Scaling up green electricity is key to achieving net zero. While the government has made progress in supporting solar PV and offshore wind, technologies alone will not make for a successful transition to net zero. To be successful in the market, technologies need an attractive business model. In this blog, Professor Jonatan Pinkse discusses how green entrepreneurs have created mainstream support for their business models and how policymakers can help them in this process.
- Business models play a key role in the transition to net zero. The government should not only support green technology but also listen to the needs of entrepreneurs and help them scale up their innovative business models.
- Public policy can help entrepreneurs with innovative business models for green electricity such as that hinder their roll-out.
- If customers are willing to pay more for electricity generated locally, fairly or by friends and family, government should take this into account and bring in measures to change the nature of energy demand.
The key role of business models for net zero
We need to make the energy economy more sustainable to avoid the disastrous impacts of climate change. However, a transition to net zero involves a fundamental change in how companies operate and make money. Current business models that focus on making profits are no longer viable in a net-zero future. But what will replace them? What will the business models of the future look like? And how can market leaders be convinced to change a winning recipe? While current business models have proven themselves, it is far from certain if they can keep their revenue streams going with sustainable business models.
There are many sustainable business models out there, but only a few have managed to become mainstream. Sustainable business models struggle to take hold in a world where most money is still made by companies that pollute the planet. So how do entrepreneurs designing sustainable business models for energy supply get support for their ideas even if they challenge mainstream views of what customers like and are willing to pay for?
In our latest publication, we show how entrepreneurs in the Dutch electricity industry managed to achieve public support for their business model of selling green electricity. For decades, the electricity industry was dominated by a business model where vertically integrated utilities generate electricity in large power plants using fossil fuels. However, pressures to decarbonise, digitalize and deregulate the industry have created opportunities for new players to enter the market with innovative business models. We found that entrepreneurs followed well thought out approaches to make their sustainable business models attractive to mainstream customers. So, what they did they do?
Lessons from green energy entrepreneurs
Mainstream business models to sell electricity are built on the idea that ‘cash is king’. Price and reliability determine what customers choose and nothing else. Our study found that entrepreneurs made sustainable business models attractive by changing the way their customers see what makes green electricity valuable. While they did not ignore the importance of price and reliability, they also stressed other benefits customers could get from green electricity. Some unique selling points were giving customers autonomy over where their electricity comes from, who produces their electricity, and how their electricity is produced.
Entrepreneurs, together with NGOs, also had to change consumer perspectives on traditional energy business models. Partly through guerilla marketing, they planted a seed in people’s minds that the big utilities could not be trusted to drive the transition to net zero. A good example of this is the influential start-up, Vandebron which, offered to acquire a coal-fired power plant for €1 million only, with the plan to close it down. Vandebron tried to prove that the current owner, Nuon, wasn’t willing to shut down its fossil fuel operations. The entrepreneurs made people aware, too, that most green electricity on offer wasn’t generated in the Netherlands but just the outcome of a paper exercise where utilities buy green certificates to claim that their coal generated electricity is green. By shaming existing utilities, entrepreneurs created space for their own offer as people started looking for alternative suppliers, selling truly green electricity.
The entrepreneurs also lobbied continuously for regulatory changes that made it possible to roll out alternative ways of electricity supply such as peer-to-peer delivery and community microgrids. Such regulatory changes are still much needed in the UK, too. Currently, peer-to-peer energy trading is not possible because only suppliers with a license are allowed to engage in energy transactions on the grid. For British green entrepreneurs to have similar success as their Dutch counterparts, they still rely on getting regulatory changes such as the proposed “Local Electricity Bill” through Parliament.
Customers value local and fair energy
Letting people see that green electricity has many benefits and suggesting that market leaders cannot be trusted to deliver on net zero meant that Dutch entrepreneurs managed to show that doing things differently is possible and can bring economic success. By dismantling the idea that companies can only be successful in the industry when a low price is offered, they showed that some people are willing to pay a bit more if the electricity is generated locally or if it means a fair price is paid to those producing the electricity. Even if the electricity itself does exactly the same, powering our appliances, the entrepreneurs used their sustainable business models to show that people value where their electricity comes from and how it is produced. Debunking myths about success in the industry opened the eyes of market leaders who have started acquiring start-ups with sustainable business models that have proven themselves. Government energy strategies should consider this, and cut support for fossil fuels, while creating subsidies and support for renewable energy and for locally produced “green” electricity initiatives.
Unfortunately, these sustainable business models are not yet dominating the industry. There is still a long way to go. But the entrepreneurs and NGOs have managed to show that alternative ways of creating value is possible and they have helped the market leaders diversify, offering truly green electricity delivered in a host of different ways including energy platforms and peer-to-peer delivery. People now have far more choice in going green and policymakers should take this into account. The UK government are attempting to work towards net zero at the same time as navigating an energy crisis. Supporting green energy is key – creating fairer conditions for collective production and consumption of renewable energy. Electricity is greener when it is produced locally. In 2013, the Dutch introduced a postcode scheme which allows benefiting from tax reductions on consumed electricity produced in the same or a nearby post code. This has recently been changed from a tax reduction to a subsidy. Such initiative would be a welcome addition to Government energy strategy, as it stimulates people switching to renewable energy generation, also when they don’t have a roof suitable for solar panels themselves. It would move the Government energy strategy away from a sole focus on supporting the supply side to making changes to the nature of energy demand.
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