Fuentes, R*., Hunt, L.C., Lopez-Ruiz, H.G., Manzano, B. “Combined Technological Disruptions in the Electricity and Transport Sectors: Regulation for Dual Platforms and Aggregated Services”
The paper “Combined Technological Disruptions in the Electricity and Transport Sectors: Regulation for Dual Platforms and Aggregated Services” (Fuentes, R*., Hunt, L.C., Lopez-Ruiz, H.G., Manzano, B.) will be presented at the 8th Conference on the Regulation of Infrastructures (20-21 June, 2019).
Meeting climate change goals requires both the decarbonisation of the electricity sector and the electrification of much of the rest of the economy. But the electricity sector itself is navigating through major disruptions that are changing the regulatory and business landscape. New Distributed Energy Resources (DERs) allow households to generate, self-consume, shift, and reduce their electricity consumption largely by-passing traditional utilities. Whether these changes would help or hinder electrification is the focus of this paper.
The use of these technologies makes it more evident that electricity is a multi-dimensional commodity, as it has attributes beyond the solo energy component of electricity, each potentially valued differently by consumers. Consumers, for example, might purchase electricity because of its features, like clean, reliable, and flexible or because of the end use it provides, lighting, thermal comfort, refrigeration, etc. New technologies allow customers preferences to resurface and consumer behavior could be codified more easily. Future business models could therefore be created around these attributes, with tailor made solutions centered on customer’s needs.
This paper evaluates the extent to which the creation of markets for these attributes can foster the electrification of new sectors of the economy, taking transportation as an example. This is an interesting exercise since both are traditional sectors that are experiencing deep transformations. Moreover, their future is intertwined. Electricity would provide the basic ‘fuel’ for transportation while transportation could to be the major engine for electricity growth.
We suggest that business models in both sectors will necessarily be moving towards offering aggregated services, repackaged as subscriptions, traded in digital platforms. We therefore try to address whether ‘mobility as a service’ trends are compatible with unbundling of ‘electricity services’ and if these trends would reinforce or delay each other’s transition. This can create synergies between them that could eventually lead to a rebound effect, where more mobility and more electricity consumed than in lack of thereof.
Regulations would need to stay abreast of these technological changes. In the past, business models in both sectors were considerably constrained by what regulation allowed them to do. If technology and the accompanying business models develop faster than regulations, regulators could be forced to adapt the legal framework to cope with the altered elements of the new technologies. This risks locking in technologies and creating new monopolies. To avoid this we suggest an indirect approach and enable mechanisms for self-regulation, that are more appropriate for decentralised systems, or to avoid technologies exploiting regulatory arbitrage, by deregulating further these two sectors.
ABOUT THE AUTHORS
Rolando Fuentes has more than 15 years of experience as an academic, policy maker and consultant in electricity, oil and gas, and climate change issues, in Latin America, Europe and the Middle East. He is a Senior Economist at the King Abdullah Petroleum Studies and Research Center (KAPSARC), an energy economics and policy think tank, based in Riyadh Saudi Arabia, where he researches business and regulatory models for the Utilities of the Future. Insights from this research were referenced by The Economist’s cover story (A World Upside Down, February, 25th, 2017). Dr. Fuentes is an economist from the Tecnológico de Monterrey (graduated with honors) and holds a PhD and an Msc in Environmental Economics from the London School of Economics (LSE) and the University College London (UCL), respectively. He was recipient of the British Chevenning Scholarship in 2001.