A conference on Smart Grids, toward Which Business Models, by Olivier CATEURA, PhD. Professor of Strategic Management at Grenoble Ecole de Management. Head of the Specialized Master (Mastère Spécialisé) in Energy Marketing & Management - Grenoble EM & Grenoble INP Institute of Technology.

1. Smart Girds : Toward which
Business Models ?
Olivier CATEURA, PhD. Professor of Strategic Management, Grenoble Ecole de Management
Head of the Advanced Master (MS) in Energy Marketing & Management (GEM & G-INP)
+33(0)6.75.07.73.16 – olivier.cateura@grenoble-em.com
BEST - Winter School / Minatec. Grenoble, February 2012

2. Agenda
O.CATEURA. Grenoble EM. 2012/02.

3. Smart Girds & Business Models are :
Buzz Words…
=> Is it the good time to market ? How to address it ?
O.CATEURA. Grenoble EM. 2012/02. Smart Grid Ireland – Word Cloud

4. 1.1 What is a Smart Grids ?
“A smart grid is an electricity network that
uses digital and other advanced technologies
to monitor and manage the transport of
electricity from all generation sources to
meet the varying electricity demands of end-
users”.
• Use of Information & Communication Technologies (ICT)
• Real-time & bi-directional information (Utilities &
Consumers)
Source : International Energy Agency. (2011) Technology Roadmap – Smart Grids. OECD/IEA.
O.CATEURA. Grenoble EM. 2012/02.

5. 1.2 Smarter Electricity Systems
KEY POINT: The “smartening” of the electricity system is an
evolutionary process, not a one-time event.
Source : International Energy Agency. (2011) Technology Roadmap – Smart Grids. OECD/IEA.
O.CATEURA. Grenoble EM. 2012/02.

6. 1.3 Smart grid technologies areas
KEY POINT: Smart grids encompass a variety of technologies that span the electricity system.
O.CATEURA. Grenoble EM. 2012/02. Source: Technology categories and descriptions adapted from NETL, 2010 and NIST, 2010.

7. 1.3a Smart Everything…. ?
• Super Grids
• Smart Grids
• Micro Grids
• & Smart Buildings… !?
O.CATEURA. Grenoble EM. 2012/02. Idea from O.Cottet / Schneider Electric / HOMES Program.

8. 1.3b A Smart Grid Needs Smart Buidlings
O.CATEURA. Grenoble EM. 2012/02. http://www.institutebe.com/smart-grid-smart-building/What-is-a-Smart-Building.aspx

9. 1.4 Main Characteristics &
Benefits of Smart Grids…
• Enables active participation by consumers
• Accommodates all generation and storage options
• Enables new products, services and markets
• Provides power quality for the digital economy
• Optimizes assets & operates
efficiently
• Anticipates and responds to
system disturbances
• Operates resiliently against
attack and natural disaster
source www.nist.gov - National Institute of Standards and Technology (NIST)
O.CATEURA. Grenoble EM. 2012/02. The Smart Grid : An Introduction. US Dept. Of Energy.

10. 1.5 Smart Grids are becoming
a Radical Innovation
Smart
Grids !?
Major Radical
Major Innovation Innovation
Effect of innovation online banking, Poste-it Notes PC (IBM) , Online Bookstore
(Amazon) Download music site
on consumer habits (iTunes)
and behaviours
Incremential Strategic
Minor Innovation Innovation
ABS, Washing powder tablets ,
LCD TV, Smart Cars, EasyJet, Ikea
Innocent drinks,
Minor Major
Effect of innovation on
established firms’ competencies
O.CATEURA. Grenoble EM. 2012/02. Source : Markides & Geroski, Fast Second. 2005

11. Agenda
O.CATEURA. Grenoble EM. 2012/02.

12. 2.1 Context : Major Trends in the Energy
Sector (PEST analysis / Smart Grids)
– P : Competition in the energy sector (Deregulation)
• Shared power between States / Utilities / Customer
– E : Growth of Energy Consumption (+50% by 2035 - worldwide)
• Electricity growth : +100% by 2035 (80% non-OECD)
– E : Economic slowdown
• Debt burden & social priorities : avaibility of cash.
– S : Climate Change Issues (New regulations)
• Climate Change Mitigation & CO2 Reduction (Kyoto, EU –ETS)
• 3x20 priorities + EU Roadmap/Smart Meter by 2020. Decarbonisation by 2050
– T: Fossil Fuel Reduction & Investment in Renewables
• European Strategic Energy Technology Plan (SET-Plan & Technology Roadmap)
– T : Technology Innovation
• ICT innovations & availability of Smart Grids Technologies
• Growth of Electric Vehicules Projects
O.CATEURA. Grenoble EM. 2012/02.

13. 2.1a Stakes & Issues for the EU
(Strategic Goal of the UE Smart Grid Research Agenda)
UE – EC (2007). Strategic Research Agenda For Europe’s Electricity Network of the Future. European Technology Platform Smart Grids
O.CATEURA. Grenoble EM. 2012/02.

14. 2.1b World Energy Consumption 1990 – 2035
(quadrillion Btu)
• Total world energy use rises from 505 quadrillion British thermal units (Btu) in
2008 to 619 quadrillion Btu in 2020 and 770 quadrillion Btu in 2035.
• Energy use in non-OECD nations increases by 85 percent in the Reference case, as
compared with an increase of 18 percent for the OECD economies
O.CATEURA. Grenoble EM. 2012/02. http://www.eia.gov/ US Energy Information Agency

15. 2.1c Electricity consumption growth
2007-50 (BLUE Map Scenario)
KEY POINT: Emerging economies will need to use smart grids to efficiently meet rapidly
growing electricity demand.
Source : IEA, 2010 & International Energy Agency. (2011) Technology Roadmap – Smart Grids. OECD/IEA.
O.CATEURA. Grenoble EM. 2012/02.

16. 2.1d Deployment of electric vehicles
and plug-in hybrid electric vehicles
KEY POINT: Major economies with large personal vehicle sales will need smart grids to enable
the effective integration of electric vehicles to their electricity grids.
Source : IEA, 2009 & International Energy Agency. (2011) Technology Roadmap – Smart Grids. OECD/IEA.
O.CATEURA. Grenoble EM. 2012/02.

17. 2.2 Smart Grid is an answer to :
• Low carbon economy
• Based on decentralized renewables energy
• Focused on energy efficiency & service quality
It’s a important need for emerging economies,
but available and affordable now in developed
countries
O.CATEURA. Grenoble EM. 2012/02.

18. 2.2a Example : Denmark : the smart grid
experiments
The Smart Grid : An Introduction. US Dept. Of Energy.

19. 2.2b Transmission links between Denmark & Nordic countries
KEY POINT: The Nordic electricity system successfully
integrates large amounts of variable renewable energy in a
regional grid by making use of interconnections.

20. 2.3 Mini – Quizz… Guess :
Who are the Top 3 Countries for Smart
Grids Investment 2010
• 1: Investment :
• 2: Investment :
• 3: Investment :
And the Top 10 ?
• 4:
• 5:
• 6:
• 7:
• 8:
• 9 : France !
• 10 :
O.CATEURA. Grenoble EM. 2012/02.

21. 2.3 Top Ten Countries / Smart Grids
Investment 2010
O.CATEURA. Grenoble EM. 2012/02. http://www.gereports.com/top-10-countries-for-smart-grid-investment/

22. 2.4 Examples of Smart Grids Pilots
& Demonstrators
• In China : USD 96 billions by 2020,
– State Grid Corporation of China.
• In the US : USD 4,5 billion to grid modernization,
– including 3,48 billion for technology integration + 435 million for regional SG
demonstrations + 185 million for storage.
• In India : USD 400 million pilot programs (Hayana, Mahashtra & Gujarat).
• In Australia : AUD 100 million for « Smart Grid, Smart City ».
• In Europe : Edison & EcoGrid (Denmark / IBM), HiperDNO (Spain, UK,
Slovenia), EU-DEEP, Address, Open Meter, OpenNode…
• In France : 300 000 smart meters Tours – Lyon (Linky) => 35 M
– Demonstrators : Premio (Lambesc/PACA), NiceGrid, IssyGrid, Lyon Confuence -
NEDO,
– And GreenLys…
O.CATEURA. Grenoble EM. 2012/02.

23. Lyon - Confluence
• A Smart Grid for Grenoble & Lyon, by 2015.
• 1000 residential cutomers, 40 offices &
buildings
• 12 partners : 39 M€ (including 9,6M€ by
French State, via ADEME)

24. Agenda
O.CATEURA. Grenoble EM. 2012/02.

25. 3.1 The financial stake
• The Global Smart Grid Market :
– US $ 10.5 billion in 2009 to a high point of $35.8 billion in 2013
(Pike Research, June10)
– US $ 57 billion by 2016 with a CAGR of 13% over the next five
years. (src : Lucintel, Dec.11).
– US $ 81 billion by 2016, from $23 billion in 2011 at a CAGR of
29% from 2011 to 2016 (src : Research & Markets, Feb12).
– US $ 376 billion by 2025 (Innovation Observatory)
– € 480 billion (IEA), by 2035
– € 15 billion - France (EEGI – European Elec. Grid Initiative)
Who will pay for it ?
O.CATEURA. Grenoble EM. 2012/02.

26. Even if
predictions can
also be very
optimistic…
Like it was in
2009…
Src : Zpryme, 2009.
O.CATEURA. Grenoble EM. 2012/02.

27. 3.2 Smart grid projects
Geographical distribution
of investments and
project categories
219 Projects
5.5 billion € - July 2011.
This figure does not include the
total budget of the Swedish smart
metering program (estimated
budget €1.5 billion).
O.CATEURA. Grenoble EM. 2012/02. http://ec.europa.eu/dgs/jrc/index.cfm?id=1410&obj_id=13670&dt_code=NWS

28. 3.3 Smart Grids are helping to manage
• Energy issues (peak load management & energy efficiency)
• Climate change (reduce GHG emissions)
• Competition (DSM – load shedding & dynamic pricing)
• Security (integration of EnR, storage, electric vehicule)
Who will pay for it ? Who will capture the value ?
O.CATEURA. Grenoble EM. 2012/02.

