Embedded networks pose a growing revenue risk to regulated utilities around the world, especially utilities that operate in densely populated areas with an increasing proportion of apartment buildings. Australia’s Energy Market Operator defines embedded networks as “private electricity networks which serve multiple premises and are located within, and connected to, a distribution or transmission system through a parent connection point.” Think of apartment blocks, shopping centres, retirement villages, etc.
The value proposition of an embedded network to an Embedded Network Operator (ENO) is they are buying electricity on behalf of all the people living and working within their network, therefore they have greater purchasing power to obtain lower electricity rates. The ENO can then sell the electricity, often at much lower prices than the regulated utility, to the consumer while still maintaining a healthy margin. In many cases property managers are already managing the power within a building, so it would be a natural next step for them to become an ENO, or partner with an ENO.
The other incentive for ENO’s to enter the regulated market is it results in new revenue generating opportunities. This is because the ENO will have a direct relationship with the consumer while the Utility is relegated to just dealing with the ENO.
I often hear utilities say the ENO concept will not take off in their market as they are regulated, and they are the only ones allowed to sell electricity. To that I say, this is a small policy change on the journey to competition. After all, in every market I am aware of, there are already situations where tenants pay rates that include Utility bills, so the precedent has already been set.
We’ve seen an explosion of ENO’s in Australia due to this recent regulatory change, both pure-play ENO’s as well as Retailers establishing ENO’s. The natural next step in what will quickly become a saturated market is to look overseas where regulated utilities are not positioned to respond quickly to new market entrants and where a growing proportion of residents live in apartments.
How are you approaching the increasing risk of embedded network operators entering your regulated market?
The information in this post has been extracted from my recent book utilidocs™: building blocks to a digital utility, which explores more than 100 services made possible by smart metering and demand response technologies.
#connectedera #digitalutility #smartmeters #demandresponse #opendata
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