LITMIR.BIZ

1 Electricity Distribution Structures and Business Models Considering Smart Grid Perspectives

       Baidyanath Bag

       Department of Electrical Engineering, National Institute of Technology Raipur, Chhattisgarh, India

      1.1 Introduction

The deregulation process has faced many difficulties and various problematic sectors are still being explored and resolved [1–5]. A business model describes the strategy by which an organization creates, delivers, and captures values. A suitable business model articulates the value created to users by using the product or service. It also identifies the market segment, defines the value chain to estimate the cost structure and profit earning ability, judges the position of the firm with respect to other competitors, and provides the competitive strategy to the firm to build up its identity. Because after manufacture a product is sold in a market, after being generated electricity is also sold like a market product. Hence a business model is also necessary for electricity distribution in order to articulate its value position. The process of delivery of electrical energy from the point of its generation up to the point of consumption needs a business strategy in each and every step of its production. The major parts of the business in the electrical sector lie with generation, transmission, and distribution processes. Of these three major business procedures in the power sector, distribution is the most growing concern sector in the smart grid environment, where the motivation to hold a business model is to be found in each and every step of the job needed to carry out the task of power distribution among consumers. In the power distribution sector the major functions lies with:

An opportunity exists for a distinct business model for each of the above activities. Hence there is an essential need to find a suitable business model that will divide all the above actions into a distinct business. As the major concern of the changes under smart grid initiatives exists in the power distribution sector and the varieties of these changes are large in number corresponding to their required expertise, a suitable business model for the power distribution sector is an utmost requirement to ensure smart grid implementation.

Various forms of business models adopted to carry out the task of power distribution across various parts of the globe have been summarized along with their merits and demerits. Considering the various functions and the various issues or challenges present in the power distribution sector under a smart grid environment, a new business model described by Jamasb, Thakur, and Bag [6] that has not been adopted by any utility is also discussed in this chapter. This new business model is expected to overcome all the challenges present while fulfilling all future desires of the power distribution sector.

      1.2 Importance of the Business Model in the Smart Grid

      The smart grid is more technology oriented as compared to the traditional grid. Value from new technology can be captured by a firm in two basic ways: through incorporating the technology in their current businesses or through launching new ventures that exploit the technology in new business arenas. Unlike other tangible products sold in the market that can be stored and sold at a later date, electricity cannot be stored and should be consumed as soon as it is generated. Hence, for other tangible products that are able to capture the value from new technology through storage, electrical businesses must use another way to capture value from new technologies that is more suitable for an electrical business. However, power distribution utilities function under the traditional grid operation mode and are following the trend of technology adoption through storage and hence are failing to capture the values from the newly developed technologies during their transition toward the smart grid. Thus, an alternative way is an essential need under the smart grid operation mode. Various technologies have been developed that could be useful for pursuing different tasks in the distribution business will have to be taken to the market through a venture shaped by a specific business model.

Unless and until it is commercialized, the inherent value of a technology remains latent. A correct business model helps in the commercialization of a new technology and may become the architecture of new revenue. If a firm fails to select a correct business model, technology will yield less value to the firm than might otherwise have been the case. If the firm fails consistently in selecting an appropriate business model, it fails its various commitments. Because of the non-availability of an appropriate business model for the power distribution sector, ideal technologies developed especially for the sector are not being utilized properly toward developing the sector. Various Information Communication Technology (ICT)-based technologies that have been developed especially for the sector are not being properly utilized because of the unavailability of an appropriate business model. Time of day (ToD) or time of usage (ToU) pricing, average billing rate (ABR) fixing, theft control, etc., are being designed through technology implementation, but because of the absence of a right business model, these technologies are inactive in fulfilling their objectives of demand side management.

      Similarly, adequate technological developments have already been done for reactive power management and voltage stability control, but they are still failing to meet their objectives because of the absence of a correct business model. Again, the commercial losses (excluding theft) taking place in the sector are very high and cannot be addressed through technology development, although they can be addressed through implementation of a correct business model.

      1.3 Electricity Distribution Structures and Business Models

      In most countries, transmission systems have been expanded in a planned way based on detailed technical studies, but there is an unplanned and haphazard expansion in the distribution sector with the objective of meeting the growing urgent consumer demand. Due to this reason, the distribution system has become inefficient, leading to the following technical and governance challenges: