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6th European Energy Forum

Conseil Français de l’Énergie | 2017

WHAT BUSINESS MODEL FOR

ENERGY IN EUROPE?

6TH EUROPEAN ENERGY FORUM: WHAT BUSINESS MODEL FOR ENERGY IN EUROPE?

2

Administrateurs du

Conseil Français de l'Énergie

(au 1er janvier 2017)

Bruno Léchevin

ADEME

Daniel Verwaerde

CEA

Patrice Geoffron

CGEMP

Jean-Bernard Lévy

EDF

Isabelle Kocher

ENGIE

Didier Houssin

IFP Energies nouvelles

Patrick Pouyanné

Total

Francis Duseux

UFIP

Olivier Appert, Président

François Ailleret

Jean-Marie Dauger

Pierre Gadonneix

Jacques Maire

Bruno Weymuller

6th European Energy Forum What business model for energy in Europe?

Paris, 22-23 May 2017

Copyright © 2017 Conseil Français de l'Énergie

Tous droits réservés. Tout ou partie de cette publication

peut être utilisée ou reproduite à condition que la mention

suivante soit intégrée dans chaque copie ou diffusion :

« Avec l'autorisation du Conseil Français de l'Énergie,

www.wec-france.org »

Directeur de la publication :

Jean Eudes Moncomble, Secrétaire général

Crédit photos © Conseil Français de l’Énergie

Publié en 2017 par :

Conseil Français de l'Énergie

12 rue de Saint-Quentin

75010 Paris - France


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SOMMAIRE

OPENING SPEECH 7

SESSION 1 - TECHNOLOGIES: WHAT’S NEW? 9

HOW DECENTRALISED TECHNOLOGIES HAVE CHANGED BUSINESS MODELS IN EUROPE

AND THE WORLD 10

1. New business models and a new competitive landscape 10

2. Industrial self-supply 11

ACCENTURE TECHNOLOGY VISION: FIVE TRENDS DRIVEN BY DIGITAL DISRUPTION 12

1. AI is the new UI 12

2. Ecosystem power plays 12

3. Workforce-marketplace 12

4. Design for humans 13

5. The unchartered 13

THE ITALIAN ENERGY DATA PLATFORM 13

1. SII: an integrated information system 13

2. Next steps 14

SESSION 2 - INDIVIDUALS AND COLLECTIVES BEHAVIOUR: NEW VALUES 18

DIGITAL: MY ENERGY MY WAY 20

1. Newcomers to the energy field 20

2. Digital technologies 20

PROSUMAGE OF SOLAR ELECTRICITY: PROS, CONS, AND THE SYSTEM PERSPECTIVE 21

1. The pros and cons of prosumage 21

2. Prosumage in Germany 22

3. Conclusion 22

THE EXPONENTIAL PROSUMER: A QUEST FOR PURPOSE IN A DIGITAL WORLD 23

1. The race for data 23

2. Adapting to a new environment 23

3. Open innovation 24

QUESTIONS & ANSWERS 24

SESSION 3 - ELECTRICITY: BUSINESS MODELS AND MARKET DESIGN

DIGITALISATION OF THE ENERGY SECTOR: CASE STUDY OF ESTONIA 27

1. Introduction of smart meters 27

2. Digitalisation 28

3. Discussion 28


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NEW BUSINESS MODELS TO VALUE FLEXIBILITY IN ELECTRICITY MARKETS 29

1. Changes to market design 30

2. Emerging business models 30

3. Conclusion 31

ENERGY TRANSITION OR ELECTRICITY TRANSITION? 31

1. Innogy overview 31

2. The challenge of system integration 32

3. The energy policy compass 32


SESSION 4 - CENTRALISED VERSUS DECENTRALISED 35

THE PERSPECTIVE OF A FRENCH DISTRIBUTOR 36

THE PERSPECTIVE OF A PORTUGUESE DISTRIBUTOR 38

THE PERSPECTIVE OF A FRENCH MULTINATIONAL 39

PANEL DISCUSSION 39


SESSION 5 - MOBILITY: WHERE ARE WE GOING? 45

ELECTROMOBILITY: NEW BUSINESS MODELS IN DEVELOPMENT 46

1. The electromobility challenge for energy 46

2. The market coordination solution 47

3. The contractual solution 47

4. Conclusion 47

CLEANER TRANSPORT AND MOBILITY: THE 'PROBLEM CHILD' OF CLIMATE POLICY 48

1. Emissions reduction 48

2. Five principal take-aways 48

3. Conclusion 49

GREEN MOBILITY: FOSTERING ENERGY (R)EVOLUTION IN TRANSPORTS 49

1. Natural gas vehicles 50

2. Electric vehicles 50

3. Conclusion 50


SESSION 6 - WHEN LOCAL AUTHORITIES BECOME SMART 53

UNLOCKING SMART CAPABILITIES FOR LOCAL AUTHORITIES 54

1. Smart cities 54

2. Key enablers 55

3. New business models 55


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GOOD DATA FOR SMART PLANNING: REGIONAL OBSERVATORIES SPEARHEADING THE

ENERGY DATA 56

1. The need for energy data 56

2. What's new? 56

PRESENTATION AND SELECTION OF REFERENCES ON CITIES 57

1. Cities at the heart of the energy transition 58

2. Case studies 58


SESSION 7 - WHAT NEW BUSINESS MODEL(S) FOR ENERGY? 62

THE PERSPECTIVE OF THE REGULATOR 63

THE ENERGY POLICY COMPASS 63

EVOLVING BUSINESS MODELS 64

DECENTRALISED VERSUS CENTRALISED SYSTEMS 65


CONCLUDING REMARKS 74


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Monday 22th May


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Opening speech

Olivier Appert, Chair, Conseil Français de l'Énergie

Good morning and welcome to Paris for this 6th European Energy Forum, devoted this year to the

question of business models for European energy systems.

We are clearly in the midst of a transition to a sustainable energy system. The energy sector today

therefore faces a certain number of major game changers.

First, a technological game changer: the digital revolution.

Second, an industrial game changer: the emergence of China and unprecedented levels of mass

production.

Third, a social game changer: a change in consumer behaviour with respect to energy use.

Fourth, a political game changer: the growing involvement of local territories around the world.

These game changers have a particular impact on two sectors – electricity and transport – that are

experiencing a strong growth in demand.

When it comes to the technological game changer, the digital revolution has opened up the possibility of

new services and new business lines based on availability of data. It represents a new ecosystem for

the creation of value. Energy production has already integrated the opportunities brought by

digitalisation. That is the case of big data for the shale production in the United States or the use of

predictive maintenance elsewhere. It also has an impact on consumption, with the optimisation of

motorisation and energy efficiency. Digitalisation has also led to the creation of new disruptive services,

with Uber being a case in point here. Finally, new players are emerging in the energy sector: the so-

called GAFAs with the Apple Car or the Google Car, and a large range of start-ups that seek to play the

role of integrators.

We also face an industrial game changer. Energy markets are increasingly global, and China has

emerged as a major technological and industrial player in this sector. This has led to an unprecedented

shift to mass production having a major downward effect on prices. It has also opened up new

perspectives for renewable technologies, which are highly favourable to decentralised production.

As renewables have a very low marginal cost, this considerably changes the mechanisms of price

calculation.

The social game changer means that these technological evolutions have changed the balance of

power between the producers and consumers of energy. Consumers seek to control their consumption


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and become active consumers. This has led to the development of self-consumption system and the

use of new payment methods such as blockchains.

The political game changer means that local authorities have now placed the energy transition firmly

within their priorities, be it in transport or urban planning. That is exemplified in the smart city concept.

They are also becoming a key player in the energy sector.

