New Business Models for the Distribution Edge

The document argues that traditional utility business models, based on natural monopolies and centralized generation, are ill-equipped for the rise of distributed energy resources (DERs). It proposes a transition from a linear value chain to a 'value constellation' where the utility acts as a platform for value-based transactions. The paper outlines several potential models, including the Integrated Distributed Resource Manager, the Distributed Resource Finance Aggregator, and the Independent Distribution Network Operator, while discussing international examples of transactive grids and differentiated network charges.

• The U.S. electricity sector is shifting from a traditional value chain to a 'value constellation' of interconnected business models at the 'distribution edge,' which is the interface between the utility distribution system and customer-side energy assets.
• Traditional utility models are based on outdated assumptions of central thermal power plants and natural monopolies, creating disincentives for DER adoption because utility returns are often tied to invested capital and volumetric sales.
• Investment in distributed resources is accelerating in the U.S., with electric efficiency program budgets increasing from $2.7 billion in 2007 to $6.9 billion in 2011, and solar PV installations totaling 3.3 GW in 2012.
• Demand response capacity in the U.S. grew significantly, with actual peak reductions totaling 20.3 GW in 2012, a 27 percent increase from 2010.
• To support DERs, the utility must transition to a 'platform' that reduces transaction costs and increases transparency through both technical standards (e.g., IEEE-1547) and economic standards for value determination.
• Revenue decoupling, adopted by 25 states by the end of 2012, helps remove the disincentive for utilities to promote efficiency by allowing them to recover fixed costs regardless of electricity sales fluctuations.
• The 'Integrated Distributed Resource Manager' model suggests utilities use an open-platform planning process where third parties propose DER solutions, and the utility implements the least-cost option through incentives or direct investment.
• The 'Distributed Resource Finance Aggregator' model involves utilities providing on-bill financing for qualifying DERs and sharing customer data with preferred service providers to reduce acquisition costs.
• The 'Independent Distribution Network Operator' (DNO) model separates the wires function from electricity supply, using performance-based regulation to reward the utility for minimizing costs through DER integration.
• International examples include 'transactive energy grids' in Denmark and the Netherlands, such as the PowerMatchingCity project in Groningen, which uses 5-minute interval markets to balance supply and demand.
• European countries are experimenting with differentiated network charges; for example, Germany allows 'contributions to connection and construction costs' and 'call and return agreements' for flexibility services.

APA

Newcomb, J., Lacy, V., & Hansen, L. (2013). New Business Models for the Distribution Edge. RMI. https://rmi.org/app/uploads/2017/05/RMI_Document_Repository_Public-Reprts_2013-06_eLabNewBusinessModels.pdf

Chicago

Newcomb, James, Virginia Lacy, and Lena Hansen. New Business Models for the Distribution Edge. RMI, 2013. https://rmi.org/app/uploads/2017/05/RMI_Document_Repository_Public-Reprts_2013-06_eLabNewBusinessModels.pdf.

Wikipedia

{{cite report |last1=Newcomb |first1=James |last2=Lacy |first2=Virginia |last3=Hansen |first3=Lena |title=New Business Models for the Distribution Edge |publisher=RMI |date=April 2013 |url=https://rmi.org/app/uploads/2017/05/RMI_Document_Repository_Public-Reprts_2013-06_eLabNewBusinessModels.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{newcomb2013new, author = {Newcomb, James and Lacy, Virginia and Hansen, Lena}, title = {{New Business Models for the Distribution Edge}}, institution = {RMI}, year = {2013}, month = apr, url = {https://rmi.org/app/uploads/2017/05/RMI_Document_Repository_Public-Reprts_2013-06_eLabNewBusinessModels.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }