ENERGY FINANCE


ENERGY AS EXCHANGE


As the design of energy grids will go from the centralized model to the decentralized model, there will occur a linear demand for decentral power exchanges. These decentral power exchanges will be the public market place for local/regional power demand/supply. The business model of power companies will due this decentral generation/harvesting model change severely. Their USPs (generating, distribution, billing and collecting) are undermined by this decentral heading changes. The future of the current power companies (if there is one) is adjusting to these new realities. A strategical choice between huge central fuel based (coal/nuclear), huge central fuel less (geothermal) or voluminous small decentral (gas, wind and PV) in terms of power generation. There is also a strategic choice between generating or selling power. These two classes of strategic choices determines the future fate of the current power companies. And in both classes they are mega ships that can't adjust directions/strategies as fast as needed. They almost occupy the current market, have the equity and have access to market capital but these 3 huge wind falls will not give them automatically a good position in the near future. The changes they face are paradigmatic and paradigmatic changes always comes with a lot of risk for the existing dominating market parties. See this similar to the rise of the Internet and the old media/contact industries like newspapers and broadcasting industry. Maybe it's even safe to say that the leading market leaders before paradigmatic change are not the leading market parties after a paradigmatic change. From the business model perspective (so regardless the type of fuel or the absence of fuel need in the renewable energy model) the two main changes are 1) the new decentral input and 2) the new pure power selling parties. Two completely new 'competitors' that change influence the traditional business model severely. If the old market dominating parties will survive in this new setting is completely up to them. The ones that recently have chosen for new coal and nuclear investments are toasted: they just don't understand the concept of PeakCoal and PeakUranium, nor the by increasing demand feed market supply tension. The old concept of PeakOil is wrong, it's developed by people out the upstream market. The new concept of PeakOil is that demand will out-phase supply before supply has peaked. More people, more prosperity, more purchase power will cause this. So the old energy business model is unter siege. From energy sales perspectives there will be a lot of new sales parties on the energy markets. Not only new dedicated energy parties, but also 'virtuals'. Virtuals are huge customer based characterized market parties in other sectors (banking, retail, media, political parties, unions, etc) that want to earn an easy buck on this basic commodity. Virtual can also be ethnic (just like we have faced emerging ethnic marketing in telecom, we'll see this also in power and all other 'enduser commodities'. For the energy supply perspective their will be a large volume of small decentral suppliers. These two changes will come together in what we can call 'energy democracy'. Like in all industries the whole old structures are wiped out. This has happened on the Internet (Web 2.0: the user has become the biggest content supplier, see for example Facebook, and the user driven content has conquered the largest share in 'media consumption time', leaving the old information distribution model with sharp declining media consumption time ('traffic') and by that with less subscription and advertising income. We see this development in telecom, where virtual mobile operators (like Tesco) have gain a lot of market share based on their large customer base in other markets. We will see this a lot more in telecom, as numbers will come free available (like domain names, or -very valid- as domain name: people like words, not numbers) and people will chose their own 'inbound' and 'outbound' telecom providers (of even depending on the destination which will be attached the contact details in their phonebook). We see this also in the music industry, where the old record companies will be replaced by a each artist it's own audience powered by the users 'user delivers users' concept and paid by new types of ecommerce, even till Sellaband like initiatives (where the fans funds the new production of an artist). We see this also in stock trading by the rise of trading platforms for the enduser, bypassing the old and expensive structure. We will see that in banking (people will decide what the financial should do with their money). We will see that in the pension fund industry: the old times that a 'wise' fund manager decides on investment are soon over: people will draw their own pension build-up plan and use new digital structures to handle this (user driven capital streams). The wise men has made too much mistakes to justify their interference. Back to energy. Generation will become for a certain part (how much nobody knows) decentral. Trade will move to virtual brands with transparent engines. For the 'import' of power from higher levelled grid structures there will be green power brands, nuclear fission power brands, geothermal power brands (the concept of economic democracy). Just in in object orientated programming their will be isolated and thereby easy accessible 'functions' that together makes the new energy business model. The local/decentral power grid will have an exchange where supply and demand will meet each other in automatic and manual trading. As the price of power rises the price of power will go 'live' (different price per location, per hour of the day, per day of the week, per day of the year). Than two things will happen: 1) households and companies will start to use energy management (using certain processes as the power is cheap) and will have units to manage this. These units will be connected to a XML live data feed from the local/decentral power grid. Besides the grid and the exchange there will be professional parties that takes care of making purchase 'profiles' (a set of what if / do that rules). In the internet world the exchanges are build by market parties that want to initiate an exchange. For power the municipals will initiate exchanges, will stimulate local power generation/harvesting and will insure multiple external power feed redundancy (now sometimes a city/village has only one power feed and by this no redundant power supply). Planck Foundation together with Open Foundation will develop an open source local power exchange model. There are certain privacy issues, but they must be addressed political (more technology and more government is a bad, very bad development, delivering a more 'effective' digital version of the DDR, that will lead to less innovation as out of the box thinking will become risky). Energy as Exchange gives power generators and harvesters the best possible market and market price for their product and they can initiate customer preference serving groups/companies. Energy as Exchange gives the energy deficit households, companies, municipals, regions, nations and continents the power they need for the best possible actual market price. Also long term (not spot price based) energy demand/supply can be traded. But they will be more and more only guarantee the supply/demand and the live price will be used for invoicing. Energy as Exchange is a concept capable of generating a massive energy transition investment wave.


Author: Gijs Graafland


Back to index page of Energy Economics | Energy Finance


Download the full Energy Economics report in PDF