Clearly, all of these game changers also have an impact on the business models deployed by the

energy sector. What strategies will be deployed by players in this context? What is the role of the

regulatory framework? Are we witnessing a revolution or an evolution in the business model? Over the

next two days, we will have ample opportunity to delve into all of these questions, which are so relevant

to the energy sector today.

Jean Eudes Moncomble, Secretary General, Conseil Français de l'Énergie

Welcome to Paris to the 6th European Energy Forum, which will be held in French and English.

The Forum will be organised as follows:

• Session 1 will consider the emerging technological developments, including digitalisation and renewable energy, and their impact on business models – those business models represent the

underlying theme of our 2-day meeting.

• Session 2 will explore the issue of consumer behaviour.

• Session 3 will focus on electricity, in particular regarding the regulatory framework, which will have to take into account the technological developments explored above.

• Session 4 will be a workshop led by the World Energy Council where we will consider centralised versus decentralised electricity production within the so-called energy trilemma.

• Session 5 will consider the question of urban mobility, which will have a significant impact on the business models deployed by the energy sector.

• Session 6 will focus on the role of local authorities, in particular with respect to the collection of big data and the development of new business models.

• We will conclude with a Round Table summing up the 2 days of discussions, with particular emphasis being give to the game changers outlined by Olivier Appert above. It should allow us

to answer the question of whether we face a simple evolution in our systems or indeed a

revolution or paradigm change.

Before moving to our first session, I would like to thank Pierre Gadonneix, former Chair of the World

Energy Council, for his presence at our Forum.


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Session 1

Technologies:

what’s new?

CHAPTER CONTENTS

How decentralized technologies have changed business models in Europe and the world

Accenture technology vision: 5 trends driven by digital disruption

The Italian energy data platform

Questions & answers


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Session 1 – Technologies: what’s new?

• Jens Weinmann, ESMT Berlin Germany

• Emmanuel Fages, Accenture France

• Alessio Borriello, Acquirente Unico Italy

• Moderator: Mihkel Härm, World Energy Council Estonia Estonia

Mihkel Härm, World Energy Council, Estonia

This session will focus on the most important technological changes that we are likely to see in the

coming years. In addition, it will explore the new business models that these technologies will allow us to

implement.

Jens Weinmann, ESMT Berlin, Germany

HOW DECENTRALISED TECHNOLOGIES HAVE CHANGED BUSINESS

MODELS IN EUROPE AND THE WORLD

Germany is a pioneer in the global energy transformation. Many new business models emerge during

that process, and are worthwhile observing and analysing. Most importantly, incumbent utilities are

losing their dominance in the electricity sector. Germany, for example, now has over 1.5 million

prosumers who actively participate in the power market. This represents a paradigm shift that is

probably more revolutionary than the liberalisation of the market in the late 1990s.

1. New business models and a new competitive landscape

Traditionally, the energy value chain is made up of primary fuels, large-scale generation, trading,

transmission, distribution, retail and the final consumer. Today, we have added the large-scale

generation of renewables at one end of the chain, and the new prosumer at the other. The storage

market is also developing, although it still represents a huge untapped potential today. Other new

markets include energy performance contracting, demand response, and building efficiency. We can


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see that newcomers have been “nibbling away” the market shares of energy incumbents in all these

segments of the value chain.

In large-scale generation, companies such as Vattenfall, EnBW, Iberdrola or Dong Energy have

extended their existing portfolio to renewable energies, in particular wind power. In storage, we have

new players such as Sonnen-Batterie, Nest, Tesla, Qivicon or Innogy. In building efficiency,

new players such as REstore in Belgium or Getec in Germany are the dominant players.

In the “Smart Grid” and its connected IT infrastructure, major players are seizing opportunities to

capture this market, for example IBM, Deloitte, Cisco, or Omnetric (a joint venture between Siemens

and Accenture). These players pose a real threat to traditional energy incumbents due to their

expertise in systems integration and grid optimisation.

With respect to local initiatives or “civic power”, Germany has almost 900 energy cooperatives in

operation, which have already invested €1.2 billion in community power plants. Residents of urban

agglomerations engage in the “re-communalisation” of energy and transport services. In the period

2007 to 2014, over 230 municipal utilities bought back electricity and natural gas grids after the expiry

of concession contracts. A further 140 municipal utilities were newly founded as public service

providers. Berlin and Hamburg are two examples of local initiatives to re-communalise the distribution

network.

Bürgerwerke is an example how energy associations that are scattered across Germany bundle their

capacity. Over 50 energy cooperatives have joined forces to sell their renewable energy on the

wholesale market. Crowd funding is also being used, for example crowdEner.gy, which allows small-

scale, private investors to participate in energy projects. Urban dwellers can participate in initiatives

such as MieterStrom and QuartierStrom, which invest into decentralised power and heat projects in

larger cities like Berlin. Similarly, Sunride is another start-up that seeks to explore the potential of

renewable generation in an urban setting.

2. Industrial self-supply

The energy revolution also takes place in industry and commerce. A survey by the German Chamber

of Commerce and Industry suggests that around half of German industry has considered self-supply

in recent years. For example, ALDI has installed solar panels on 1,000 of its supermarkets, and BMW

has installed around 10 MW of wind energy in its electric vehicle manufacturing plant in Leipzig,

representing 20-25% of the energy consumption of the entire Leipzig plant.

In the area of building efficiency, Envio Systems is a start-up that has developed a solution for the

retrofit of commercial buildings. Bankymoon, a South African start-up, provides digital services based

on bitcoin transactions. TransActive Grid also uses a blockchain-based microgrid to provide a

platform for peer-to-peer trading to consumers in New York.

There are many other new opportunities currently emerging related to the Internet of Things and

machine-to-machine communication. There is a real possibility at hand that decentralised,

autonomous and self-organising micro grids represent a future trajectory for the electricity grid.


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Emmanuel Fages, Accenture, France

ACCENTURE TECHNOLOGY VISION: FIVE TRENDS DRIVEN BY DIGITAL

DISRUPTION

Accenture employs 400,000 people around the world. It is made up of five main departments,

including Accenture Strategy to which I belong.

I will focus on the major technological trends to have emerged on the basis of digital disruptions,

and their potential impact on today’s energy business models. There are five main trends that are

expected to emerge in the next 5 to 10 years. These are not a question of science fiction but are

already becoming a reality.

1. AI is the new UI

Artificial intelligence (AI) will increasingly play a crucial role in the way that companies function and in

the way they interface with their customers. Our top 3 predictions for this trend are as follows.

In 5 years’ time, more than 50% of customers will select a company on the basis of its AI rather than

its traditional brand. In 7 years’ time, most interfaces will not have a screen but will be integrated into

everyone’s daily tasks. In 10 years’ time, digital assistants will be so pervasive that employees will be

productive 24/7/365. These digital assistants will operate in the background of all workplace interactions.

2. Ecosystem power plays

Tomorrow’s business models will be based on platforms. Companies are increasingly integrating their

core business functionalities with the platforms of third parties. Our top 3 predictions here are as

follows. In 5 years’ time, the majority of customers will be purchasing goods and services through a

digital intermediary, for example messaging platforms and smart assistants. In 5 years’ time, 80% of

S&P 500 companies will be engaged in multiple industry ecosystems. In 7 years’ time, one of today’s

industry leaders will have transformed into an ecosystem spanning multiple markets

3. Workforce-marketplace

Talent management will occur through marketplaces and freelancers will abound. How employees are

dealt with in terms of managing talent or human ressources management will occur in a more

customised manner. Our top 3 predictions here are as follows. In 5 years’ time or less, our judgment

of full-time employment versus freelance work will have changed completely. In this context, it is

estimated that in 15 years’ time, half of US workers will be self-employed, providing their services via

talent supply platforms. In 5 years’ time, new dominant leaders with business structures based on

small cores and powerful ecosystems will emerge. In 5 years’ time, on-demand labour platforms will

be the primary driver of economic growth in both developed and emerging economies.