29. Remember : This is a Black out…
The USA…
14th August 2003
NY Region in the
black…
Imagine the cost
in 2012 ?
It’s a business
threat but also a
great opportunity,
it depends how you
are…
O.CATEURA. Grenoble EM. 2012/02. http://www.ptd.siemens.de/artikel1003.html

30. 3.4 Business Models ??
• Smart grids = Value creation
(2) Network & (1) Offer & Value
through the electricity grid Value Chain Proposition
management
Targeted
Customer
• It can be :
– Top Down / Macro. State’s Costs &
Revenus
vision. Assets
– Bottom up / Micro. (3) Profit Formula
Company’s vision
• The main benefits are going to be the TSO
• Who will assume the (Transportation System Operator) & DSO
investment ? (Distribution System Operator)…
• Who will capture the value
and get the revenues ? • But other actors are interested in the
process…
O.CATEURA. Grenoble EM. 2012/02.

31. 3.5 Smart grid product providers
KEY POINT: A broad range of product and service providers who have not worked
together in the past will have to collaborate in smart grids deployment
O.CATEURA. Grenoble EM. 2012/02. Source: Canmet Energy/Natural Resources Canada

32. O.CATEURA. Grenoble EM. 2012/02.
http://www.greentechmedia.com/images/wysiwyg/research-blogs/taxonomy-large.jpg

33. 3.6 Who may be the winners &
who may be the loosers ?
• A lot of actors (energy equipment, ICT, IS consulting…) will
have products and services to sell…
– Aggregators (ECS in the US; EnergyPool (=S=), Voltalis in FR…
have a interesting business models (customer are paid for not
using electricity)
• TSO & DSO should have the regulation and collected fees to
assume the investment (even if the sunk cost will be
huge)…
But one will have to adapt deeply its offer
thanks to Smart Grids….
O.CATEURA. Grenoble EM. 2012/02.

34. 3.7b Which consequences for Utilities ?
(1-) With less energy to (2) Network & (1) Offer & Value
sell, the revenues will Value Chain Proposition
decrease
(2+) With higher Targeted
Customer
investment costs &
assets will rise Costs &
Revenus
(3-) The Profil Formula is in Assets
danger (3) Profit Formula
The Business Model of • Telecoms & IT firms are ready
Utilities has to to provide new services
change… (energy saving -5/-15%)
through the energy in-house
box.
O.CATEURA. Grenoble EM. 2012/02.

35. 3.7b Which consequences for Utilities ?
• What will be the new Customer Value Proposition for
Utilities ?
• How to sell energy efficiency ?
• How to develop new services ?
• How to share the value of Smart Grids ?
The price of electricty should rise rapidely (hopefully, for
Utilities)
It should allow to shift from Volume to Value
• Will customer be willing to paid more (and how much) ?
O.CATEURA. Grenoble EM. 2012/02.

36. Agenda
O.CATEURA. Grenoble EM. 2012/02.

37. 4.1 Main Issues to Tackle…
• Investments in Network Infrastructures
• Interoperability of communications standards
(Smart metering)
• Constraints on network operators & utilities business
models
• Privacy (data management) and security issues
• And identify which business model will be yours !
O.CATEURA. Grenoble EM. 2012/02.

38. 4.2 Needs & Recommandations
• Political stability & regulation
– « Do you want to know what keeps me up at night? Not my
programmers. Not my investors. Not my health care costs. It’s state
regulators »
CEO of Smart Grid Leading firm. In Peter Fox-Penner, Smart Power.
Climate Change, the Smart Grid, and the Future of Electric Utilities
• Involve the « Prosumer »
– from energy consumer to > e-aware > e-manager > energy partner
• Learn & Build up on experiments & R&D
– Crossing the Chasm (G.Moore) Niche strategy.
• Shared standards
– Collective work & shared investments
O.CATEURA. Grenoble EM. 2012/02.

39. To go further…
• IEA Smart Grids Technology Roadmap
– www.iea.org/papers/2011/smartgrids_roadmap.pdf
• JRC Report Smart Grid Project in Europe
– http://www.smartgridinformation.info/pdf/4516_doc_1.pdf
• Global Smart Grid federation
– www.globalsmartgridfederation.org
• EDSO for Smart Grids
– www.edsoforsmartgrids.eu/
A book :
• Fox Penner Peter (2010) Smart Power. Climate Change,the
Smart Grid, and the Future of Electric Utilities. Island Press.
O.CATEURA. Grenoble EM. 2012/02.

40. Smart Girds : Toward which
Business Models ?
Olivier CATEURA, PhD. Professor of Strategic Management, Grenoble Ecole de Management
Head of the Advanced Master (MS) in Energy Marketing & Management (GEM & G-INP)
+33(0)6.75.07.73.16 – olivier.cateura@grenoble-em.com
BEST - Winter School / Minatec. Grenoble, February 2012