At this week’s Trajectory Trends Breakfast we discussed the broad issue of climate change in some detail. In this post I want to develop a key element of that discussion.
At present, most of our energy is produced and distributed by big companies to be sold to businesses and consumers. But what if individuals, businesses and communities were able to produce their own energy, making our current production and distribution model obsolete?
We are already seeing the advent of this in many countries and regions around the world, brought on by three key factors – the declining cost of energy generation through renewables, technological innovations and the decentralised nature of new forms of energy generation – not to mention he price of energy for consumers in the UK today.
The price of green energy, particularly solar energy, has decreased drastically over the last decade and in some areas of the world it is already now more cost effective for households to produce their own power through solar panels than it is to buy electricity from the grid.
At the same time, technological innovation including the onset of smart devices and the Internet of Things allows consumers to combine convenience with effectiveness – a trait we have found to be increasingly common among consumers, increasingly finding themselves in the position where they want to be in greater control of the various aspects of their lives, whilst at the same time not compromising on greater simplicity and convenience in their lifestyles.
Smart devices such as Hive and Nest currently offer novelty in gauging the appeal of the Internet of Things, but as consumers begin to witness lower energy bills, this novelty quickly morphs into practicality and the opportunity and role of the Internet of Things is already unfolding itself as a key player in future relations with energy consumption.
More and more people have already transformed their homes and businesses into micro-power plants to harvest renewable energy on-site – in the US alone, the number of homes with solar grew by more than 1,000% between 2006 and 2013. And it is this ability to tap, generate and distribute power that is democratising our relationship with green energy generation. In Germany, nearly half (47%) of all renewable energy plants are owned by citizen and communities.
Whilst today this effect and onset of renewable energy generation is still small and has generally gone unnoticed, parallels can be drawn to the early stages of democratisation of knowledge and digital disruption brought on by the internet, starting nearly 2 decades ago.
The age of global energy giants can be compared to the age of mass media: just as music companies did not understand – or underestimated – the effect of people being able to share music online, leading to corporate revenues plummeted into near non existence, the ability of individuals and communities to generate their own power has the potential to open up and democratise green energy supplies in the future.
The fragmentation of media consumption saw a new and more complex eco-system emerge, with smaller and independent business models establishing themselves as ever bigger and more important players. Are we seeing the beginning of this in the utility industry as well? There is no doubt that the Big Six still dominate the market with a combined market share of 92.4%. However, it is interesting to note that this has decreased from near 100% dominance in just five years, which ultimately means that independent suppliers have increased their share from 0.2% to 7.6% in the same period.
But of course, people will stick with what they have – despite being unhappy – until a credible alternative emerges. And again, we have exactly this pattern unfold itself within banking. Until not too long ago – last September to be exact – most people shied away from switching banks, mostly due to the associated complexity and hassle, and were stuck with the same bank despite being unhappy with the services they received. However, once the 7 day switch account lifted this complexity, bank switching spiked and accounted for a 16% annual rise in the total amount of switchers, and has ultimately forced banks to change the way they interact with their customers.
Have we now reached a similar moment in time when the Big Six have to pay greater attention? All indicators point in this direction. Consumers’ expectations of brands and companies are as high as ever, and are increasingly willing to take things into their own hands – and this has the potential to disrupt and ultimately democratise the green energy market.