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4. Design for humans

It will be possible to personalise the full range of products and services, at no extra cost to

companies. This concept of customisation will completely change our methods of production.

In 5 years’ time or less, governments will collaborate with businesses to drive sustainability shifts in

societal behaviour. By 2022, multinational organisations will introduce employee-facing technologies

that are able to identify when a worker is frustrated and then alter the style of feedback or guidance

automatically delivered to that worker.

5. The unchartered

Transactions will become completely decentralised, with a more peer-to-peer approach. Businesses

will not simply create new products and services; they will shape new digital industries.

Within 3 years, industry boundaries will vanish for companies like Tesla which have mature digital

strategies in place. By 2020, entire ecosystems will require the use of smart contracts in order to

participate. Within 5 years, new performance-based contracts will be used between parties.

These smart contracts will self-govern and self-execute. We have labelled this trend “the unchartered”

as we do not yet know just how quickly all of this will evolve. Nor do we know when these new

business models are likely to emerge.

If you require further information on these trends, I would invite you to consult Accenture’s online

report that addresses all of these matters in greater detail – Accenture Technology Vision 2017:

AMPLIFYOU.

Alessio Borriello, Acquirente Unico, Italy

THE ITALIAN ENERGY DATA PLATFORM

I will present our company’s developments over the past 5 years. With the full opening up of electricity

and energy markets, the number of operators involved in the switching process boomed from a few

dozen to a few thousand. Operators were using their own systems to manage this process, leading to

a situation where we had over 350 different standards in operation. A major communications issue

therefore arose between distributors and suppliers, and we had a total lack of completeness in our

consumer identification data.

1. SII: an integrated information system

To address this issue, a new tool was introduced into the Italian market: the Sistema Informativo

Integrato (SII) or Integrated Information System, a set of technological infrastructures and technical

rules for sharing, integrating and exchanging data. It was aimed at ensuring the uniformity of

treatment for all operators, guaranteeing data flows, allowing the simplification of processes, and

reducing costs for operators and consumers. It facilitates the exchange of data flows among


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distributors and sellers, thereby making the switching process more efficient and rapid. This also

reduces entry barriers for new suppliers, and will allow customers to have full access to their data.

However, SII is not only a technological infrastructure; it is a focal point of connection for the systems

in the market. It is currently working at over 2 million operations per month for approximately

3,000 users. We can count flows of approximately 20 billion metering data to actors in the sector.

The authorities are already using this database for a wider range of matters. It has, for example, been

used to almost totally prevent the evasion of the Italian TV tax, with the amount of tax collected

increasing from €1.5 billion to €2.2 billion.

2. Next steps

The huge amount of data collected raises the question of what can be done with all this information.

We believe that data can be used for public policies or commercial purposes.

On the public policy side, the data has already been used as a proxy to tackle tax evasion or to

provide bonus payments. For example, low-income families are able to request a discount on their

electricity bills but, in practice, only about 35% of those who are potentially eligible actually submit a

request for the discount. By integrating the database with information on family incomes and profiles,

eligible consumers could automatically receive a discount on their bill, without having to submit an

application. That would be a major development in tackling energy poverty.

On the commercial side, there is clearly considerable potential for the data collected. To date,

consumers have not shown a desire to use the information at their disposal. Going forward,

the availability of data will hopefully allow consumers to fully understand their consumption paths.

This will enable them to become active market players, shaping the market according to their needs.

We therefore have to make data available to consumers in a manner that can be easily understood.

This will become increasingly important as Italy deploys its new generation of smart meters.

Once fully deployed in three years’ time, the SII will handle approximately 7,000 billion metering data

per year.

The regulated availability of data by operators will give suppliers the opportunity to better shape their

offers. Knowledge of consumption profiles will boost effective commercial policies and allow new

innovative entrants into the energy market. A world of innovative companies is already exploring the

use of this data, and the regulators have a relevant and challenging role to play in this transition.

In order to develop our system as a driving force for change in the energy markets, we aim to provide

our technical support to the government so as to protect the interests of both consumers and

companies. Italy has recently implemented data access for customers. At the same time, privacy

authorities are working toward a solution that will guarantee data protection and commercial

development.

The ultimate aim is that the liberalisation process will achieve the creation of a consumer driven

market. We are still in the early adopter phase of this process, and have not yet reached critical mass.

QUESTIONS & ANSWERS


You referred to the emergence of new companies that are “nibbling” away at the market share of

incumbents. Will that also be the case for the grid itself?


On the one hand, we will continue to need a transmission grid at the national or regional level. At the

municipal level, though, different options will emerge, for example a residential unit could become a

micro unit in an increasingly autonomous network. There is a real possibility that the grid will become


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less important with time. However, I believe that a significant portion of the system will continue to

require a grid, in particular in the urban context.


You mentioned the emergence of ecosystem companies in all sectors. Will these be based on

existing incumbents or will we see entirely new companies emerging in the energy sector?


Today’s incumbents have understood that the future does not lie in historical sources of value,

and they are trying to react to that notion. Are they best placed to set up this kind of ecosystem?

Not naturally, and it is very difficult to know if they will indeed succeed in doing so. Companies such

as ENGIE are already thinking in terms of platforms but we do not yet know if they will manage to do

this more rapidly or successfully than the newcomers.


Will smart contracts also be part of Italy’s data platform?


The data platform should help develop these new contracts. Companies do not know enough about

their customers today, and they need to better understand the way their customers consume energy.

The huge amount of data we are collecting should allow them to do that


Are there any start-ups active in this field?


The aggregators are currently still in their infancy stage. A company such as Next Kraftwerke has

been able to bundle a range of small players serving both supply and demand. A number of

consulting firms are also trying to enter this market, and we are seeing the evolution of completely

new types of business. As the barriers to market entry in the digital world are much lower than before,

the energy sector is very likely to be a market of great interest in the future.


A company in Germany is already providing these types of services for small business. In a next step,

the aim is to do so for households or individual buildings.

Isabelle Vincent, ADEME, France

We expect much change from the digital revolution, for example the new information available should

allow consumers to understand and change their consumption behaviour. However, sociological

studies in France have shown that providing information to consumers is not enough. They also need

human guidance to really change their behaviour. Have other countries given thought to the need for

both digital platforms and human intervention? In Germany, for example, it would seem that both are

being provided, and that this was crucial to success.


The situation in France is quite different from Germany due to the fact that energy has always been

much cheaper in France. In Germany, industrials have been producing their own energy in a more

decentralised manner for some time. It is therefore easier for German customers to move to an even

more decentralised format.


I would respond on the basis of three narratives of the smart city. First, the innovation narrative.

We can all benefit of technical innovations that facilitate communication and allow for the optimisation


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of, say, transport flows or energy use. Second, the empowerment narrative means that people,

enabled by digitalisation, can actively participate in communal life and collectively shape it according

to their ideas and visions. Third, the control narrative. There is considerable commercial – and

sometimes political – interest in data generated by the smart city, but we have to find societal

consensus where the limits on sharing and using that data should be.


The situation in Italy is quite similar to that in France. There are two trends at work here. On the one

hand, certain consumers want to do things for themselves with a high level of personalisation. On the

other hand, other consumers will require assistance and guidance. This raises the question of

whether or not it is possible for a supplier to provide such guidance. It could be that innovation helps

suppliers in this endeavour, and there is much that could be explored here.

