Quick Take: Powering the future of business
Can distributors help recreate the power grid by taking a leadership role in managing renewable energy?
Power play
This edition is the fourth in a series focused on big, transformative ideas for the future of distribution, all inspired by my participation at TWIN IMPACT 2022. Sustainability and regenerative economies were on the agenda, especially the need to move away from carbon-based energy sources. Renewable energy is essential, but there is a big problem: Wind and solar sources do not produce enough power when winds die and sunlight fades. Power grids need the ability to store energy. Batteries are an essential solution.
After the TWIN event, I found a terrific McKinsey & Company article on how residential energy storage might help support the power grid. And I wondered, what about commercial energy storage? Is there a role for intermediaries? Could distributors play a role in storing energy for customers just as they do for physical products? Can distributors help build a digital-age value chain for power, connecting utilities as suppliers with businesses as customers? The authors set my mind spinning in the article’s very first paragraph:
The growth of battery storage in the power sector has attracted significant attention in the industry and media. Much of that attention focuses on utility-scale batteries and batteries for commercial and industrial customers. While these larger batteries are critical segments of the energy storage market, the rapid growth of residential energy storage is outpacing expectations. These household systems will likely become essential assets sooner than many expect. The growth trajectory and potential value of these household systems to customers and the power grid warrants a closer look.
As McKinsey’s article explains, adding renewable energy sources to the power grid necessitates energy storage at both ends—utility-scale batteries in the vicinity of power production and user-scaled batteries at businesses and residences. What’s not explored is the opportunity for power intermediaries operating batteries scaled to serve the aggregated demand of multiple companies or homes. Just as distributors create economic wealth by aggregating local demand for manufacturers and using warehouses to store products, might distributors aggregate local demand for energy producers and utilize appropriately scaled batteries to keep power?
Distributor success as a power intermediary would turn on more than storing energy in batteries. Distributors must carve out and justify their role by adding value to energy and creating differentiated customer experiences, as they do for manufacturers’ products. I can imagine several scenarios, all based on long-standing distributor core competencies but repurposed in a new intermediary business model for the distribution of energy:
Return-on-energy. As power intermediaries, distributors might offer services to optimize the total return-on-energy purchases in the same way they help customers get the most from products—by managing energy spending, training workers on power practices, managing local power inventory (i.e., onsite batteries), and leveraging the power of new data analytics and artificial intelligence (AI) for a total power productivity solution.
Equipment transformation. As energy experts with business savvy, distributors can help customers manage the transition to vehicles and tools powered by electricity. This transition is underway as manufacturers transform their products to operate on stored electrical energy. To leap ahead, distributors could provide equipment as a service monetized by energy consumption. As an example, tire companies install, maintain, and replace tires as an integrated service for airlines. Instead of buying tires, airlines are charged a fee associated with the number of aircraft landings. In the same way, distributors might provide battery-powered equipment with prices aligned with the power consumed. This arrangement would reposition distributors as an energy intermediary with power utilities.
Emergency responder. In many lines of trade, distributors have preset processes for rushing products and support to communities impacted by earthquakes, extreme weather, fires, and other cataclysmic events. Distributors might not operate as an intermediary for routine energy needs, but in situations when wind and solar energy are insufficient to meet demand. Customers would not need to purchase and manage batteries for emergencies; distributors would do so for them.
Smart power. In distributor lines of trade, traditional buying groups leverage cumulative buying power to negotiate lower prices from suppliers. But in the digital age, these same buying groups are helping members and their customers digitally transform by leveraging data and analytics, adopting AI tools, and operating as connected businesses. In the same way, distributors may form power buying groups to help each other aggregate energy purchases and leverage digital technologies. Power buying groups may sell excess stored energy back to utilities when needed. By assisting customers as power buying groups, distributors may become a power player (pun intended) in the evolution of smart cities, or, as distributors might view them, smart communities.
Your take?
McKinsey’s article, How residential energy storage could help support the power grid, is chock full of ideas, data, and analyses, and is a must-read for every B2B innovator. But for a call to action, I look to Hoover Institute’s new framework for prosperity. Hoover explains the critical integration between ideas, institutions, and individuals—all essential for ushering in a bold and powerful future of distribution, especially one where distributors become energy intermediaries for transforming the electricity grid and powering business for the digital age.
Can you see distributors at the center of a reinvented energy value chain? Should we talk? Please share your comments below or reach me at mark.dancer@n4bi.com.