New Business Models for the Distribution Edge

This research paper by RMI explores the transition of the U.S. electricity sector from a traditional value chain to a 'value constellation' at the distribution edge. It examines how the rise of distributed energy resources (DERs) challenges existing utility business models and proposes new regulatory and economic frameworks to better integrate these resources for improved system efficiency, resilience, and reliability.

• The electricity industry is shifting from a traditional value chain to a 'value constellation,' characterized by a participatory network of interconnected business models at the distribution edge where retail customers interface with the grid.
• Traditional utility business models are poorly suited for distributed energy resources because they are based on outdated assumptions of central thermal power plants and natural monopolies, where returns are earned on invested capital and recovered through bundled rates.
• Investment in distributed resources is accelerating in the U.S., evidenced by 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.
• The 'distribution edge' is defined as the interface between the utility-operated distribution system and the energy assets, control systems, and end-use technologies located at or near customer premises.
• To effectively integrate distributed resources, the utility must transition into a 'platform' that supports value-based interactions through standardized technical and economic rules, reducing transaction costs and increasing transparency.
• Decoupling is a mechanism used in 25 states by 2012 to allow utilities to recover fixed costs regardless of fluctuations in electricity sales, reducing the disincentive to promote energy efficiency and distributed generation.
• The paper proposes three potential new business models: the Integrated Distributed Resource Manager (Model 1), the Distributed Resource Finance Aggregator (Model 2), and the Independent Distribution Network Operator (Model 3).
• In Europe, specifically Denmark and the Netherlands, pilot projects like PowerMatchingCity are testing peer-based transactive energy grids where distributed resources interact directly in real-time local energy markets.
• Germany allows distribution network operators to use 'call and return agreements' for dispatchable flexibility and to charge customers for 'contributions to connection and construction costs' to better allocate network investment costs.

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} }