Olivier Appert, Conseil Français de l'Énergie, France

Electricity represents only 20% of the world’s final energy consumption, and energy efficiency is

emerging as a major issue today. Is there anything new in technological terms with respect to energy

efficiency in industry, buildings or transport?


Much has already been done in the energy efficiency sector to date, especially in the developed

world. The next stage is represented by load management (demand response) companies: these

already actively manage load demand for large industrials and they are now moving toward smaller

users. This next stage in energy efficiency is being enabled by new technologies. In transport, energy

efficiency will be achieved through an improvement in engines and the production of lighter cars.

We will also have to see the impact of new transportation technologies such as e-mobility.

In buildings, infrastructures are constantly being upgraded to produce their own energy and reduce

energy consumption through sensors and the Internet of Things.


Assuming that a major part of our electricity supply will come from renewable energies in the future,

there will be hardly any CO2 emissions linked to heating, air conditioning and ventilation if they are

fueled by clean power, especially with more efficient storage systems. Regarding mobility, China is

moving very fast on regulation to accelerate mass deployment of electric vehicles. The main initiatives

in this area will not come from our part of the world, but from emerging economies, such as China and

India. They will act as a trigger to drive mobility into different directions.


Energy efficiency cannot in fact be measured in Italy, and the information we have is based on

statistical methods only. Going forward, we could try to better measure the results of energy efficiency

actions taken. Using the huge amount of data available from our meters could help to suggest

different ways of using electricity and gas in consumers’ everyday lives. That information could also

be used to help develop energy policies.

Einari Kisel, World Energy Council, United Kingdom

In a context of such very fast moving technologies, what role should policy makers play? Should they

continue to draft new regulations for the new technologies as they emerge or should they simply give

up?


This question on the regulations is clearly central to our discussions. Regulators are keen to allow

changes if they understand who is in control. In blockchain, for example, the real question is who is

writing the algorithm. In Europe, it would be impossible to see any major change without the support

of the authorities.


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The energy policy triangle fluctuates between security of supply, environmental sustainability, and

affordability/efficiency. Whenever we go too far into one dimension, the others are neglected.

There will therefore always be some need for intervention.


This is a difficult question. We need regulation to set the scene for what is possible. At the same time,

it is necessary to have both visibility and stability. We therefore need regulators that understand the

decision-making processes of the players involved in this industry.

Denis Bach, GEM, France

I have a question with respect to the blockchain concept. How does this actually work in practice?

How are payments made? Do users have access to information via an app?


Jens Weinmann will provide you with this information over the coffee break. I will now close this

session and thank you all for your participation.


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Session 2:

Individuals and

collectives

behaviour:

new values

CHAPTER CONTENTS

Digital: My Energy My Way

Prosumage of Solar Electricity: Pros, Cons, and the System Perspective

The exponential prosumer: a quest for purpose in a digital world

Questions & answers


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Session 2 – Individuals and collectives behaviour: new values

► Alain Chardon, Cap Gemini France

► Wolf-Peter Schill, DIW Germany

► Caroline Flaissier, Total France

► Moderator: Marco Margheri, World Energy Council Italy Italy

Marco Margheri, World Energy Council, Italy

I am very pleased to be participating in this meeting in France, a country that is currently leading a

wave of innovation in Europe. I will begin with a most abused quote in the energy sector, by OPEC

founder Sheikh Yamani. When asked if the lack of oil would lead to the end of the Oil Age, he replied

that humans did not move on from the Stone Age because they ran out of stones. Rather,

they stopped using stones due to a change in technology and behaviour.

Today, the Oil Age is progressively sliding into a new era. The factor that is still lagging behind is yet a

change in behaviour. That is, we already have the evidence of technology. 21 April 2017 was the first

day in history after the Industrial Revolution where the United Kingdom could spend 24 hours without

burning a single unit of coal for its electricity. In Italy, over ten years, the national transmission system

operator moved from having fewer than 1,000 inlets in the power grid to over 700,000. In Germany,

only roughly 1,000 hours were re-dispatched in 2014. Last year, around 8,450 hours required re-

dispatching. We are therefore clearly moving ahead in terms of technology.

However, are we already reaping all the opportunities of new business models? Hard to say so.

In February 2014, when Google acquired Nest, the industry thought that the world of traditional

utilities was soon to be over. In reality, it didn’t prove right and that ended up being a very

unsuccessful operation on Google’s side, probably due to an issue of behaviour and pace of change

in society. Business models and behaviours are therefore not moving ahead as rapidly as technology.


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Alain Chardon, Cap Gemini, France

DIGITAL: MY ENERGY MY WAY

I have worked in all fields of this sector, from generation, grids, supply and energy services. My point

of view is therefore that of an engineer, but I also have a more systemic view of the entire market and

its users.

The energy transition is based on consuming less, consuming better, consuming the right energy, and

flexibility – for electricity but also for heat and on. The key challenges for the energy transition are

therefore concerned with moving consumers and the industry around these four dimensions.

1. Newcomers to the energy field

We are seeing many newcomers in the energy field, in particular when it comes to electricity.

My clients were the usual players in this field: utilities, energy service companies, and equipment

makers. The newcomers include solar players who are going far beyond simply supplying smart

meters to their customers. Electric vehicle carmakers are also entering the market. Nissan, for

example, is now a major producer of electric batteries. In the future, Nissan Energy will propose smart

metering and smart home management. Other newcomers include supermarkets who are also

moving strongly on energy efficiency. All of these newcomers have succeeded in achieving the trust

of consumers.

When it comes to market segmentation, approximately 20% of households are ready to buy green for

environmental reasons. Another 20% are ready to change their behaviour if they gain an economic

advantage from doing so. 40% of households are simply followers, and a final 20% do not want to

bother with these issues at all.

In the past, electricity was a black box. Meters were read once per year and no one really knew or

was interested in knowing what it all meant. When smart meters were introduced, it was hoped that

they would lead to a reduction in consumption. However, even more importantly, smart meters will

provide visibility for electricity and that will be the real factor to drive change.

2. Digital technologies

Digital technologies are already leading to an evolution in the way that utilities and other players

construct their offers. For example, ILEK is a French platform for local electricity generation.

Consumers increasingly want to have access to local energy, rather than green energy per se,

and this is a very new idea on the market. ENERCOOP also provides energy close to the home,

and sells both electricity and energy savings. ekWATEUR is all about being digital and being local.

Direct Energie provides a standard green offer. ENGIE is more concerned with behaviour.

We can therefore see that, thanks to digital, all of these players are able to provide a mix of offers:

electricity from the grid, green electricity, energy efficiency, and so on. Digital also means that they


21

are able to adapt their offers to consumer profiles. In the past, electricity was like a Ford T – you could

choose any car you wanted as long as it was black. Going forward, digital means that offers can be

highly customised. A recent Danone advertisement for yoghurt states that what it does on the inside

can be seen on the outside. Similarly, digital is not only concerned with making it easy to buy a

product online. It is also concerned with social media, mobility, analytics, prediction, the cloud and so

on. As such, digital means that consumers are able to buy energy in a way that reflects their own

profiles.

Marco Margheri

We have heard two very striking ideas. First, the move toward segmentation, customisation,

localisation and personalisation is really changing the way the energy sector works. Second, energy

has been ramped up in customers’ conversational agendas.

Wolf-Peter Schill, DIW, Germany

PROSUMAGE OF SOLAR ELECTRICITY: PROS, CONS, AND THE

SYSTEM PERSPECTIVE

I will be focusing on a recent article published in Economics of Energy and Environmental Policy

2017, which provided a qualitative discussion of prosumage from an economic perspective. It also

provided a quantitative illustration of selected system effects. Prosumage is potentially an important

driver of change in the electricity sector. We can draw on our article to explore the question of what

drives individuals – and partly also policy makers – in favour of prosumage.

