Keystone electric utilities should be developing new business models that enable them to decarbonise and remain profitable in a low-carbon world. This module assesses the maturity of the new low-carbon business models the 50 companies are developing, examining profitability, business size, project growth and deployment schedules.
Company actions are categorised based on Accenture’s Low Carbon, High Stakes report, which identifies five business models through which companies can significantly reduce greenhouse gas emissions and capitalise on billions in saved costs and new revenue.
Most companies received some points on this module, though only eight companies received 100%. Points were awarded based on a company’s most mature business model (to not penalise those companies developing multiple new business models). Of the eight companies that received 100%, seven of eight are Europe-based. This suggests this region has progressed furthest with developing profitable business models for a low-carbon world. As the growth potential and deployment schedule of these new low-carbon business models was assessed, Europe-based electric utilities’ high performance may reflect their greater transparency on forward-looking plans, which was often lacking in other regions, particularly China.
The most common and mature business model pursued was becoming ‘large-scale low-carbon electricity generators’ (see our fifth key finding). Under this, electric utilities shift their portfolio to renewable or nuclear electricity generation, which may be enabled by developing new technology expertise, using an internal carbon price and retailing green energy tariffs. This offers huge financial opportunities to electric utilities; 19 of the companies are scheduling the expansion of this business model with targets to increase their renewable capacity. The growth of this business model is expected to be huge. For example, China’s giant State Power Investment Corporation is targeting an expansion of its low-carbon capacity to 132 GW by 2025 and 202 GW by 2035.
The second most mature business model was ‘energy-as-a-service provider’. Unlike the traditional electric utility business model, which sees electricity sold as a commodity, energy-as-a-service-providers focus on selling services and products that help customers increase energy efficiency and smart management. Some electric utilities assessed are rolling out the smart meters and smart grids which enable energy services, e.g. Taiwan Power, which is targeting smart management and smart service coverage of 82% in Taiwan by 2030. Others have set up dedicated energy services business units, such as EDF’s Solutions Energétiques or CEZ’s ESCO.
The ‘flexibility optimiser’ business model was also being pursued by several companies, though it was often rated as being less mature on size, growth potential and deployment schedule indicators. At least 17 companies in the sample have been developing battery storage capabilities, which help to make it easier to use renewable energy to meet peak demand. Companies from the USA have progressed furthest in developing this, e.g. NextEra Energy which has more than 140 MW of battery storage in operation. At least 15 companies in the sample were also developing electric vehicle charging infrastructure and services.
Far fewer companies were pursuing the ‘local low-carbon energy access provider’ and ‘carbon capture and use operator’ business models, which are largely still at the research or demonstration stages, rather than commercially viable. Utilities providing local low-carbon energy access encourage local deployment of low-carbon energy by providing products such as rooftop solar PV, microgrid infrastructure and maintenance services. For example, SSE’s distribution business is participating in Project Local Energy Oxfordshire, which is exploring how growth in local renewables, electric vehicles, batteries and demand-side response can be supported by local and flexible grid. However, this project is still in early stages and is reliant on government funding.
The ‘carbon capture and use operator’ model aims to reduce costs by using carbon capture and storage (CCS) technology to decrease regulatory costs associated with emissions or may use that carbon in industrial processes such as growing algae for livestock feed. CCS is referred to frequently in companies’ low-carbon transition plans as a way to decarbonise existing and planned fossil fuel assets. However, only nine companies were found to be developing this business model and all these projects were still at early stages of development. This is worrying as electric utilities are continuing to build new coal and gas generation assets with long lifetimes, which they state will be decarbonised using CCS technology. Additionally, 46 of the 50 companies assessed are expected to reach negative emissions by 2050 under the well-below 2 degrees scenario. This means they are expected to be removing more CO2 from the atmosphere than they are releasing, but this is likely to be highly reliant on the development of CCS technology.