The consequences of smart grids for the business model of electricity firms

Abstract

Smart grids could revolutionize the electricity sector when they stimulate customer empowerment and allow new players such as ICT firms to participate. A key question is whether electricity firms would either benefit or lose from smart grid deployment, because their established business model might be at risk. This paper seeks to explain under which conditions smart grid deployment will have an enabling or a constraining effect on electricity firms' engagement in business model innovation. Critically reviewing existing studies on smart grids, the paper investigates the consequences of smart grid deployment on each of the elements of the business model: value creation, value delivery, and value capture. The main argument posited is that while there are many reasons to believe that electricity firms will embrace smart grids and innovate their business model to accommodate sustainable energy, there are still many uncertainties related to consumer engagement, government support, and new entrants that might induce them to wait with business model innovation until such uncertainties have been resolved. The paper contributes to the emerging literature on business models for smart grids by not only identifying factors that enable, but also those that inhibit the transition of electricity firms towards sustainable energy. In highlighting electricity firms' reasons to resist smart grid technology, the paper provides a more nuanced picture of the potential of smart grids to disrupt the long-standing business models in the electricity sector.