Prosumage is defined as a combination of the PROduction of renewable electricity, the conSUMption

of self-generated electricity, and storAGE to temporally align supply and demand. Prosumers produce

their own renewable (PV) electricity at some times. At other times, they draw electricity from the grid,

they feed electricity to the grid, and/or they make use of battery storage.

1. The pros and cons of prosumage

The pros and cons of this concept will depend on whether one takes the perspective (a) of

consumers, (b) of the incumbent industry or emerging players, or (c) of the electricity system.

The arguments in favour of prosumage include, amongst others, the following:

• Consumer preferences for local renewable energy solutions or self-generation. There is some empirical evidence for this from international studies, in particular in Germany, but it is not

completely clear if this applies to a majority of consumers or only to a small niche.

• Participation in and acceptance of energy transformation. It is hoped that decentralised infrastructures could mitigate some of the perceived problems of centralised grid

infrastructures such as transmission expansion projects. Prosumage is also seen as a way of

realising the PV potential of rooftops.


22

• Lower and less volatile electricity costs. This is a key selling argument for PV battery storage systems – yet it is only valid from a consumer perspective and not necessarily from a system

perspective. In addition, it is only true for the self-generated share of electricity.

• Distribution grid relief. The distribution grid benefits will depend heavily on the way the battery is operated.

Other arguments in favour of prosumage include the activation of private capital; improved system

flexibility, sector coupling and energy efficiency; transmission grid relief; increased competition; local

benefits; and political economy and new institutional arguments.

The arguments against prosumage include:

• Efficiency losses as compared to centrally optimised power systems. Prosumage systems tend to be sub-optimal both with respect to investments and dispatch. They can lead to the

setting up of redundant infrastructures.

• Distributional impacts. First, there is the question who is able to engage in prosumage. If only those who are well off enough to own a rooftop are able to engage in prosumage, this can

lead to distortions. Second, there is a potentially regressive effect related to volumetric grid

charges and other surcharges for electricity drawn from the grid. This is also related to the so-

called “utility death spiral” phenomenon: the same grid costs are increasingly allocated to

fewer and fewer customers, creating further incentives for self-consumption. Yet to put things

into perspective, the size of the prosumage market segment is relatively small and its

distortionary potential is therefore not very large.

Other arguments against prosumage include rebound effects; path dependency; and concerns about

data protection and remote control.

2. Prosumage in Germany

Germany has both indirect and direct support mechanisms for prosumage. Indirect support is related

to recent developments in feed-in tariffs (FITs), the levelised cost of PV electricity (LCOEs), and

household tariffs. Traditional consumers pay volumetric grid charges and a volumetric renewable

energy surcharge. These charges do not apply to self-generation. In recent years, there has been a

strong decline in FITs and LCOEs as compared to household tariffs, which provides increasing

incentives to engage in prosumage.

In addition, Germany provides direct support for prosumage. The “KfW Programme 275” provides

subsidised loans and investment grants for PV storage systems. This programme is linked to

conditions that incentivise the system friendly design of installations. This has led to substantial

deployment in Germany. As of 2015, every second new small-scale PV system was installed with a

battery. As of January 2016, there were approximately 34,000 such systems in operation, a figure that

has risen to around 60,000 today. Moreover, there is substantial additional potential when increasing

PV capacities drop out of the support scheme after the mid-2020s.

3. Conclusion

In conclusion, prosumage is still a niche in Germany, but one that is growing strongly. Ongoing trends

in battery costs, household tariffs and feed-in tariffs could drive prosumage even further in the future.

Large PV capacities will drop out of support schemes before the end of their technical lifetimes,

and these are likely to be equipped with batteries. At the same time, it is not clear how the regulatory

framework will evolve with respect to FITs, grid fees, and grid codes.

It would be of value to have more research to quantify the effects of prosumage, as the empirical

evidence is rather weak today. Finally, model illustrations show the importance of system friendly

prosumage behaviour. Regulation should therefore aim at making the flexibility potential of these

systems available to the fullest extent possible. As such, prosumers should receive the right price

signals, either directly, or indirectly via aggregators.


23


Thank you for that systems perspective, which highlights the importance of political implications and

social beliefs.

Caroline Flaissier, Total - Gas, Renewables & Power, France

THE EXPONENTIAL PROSUMER: A QUEST FOR PURPOSE IN A DIGITAL

WORLD

Everyone in this room has a point in common. We all want to address a number of key challenges:

demographic challenges, economic challenges, and environmental challenges. In 2016 Total set up

its Gas, Renewables and Power branch, aimed among others at developing new solutions for our

Group in this area.

1. The race for data

According to research by Deloitte, 8 out of 10 people check their phones less than 15 minutes before

brushing teeth. 52% of users check their phones less than 5 minutes before they go to sleep.

This means that enormous amounts of data are being generated, and we face a huge challenge with

respect to what can be done with that data.

Today, the GAFAs (Google, Amazon, Facebook, Apple) are driving this data race. These companies

are setting the marketing and customer relationship standards as we move forward. In the past, we

spoke about customer profiles, had different customer segments, and so on. Today, that is no longer

the case and our focus has shifted to customer behaviour. We ask ourselves, “what does our

customer like?” To answer that question, we have to know more about our customers and the way

they consume, and we have shifted from CRM systems to data management platforms.

2. Adapting to a new environment

Traditional companies are having a hard time adapting to this new state of affairs.

Customer satisfaction is down, as customers search for a genuine customer experience rather than

simply buying a product or service. Retail satisfaction in the UK fell from 78% in 2013 to 53% in 2014.

Customer expectations are therefore higher than they have ever been, and customers are more and

more demanding. They want to be able to take action on a multichannel basis. They want security,

reliability, efficiency, speed and flexibility. They want a seamless and simple process, and a

customised offering.

The customer also has certain beliefs. Some want local energy; others want green energy; some want

to be able to offset their greenhouse gas emissions; others want to produce their own energy or

engage in the production of community energy. We therefore have to be able to address all of those

beliefs and expectations.


24

We are moving toward a concept of purpose-driven companies, with consumers seeking meaning in

all they do. In a world made transparent, it is very important that the inside of a company is aligned

with its outside. This requires flatter corporate organisations, and greater transversality. It also implies

new management and human ressources practices, and increased openness. In summary, we need

to create a new type of ecosystem that is much more open to the rest of the world.

3. Open innovation

In this context, Total Gas, Renewables & Power is using open innovation as a key growth driver.

That means working with many new players and start-ups, and allowing ourselves the possibility to

fail fast to learn fast. By working together, we can learn much about our own business and accelerate

the creation of new start-ups. We recently launched a programme with a US accelerator and

companies such as Renault, FDJ, Groupama and Air Liquide. The aim is to accelerate 10 start-ups

each year in disruptive areas such as the Internet of Things, big data or blockchain, and so on.

We also launched our internal Innovathon in April 2017, which led to the identification of two new

products that can rapidly be included in our offers, as of this year.


Thank you for demonstrating that incumbents can indeed do things differently as fast-moving start-

ups to adapt to this new era.

QUESTIONS & ANSWERS

Carsten Rolle, Weltenergierat, Germany

I am rather confused. On the one hand, the electricity market is more and more segmented; it is no

longer a commodity in economic terms. On the other hand, there may not be as much differentiation

as we think. In addition, when it comes to investment – in particular households investing in PV and

storage (batteries) – they do so not on the basis of a rational economic decision. That is, consumers

are less rational when producing electricity than when they buy electricity from third parties. What are

the key success factors here? Why does price differentiation not work as well for regionally produced

versus nationally produced electricity? Why are these markets so different?


Customers want a lot of things, many of which are contradictory. However, who will ultimately pay for

all this?

