All players of the energy sector are needed to shape the energy market of the future. A variety of new and persistent trends – from the decentralization of generation, the digitalization, the energy transition through to the issues of flexibility and storage – transform the power sector and therefore also have a direct influence on other energy markets.
The transformation of the energy sector already started. Electricity from renewable energies has a share of more than 30 percent in Germany’s total electricity consumption. Very few market players could have imagined such a number only 15 years ago. However during this time also the market structure of players changed considerably. Citizens’ wind parks and direct marketers are just a selection of those more recent players.
The transformation of the energy sector is by no means finished yet. What happened until now can be regarded as a foretaste of the changes that are still to come. In order to be prepared for the future energy market, all agents have to adopt and face the upcoming challenges. This does not at all only include the old players from the traditional energy sector, but also applies for the new market participants as well.
The former fight declining wholesale prices that led to low or in some cases non-existent profit margins. Financing and investing in new power plants is thus seriously hampered. New players, especially renewable energies however have to live up to new challenges in regard to the integration of their decentralized power plants into the power system. New agents, such as battery storage providers entered the balancing energy market, thus creating more competitive pressure. Furthermore renewable energies “cannibalize” their own success, as the merit-order effect leads to plummeting electricity prices exactly during those times, when these zero-marginal cost power plants feed into the grid.
Joint answers for abovementioned challenges have to be worked out. Conflicts between the old and the new players are not expedient for reducing CO2-emissions in the energy sector. A concerted and joint approach of both the conventional and the renewable “energy worlds” is required to find answers to the questions and challenges the energy transition creates. Surely, renewables will play a much more dominant role and are not living in the protected world of guaranteed feed-in tariffs anymore. Consequently, contact with the older and conventional players will become more direct.
The processes for a transformation that allow for meeting the targets of the energy transition have to be initiated carefully. The basis of such a process always has to be the analysis of the current and the future energy system, including possible pathways for energy prices. Only in that way, scientifically sound and therefore promising developments can be stimulated.
However, in a decentralized power market dominated by renewable energies, a mere economic optimization of business processes and transaction will not suffice. Rather, new business models have to be devised, tested and implemented. Questions and also opportunities are vast and thus also allow for a specialization according to the foci of the specific player. How can flexibility in times of more frequent occasions of negative electricity prices be used in an optimal way? Which role has digitalization to play here?
To excel in a fast-paced environment, an understanding of upcoming changes in the market has to exist. Those changes have to be analyzed in order to be able to come up with a valid strategy. Based upon those strategies, the development of new business models as well as their implementation has to ensue. Actively shaping this transformative process can and should be a priority.
In this regard, the attitude and self-conception of market players is also crucial. A new energy market does not only require flexibility from the physical system, but also from the business environments and its agents. The prevailing adherence on kilowatt-hours sold will gradually be replaced by more service-oriented business models, in the sense of flat rates for electricity.
Further advancements such as new developments of the blockchain technology as a means for transaction cost free processing of smallest deals and trades, have disruptive potential. Just imagine automated mechanisms for balancing group settlements, where the collection of the required data does not take place centrally, but in a decentralized and near real-time manner. Such a development has the potential to render many current business models and therefore also companies redundant.
All market players have to be well prepared!