained by functional silos.
In many cases, the utility will behave as the incubator of new businesses by acting as the operator of last resort. Regulators could allow this to grow, by turning a ‘strategic regulatory blind eye’, until rents captured by newcomers constrain further societal benefits.
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