Volahasina Rasendramalala, L2EP, France

Do you believe that the logo “My Energy, My Way” is an illusion? From a technical point of view,

we cannot really give the customer what they want; we can only give them a “more or less” solution.


As to the question of finance, we have to distinguish between 1 MW of centralised power and 1 MW

of decentralised power. In one case, we are dealing with corporate or state finance. In the other,

we are dealing with retail finance. A much bigger share of the total value therefore remains in the

financial system. That can create marketing opportunities but it has to eventually be factored into the

algorithm of whether or not the consumer benefits from this.

Wolf-Peter Schill, DIW, Germany

Regarding financing, in the current low interest environment, capital should not be a bottleneck for the

energy transformation. Nonetheless, the activation of private capital is a good thing and should not be

prevented. In general, consumers should receive the right price signals for the electricity they


25

consume from the grid and for the electricity they feed to the grid. Otherwise, good capital may be

raised for inefficient investments. Consumers may not always be rational, and some early adopters

have invested in storage systems that are not economic. The evidence suggests that there may be a

more or less silent majority that does not really care about these new ways of engaging on energy

issues.

Caroline Flaissier, Total - Gas, Renewables & Power, France

The finance needed to start a new business often comes from corporate sources. Digitalisation will

add an initial cost to that, but will significantly lower downstream costs such as customer support.

As to what the customer wants, they want it all: lower costs, more customer services, greater

flexibility, ease of use, low-carbon solutions, and so on. This is the case for customers worldwide, and

it is up to us to find a solution to that.

Alain Chardon, Cap Gemini, France

Is electricity a commodity or not? Today, we are still not seeing what we consume. When we are able

to do that, it will be less and less of a commodity: the more we know about the electricity we are

buying, the more we can make decisions about it. As to how the transition will be financed, there are

two questions that we must address. First, what is the intrinsic value of the change? Second, what

can it contribute today according to existing business models?


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Session 3

Electricity:

business models

and market design

CHAPTER CONTENTS

Digitalisation of the Energy Sector: case study of Estonia

New business models to value flexibility in electricity markets

Energy Transition or Electricity Transition?

Questions & answers


27

Session 3 - Electricity: business models and market design

► Karla Agan, Estonian Energy Estonia

► Fabien Roques, Compass Lexecon & Université Paris Dauphine France ► Volker Stehmann, Innogy Germany

► Moderator: Jean Eudes Moncomble, Conseil Français de l’Énergie France

Jean Eudes Moncomble, Conseil Français de l’Énergie, France

This session will be dedicated to the link between business models and market design, specifically

within the electricity sector.

Karla Agan, Estonian Energy, Estonia

DIGITALISATION OF THE ENERGY SECTOR: CASE STUDY OF ESTONIA

Estonia has a population of only 1.3 million, so we don´t have a huge so-called budget at our

disposal. Estonians have a pragmatic mindset and are very smart about what we do.

Enefit is Estonia’s national, vertically integrated energy company responsible for mining, logistics,

generation, maintenance, power sales, renewables, distribution and energy trading in the Baltic Sea

region. Enefit has introduced digitalisation to all levels of its business, from production to the smart

grid, and sales & service, and this is changing the way our business processes work. Technology is

only the last step in this process: the real challenge lies in making the initial decision to change.

1. Introduction of smart meters

Enefit launched the “Industry 3.5” programme to improve the efficiency of its production chain.

In terms of the smart grid, Estonia decided to introduce smart meters to its entire network:

over 600,000 metering points. Estonia is one of the most liberal electricity markets, and switching

suppliers is extremely easy. All consumption data is collected in a central data hub that is managed

by the Estonian transmission system operator (TSO), as a neutral party. Every seller who wants to


28

enter the market is able to access customer data (with customer permission), and make a personal

offer on the basis of that data. As of 2017, the data hub also includes gas consumption data.

What was actually gained from this programme? First, network losses were reduced by 20%,

from 5.7% in 2012 to 4.1% in 2016. Customer satisfaction was increased from 39 points in 2012 to

52 points in 2015. Finally, customer inquiries were reduced by 50%. The whole smart meter

programme cost approximately €100 million but the investment pays off in less than 7 years.

Today, smart meters do not only measure consumption data. They can zoom into each consumption

point (household, town, village, region) and identify issues, which can then be communicated to the

relevant consumer. This enables preventive maintenance. In addition, the data can show us where

and when we need to invest in the grid. It can therefore optimise investment costs, further

demonstrating the excellent business case of this programme.

2. Digitalisation

The data hub is operated by the national TSO. It contains personal data on consumption, calculates

amperage levels, and provides tools for bundling electricity agreements. It is used by service

providers to build new services to customers.

Estonia has a very active market in which switching is easy. As market awareness grows, we can see

an increased proportion of agreements based on spot prices rather than fixed prices: one-third of all

electricity contracts today already use spot prices.

In terms of the retail business, the use of digital began in the 2000s. Today, 90% of all electricity

contracts are signed digitally. Over 90% of all invoices are sent and received digitally, and 30% of

consumers visit our e-channels at least once a month. We have also become more mobile: 8% of

customers have now downloaded the Enefit app, which will include a gas functionality later this year.

The app provides price updates for the next day, consumption history and data, price alarms, and

billing information and payments.

In summary, we have named our digitalisation experience “e-Energy”. Making this change was all

about policy and change management. The technology itself is in fact the easiest part of the process;

the real difficulty lies in developing the right regulatory framework and changing people’s mindset.

Estonia was able to set up the right regulatory framework to allow the market to function correctly.

Of course, doing that at the country level is a huge task, especially for bigger countries such as

France or Germany.

3. Discussion

Jean Eudes Moncomble, Conseil Français de l’Énergie, France

You noted the need for the right regulatory framework. How would you define such a network?


The right regulatory framework is concerned with putting incentives in the right place. If that is

successfully done, it will be clear exactly who is responsible for what. It is, of course, difficult to agree

on in-country or cross-country regulation. It would therefore be valuable to have case studies at the

local level that demonstrate the benefits of a given approach.

Volker Stehmann, Innogy, Germany

One-third of your customers are using spot based tariffs. How much do they actually save by doing

that?


29


It all depends on the time period being analysed. Nordic countries have had spot prices for the past

15 years, and these have fluctuated immensely. Sometimes the consumer wins; sometimes they lose.

Most consumers still prefer fixed prices, and we predict that it will be the case for many years.

Philip Lowe, World Energy Council, United Kingdom

Who has access to the consumption data from the smart meters? Is it necessary to regulate access to

data?


With the permission of the consumer any electricity seller can have access to the consumption data

for the purpose of preparing the sell offer.

Didier Sire, World Energy Council, United Kingdom

Culturally speaking, it would be difficult to practise spot prices in France. Did you experience any

reluctance from consumers in Estonia with respect to spot prices?


Initially, very few customers were willing to take the risk on the spot market. The difference for

consumers is probably only about €2 per month, which is quite negligible. However, larger consumers

and companies can save more. Frankly, consumers do not think much about electricity in their day-to-

day lives. It all depends on how informed the society is. In Estonia, we organised an active

information campaign for our consumers when electricity market opened. Of course, that is more

easily done in a small country.

Fabien Roques, Compass Lexecon & Université Paris Dauphine, France

NEW BUSINESS MODELS TO VALUE FLEXIBILITY IN ELECTRICITY

MARKETS

I will talk about new business models as they relate to changes in regulation and market design.

When we talk about digitalisation, we are in fact putting in place machines and processes that will do

things for us in our place. Regardless of whether we are using a human or a machine, we need a

signal to which that human or machine can react. That signal is pricing. We can therefore say that the

foundation of the new digital world is having the right price signals so that machines (and humans)

can react as desired. This is not just a question of technology. It is not just a question of business

models. It is a question of having the right price signals to react.


