Own the Demand, Part 1: The Why
The best energy firms of the future will not only control supply, but they will also have proprietary access to the demand.
This is why I say that Tesla will ultimately get into the utility business. If you control the demand you should fully integrate and capture the economics gained by controlling the entire stack. In energy there is greater aggregate value in controlling the stack than a simple sum of the parts of each component.
This graph below explains why: a few weeks back South Australia was ~100% solar powered on Sunday and ~100% wind powered on Thursday.
The underlying data of this graph also shows how more energy was produced than consumed and energy prices, therefore, likely went negative every night. In these events, businesses and households are PAID to consume energy.
Oversupply is the future. We can all argue whether it is 4 years, 10 years, or 20 years, but this exact chart is coming to the United States. Texas already has many days where wind power provides >60% of the load and energy prices go negative. The best firms will be able to control and collaborate with demand to always deliver electrons where marginally valuable. So how do energy companies transition to getting paid for controlling demand? First, let’s start with the basic, current status of power supply.
THE WHY
- Energy is now officially a deflationary commodity. Therefore, the % contribution to an good’s overall cost is small and dropping
- Consumer sentiment and awareness to power source is increasing
- Power readiness and power quality is of more value
- An increasing number of businesses or power-consuming assets will have timing flexibility to their energy consumption profile
- Higher margin goods driving the “electrify everything” movement, such as Electric Vehicles, water heaters, and air conditioners have the majority of their variable expense come from power cost
Tomorrow I am going to reference the “HOW” and cover a precedent example already underway in the technology ecosystem.