30

We are all aware of the “death” of the traditional business model for European utilities. The profitability

of the traditional business models has fallen in recent years, as margins upstream have collapsed due

to the drop in power prices. This has led to over €100 billion of impairments by companies since 2010.

This is not only a transitional trend but a structural issue that undermines the sustainability of

investments in generation.

1. Changes to market design

What changes in market design can we use to enable the energy transition? In the 1990s and early

2000s, the focus of policy makers was on the integration of EU wholesale markets. There was a

dominance of variable cost technologies, and a focus on optimising existing networks. Today, the

focus of policy making has shifted to (a) decarbonisation, and (b) security of supply. On the

technology side, the focus has shifted to decentralised generation and storage, both of which are

fixed cost technologies. Networks are deploying smart technologies and, on the market side,

the focus is on consistency between retail and wholesale markets.

When it comes to the upstream or wholesale market, we need a signal for short-term dispatch and

long-term investment planning. In the old world of vertically integrated utilities, both short-term

dispatch and long-term investment decisions were centralised. In the past 10 years, this has become

decentralised: prices on the wholesale side determine both short-term dispatch and long-term

investment. However, that is no longer true. 80% of European investments in generation have been

financed by long-term contracts. We are therefore in a hybrid situation based on decentralised price

signals and centralised planning processes, both of which provide short-term and long-term

coordination. Another dimension of that is whether we can provide consumers with direct access to

wholesale markets. In some countries, we have seen the emergence of aggregators who provide

such direct access. However, the vast majority of EU countries do not allow aggregators.

When it comes to the downstream or retail market, we need to decide on the price signals for

prosumers. The main issue we face is whether electricity will continue to be sold under commodity-

based pricing, or whether it will shift to service-based pricing. In a world of service-based

consumption, who will receive the price signal as the consumer will no longer care about the price of

electricity? We also have to consider the question of prosumer activity: to what extent are consumers

ready and willing to self-produce? If we have a mix of highly engaged prosumers and other

consumers who are not engaged, some will react to the retail price and others will react to other

signals.

In terms of market design and regulation we therefore face a very complex situation. We talk a lot

about business models, but we should ask whether these models are opportunities under today’s

system or whether they are really sustainable in the longer-term. Unfortunately, the vast majority of

business models we see today are based on shaky foundations from an economic point of view.

2. Emerging business models

New business models are emerging upstream in the value chain with respect to flexibility. When it

comes to monetising flexibility in electricity markets, we know that there are five key sources of value:

capacity, reserves, energy, network, and environmental. The key is to find a combination of these

different revenue streams, but that combination is highly market dependent. Certain models will make

sense in one country and others in other countries.

Such new models monetise distributed generation, storage and demand response. In this, it should

be noted that it is possible to dematerialise the value chain, and create value not in the ownership or

operation of an asset but in its optimisation. Many companies are already operating on these new

business models today.

New business models are also emerging downstream in the value chain, and these are centred on

consumers. Here, the key issue is to develop an interaction platform between (a) prosumers,


31

(b) energy service companies, and (c) network operators. The traditional role of network operators

and utilities will have to be reconciled with the emergence of new platforms, and the key challenge

here is to limit the “des-optimisation” of the system.

3. Conclusion

Consistency in price signals across the retail and wholesale markets is key today. The three EU

legislative packages in the 1990s and 2000s focused almost exclusively on wholesale markets.

This is because the price signal needed to integrate European markets was a wholesale price signal.

There was never an attempt to harmonise taxes or network charges across Europe.

The rise of prosumers and decentralised resources represents a radical disruption that requires a

fundamental re-thinking of our approach to market design: it requires us to think about the retail price

as the main price signal. Our key objective is therefore to ensure consistency across retail and

wholesale market price signals.

Network charges have to evolve in order to reflect cost structures and the increased weight of fixed

charges. They also need to evolve in order to provide consumers with geographically differentiated

and dynamic price signals.

Finally, we have to radically re-think energy taxation and funding for decarbonisation. We have to

reduce or remove the taxes on production and raise taxes on electricity consumption.


ENERGY TRANSITION OR ELECTRICITY TRANSITION?

We are in a world where decarbonisation, decentralisation, and digitalisation are on the way to

transforming the world of energy – the so-called 3 D’s. This is fundamentally changing all of our

energy systems.

1. Innogy overview

To address these changes, RWE decided to set up Innogy in 2016 as a blueprint utility for the new

energy system. It thereby divided its activities in two. RWE continues to be responsible for

conventional production (nuclear, coal and gas), large-scale storage, and trading. Innogy is

concerned with the downstream part of the value chain: distribution networks, sales, and production of

renewable energy.

Innogy is now a major European energy utility company. It is n°5 in terms of renewable production in

Europe, and N°3 in terms of offshore wind production. In Germany, it is the top distribution grid

operator. It is most important markets are Germany and the United Kingdom, but it is also present in

Spain, Poland, the Netherlands and France. It has approximately 23 million customers in

11 European countries. As well as setting up this new company, we also changed our mindsets.


32

We now have a more decentralised perspective on our activity, which represents an important change

in the way we see the world.

We offer future-oriented energy products and services to our customers. These include e-mobility

services in the form of over 5,400 charging points in over 20 countries, or connected home units

(800,000 units sold). We also provide energy management solutions including energy audits,

maintenance and repair. We follow technological developments very closely, with offices in the

world’s global hot spots for the energy revolution, namely, London, Berlin, Silicon Valley and Tel Aviv.

Our start-ups provide solutions to meet the needs of customers, for example MOVE 24 (an innovative

removals service), Heliatek (organic electronics) or Lemonbeat (an IoT protocol).

I believe that, today, RWE and Innogy are working more efficiently than they did in the past.

The separation of our company into two different activities has therefore been a very positive step in

our history.

2. The challenge of system integration

Are we really talking about an energy transition or an electricity transition? We know that there has

been a steady growth of renewables in Germany and elsewhere. Furthermore, the production costs of

these renewables have significantly declined. The German renewable support scheme (EEG) was

very successful in boosting large volumes of renewable energy into the system, and renewables

represented over 32% of all gross electricity consumption in 2015.

However, this rapid growth in intermittent renewables was not accompanied by grid expansion.

Going forward, there is therefore a growing need to counterbalance grid congestion through the

curtailment of renewables and the re-dispatch of conventional plants. The 2017 EEG has in fact

restricted grid expansion areas in the North Sea, for example. In addition, more and more consumers

are producing their own electricity, as a way of reducing their electricity bills.

3. The energy policy compass

Now that we are an independent company, we sought to determine what our political position should

be with respect to the energy sector. Innogy’s “Energy Policy Compass” is based on its overarching

policy target of decarbonisation. On the technology/fuels side, this means more renewables, more gas

downstream, combined heat and power, and improved energy efficiency. On the framework side,

this requires decentralisation, digitalisation, and European integration. Overall, the key driver here is

sector coupling, which is a major focus for our company.

There is potential for more electricity in the system. Today, the overall share of electricity in end user

energy demand is relatively low: approximately 20%. It would be possible to replace approximately

two-thirds of non-electric energy with electricity. This is especially the case in the heating and

transport sectors. A pre-condition for this to occur is a level playing field of taxes and levies on energy

carriers.

It should, however, be noted that this does not necessarily mean we want an “all electric” system, and

decarbonisation also requires the development of “green” fuels. Gas also has to a play a key role

going forward and, to that end, it needs a convincing greening story.

In conclusion, we can see that the world of energy is moving rapidly. Innogy was set up to address

that move, and the trends that we are seeing emerge and develop today.


33

QUESTIONS & ANSWERS

Jacques Percebois, CREDEN, University of Montpellier, France

We have heard a lot about a possible rapprochement between Innogy and ENGIE. What is Innogy’s

strategy with respect to ENGIE?


We do not have a specific strategy with respect to ENGIE, and I do not have any information on this

subject to share with you today.

Richard Lavergne, Economy and Finance Ministry, France

Are the various business models presented equivalent in terms of their total social costs for the

economy as a whole? In the 1990s we were told that liberalisation would be profitable for consumers.

However, that was not really borne out in our electricity bills. If the costs of the new business models

are to be borne by taxation, that should be made clear to policy makers.


There are two issues at work here. First, taxation remains the responsibility of each individual country

in Europe. If taxes to support decarbonisation constitute the majority of what one pays for electricity,

consumers will be able to bypass those taxes through self-production, for example. Second, the use

of taxation makes electricity proportionally more expensive than other fuels, some of which are not

carbon free.

If the energy transition is considered a public good, then the cost of that transition should be borne by

upstream taxation on production rather than a tax on consumption. The simple answer is therefore to

pay for renewables not through a levy on one’s electricity bill but through the general state budget.

That is far more efficient than continuing with the biased incentives that are part of today’s system.


This very discussion is currently underway in Germany. We have a multitude of different taxes and

levies on electricity in Germany. The highest is the renewables surcharge (approximately €0.06 per

kWh). Ideas have emerged to take at least part of that out of the electricity bill and finance it via the

state budget. Denmark, for example, is changing its system in that direction.

Einari Kisel, World Energy Council, United Kingdom

As long as we have renewable subsidies, producers will have an incentive to be part of the grid. It is

therefore necessary to be in the grid to obtain a subsidy but this, in turn, increases the amount of

taxes and subsidies to be paid. If subsidies are discontinued, there will no longer be an incentive to

connect to the grid and we will see the emergence of off-grid solutions. Would you agree that that is

the case?


We are already seeing early signs of this. Large industrial companies are signing deals with

renewable providers, and building private cables to onshore or offshore wind farms. That allows them

to bypass grid connection and usage charges, as well as associated taxes. This could make sense if

the needs of these companies are sufficiently distinct from the needs of others. However, it also

means that we are losing the driving force of having a network: mutualisation and sharing. How can

we keep some of the benefits at least of mutualisation in a new world in which many players have an

incentive to get rid of the grid?


34


We are also seeing this trend in Germany. There is not yet a level playing field here but the theory

behind this is quite convincing.


Given the three major trends in the market (decarbonisation, digitalisation and decentralisation),

I would have expected that the major European utilities would have diversified their portfolios toward

an “energy services” offer, rather than separating out their renewable and conventional portfolios.

Would such a diversified portfolio not be less risky and more robust for these utilities?


Separating out the business alone will not improve profitability. However, it does make one more open

to different ideas and concepts, and more open to taking risk. Moreover, the two businesses are

aimed at very different customers and there is less of an “integration premium” than in the past.

I understand that E.ON has also taken a similar approach.


German companies have not simply split off the new world from the old. Rather, the types of

consumers they serve have changed radically. The old business was very much based on the

wholesale market, and integration of the value chain. The new business is focused on the end

consumer. That requires a different company structure and a different company culture.

Therefore, the two types of companies both have a future but they have an inherently different way of

creating value.


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Session 4

Centralised versus

decentralised

CHAPTER CONTENTS

The perspective of a Fench distributor

The perspective of a Portuguese distributor

The perspective of a French multinational

Panel discussion

Questions & answers


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Session 4 – Centralised versus decentralised: workshop by the World Energy Council

► Jean-Baptiste Galland, Enedis France

► Grzegorz Gorski, ENGIE France

► Ricardo Prata, EDP Distribuição Portugal

► Moderator: Philip Lowe, World Energy Council United Kingdom


In this session, the World Energy Council is looking forward to feedback for the preparation of this

year’s Trilemma Report and Trilemma Index, the major theme of which is centralisation versus

decentralisation. Is this simply a question of centralised supply versus decentralised generation?

Does it mean central planning rather than decentralised planning? Does it consider the demand side

of energy at all?

In the earlier sessions, we saw that there is a renewed focus on consumers, and on energy services

as well as energy. The transformation occurring across energy systems is therefore not only about the

technological shift from thermal and nuclear to renewables; we are talking about centralised or

decentralised systems. That means that we are not simply talking about the technicalities of energy

but also about the politics of energy. We also need to ask whether the market for energy is a

wholesale or retail market. How do the different changes on the generation and system sides impact

on systems as a whole? What models and systems should we be moving to in order to meet the

objectives of the trilemma: sustainable, affordable and secure energy systems?

THE PERSPECTIVE OF A FRENCH DISTRIBUTOR

Jean-Baptiste Galland, Enedis, France

Enedis is France's largest distributor, distributing electricity to 95% of the French population. We have

to consider the question of centralised versus decentralised in an evolving context marked by two

main characteristics. First, people are now very much aware of global warming, particularly in the


37

post-COP21 context. Second, it is now possible to share information very rapidly and very efficiently

thanks to the digital revolution.

France has been undergoing a significant change on the distribution side. It now has 20 GW of

renewable energy connected to the distribution network, and that will be more than doubled by 2020-

2025. We have therefore made a great deal of progress in this area. In the past, the system was

based on adapting supply to demand.

The advent of electric vehicles is also having an impact on the system. There was a 50% increase in

the number of electric vehicles in France in the past year alone (103.000 EV by the end of 2016).

France has 100,000 charging points today, with 7 million expected by 2030. France has already

decarbonised its energy sector, and now needs to decarbonise its transport sector. The use of electric

vehicles is an important means to that end as transport is the second greatest generator of

greenhouse gases after energy.

Going forward, it is demand that will be adjusted. That’s the reason why the energy transition is also

concerned with an increase in flexibility, from 2 GW in flexibility today to 6 GW. This requires the

deployment of 35 million smart meters by 2021, and the reduction of energy consumption by 12.3% in

2023 compared to 2012. Smart meters should make it possible for consumers to make informed

decisions and better manage their consumption.

Is energy transition an economic, technical or political question? As a national distributor, we have

always been concerned by the political dimension of these questions. Going forward, we will have to

address two new factors: the technical-economic challenge of an increasingly flexible network,

and the challenge of organising coordination between the different components and different levels of

the system. All of this goes much further than the challenges we faced in the past.

In terms of pure distribution, we have a very clear transformation plan. First, the network must be

managed in an active and not a passive manner. Second, we have to provide information to all

players related to our business and not only to consumers. Third, we need to facilitate the operation of

energy markets. This is particularly important for France, which is a very market-oriented country.

Finally, we have to ensure that the system is safe and secure. In the past, managing distribution

networks was relatively simple: it was an “invest and forget” matter. However, we now need to ensure

the safety and security of the system at the local level. That is part of what we call the distribution

system operator (DSO) model.

Another important aspect is to ensure a good relationship with the regulator. The fact that we are

undergoing rapid changes means that there are many tensions in the system. We therefore need to

try out new ideas and resolve any problems that are encountered. Finally, the question of investments

is also important, especially in a system that includes regulated stakeholders and competitive players.

In that context, we need clear and efficient economic signals that address the free rider issue in

particular.

I will close with a quotation from Elon Musk who stated that, “energy providers have only one solution:

to act like new entrants and to re-think business from end user needs, ignoring burdens associated

with the existing construction (technological, regulatory or otherwise) that as to evolve or is to do so”.


You noted the interaction between competitive frameworks and regulatory frameworks. Is it not

necessary to ensure that the distributor is not the only actor with access

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