Just under a year ago, Europe’s utilities met in Portugal to discuss the future of their industry, unsure how to deal with the rise of renewables and a new breed of independent, digitally focused start-ups offering customers PV/battery solutions and peer-to-peer energy trading. At this conference, hosted by Eurelectric, speaker after speaker spoke of the need for utilities to embrace change and digitalisation — but no-one seemed quite sure what the required transformation should look like.

In his “manifesto” for his two-year term as Eurelectric president, unveiled at the conference, Enel chief executive Francesco Starace said: “Digitalisation, distributed generation and technological progress are changing the fundamentals of our business and showing unprecedented interactions. If our industry wants to retain its pivotal role, we need to discover innovative ways to create value with a fresh approach.”

He was true to his word.

"We put everything in Enel X that is not strictly related to what you would call the traditional utility business model."

At the start of this year, the Italian utility unveiled the kind of transformative business that Starace had been advocating — a new global unit dedicated to future solutions such as demand response, electric vehicle (EV) charging and home energy management: Enel X.

Perhaps crucially for such a new sector, Enel X has been profitable since day one, with a combined gross margin of more than €405m at the end of 2017. And by the end of 2020, Enel told investors, this is expected to rise to around €1bn — a growth factor of 2.5.

“We put everything in Enel X that is not strictly related to what you would call the traditional utility business model,” Enel X boss Francesco Venturini tells Recharge.

“If you don’t knit the new things together, they’re never going to be able to fly.”

A decade ago, he points out, Enel was lagging behind its competitors in renewables due to scepticism within the company about green energy sources. Consequently, it wasn’t until 2008, when the standalone Enel Green Power unit was created, that the company was able to substantially grow its renewables programme to become the world’s largest green-energy operator today, managing around 40GW of projects.

“That was a very important lesson, so we said, ‘let’s not make that mistake again’,” says Venturini, who was chief executive of Enel Green Power from 2014-17.

“Starace, my boss, has always been a big supporter of innovation... there were always small attempts at doing new things. Sometimes they were new businesses that were very close to the traditional business, but were just kept at a minor level, almost a toy to play with at the weekend.

“So instead of leaving them feeling around and letting people play with very long-term pilot projects, we said, let’s take all of this, isolate it, decide which is priority one, two and three, and based on the potentials, the level of development and so on, let’s try to make sure they have enough room to learn to fly. And that’s our job.”

Importantly, Enel X has the authority to take its own business decisions, ensuring freedom to innovate even in more traditional segments.

“We [Enel X] have the freedom to cannibalise our traditional business, so I’ve been told go out and break things, which means I don’t have to phone my colleagues and say, ‘Look, I’m going to do PV on the roof, be careful, you’re going to sell less energy.’ It’s what is good for Enel X I am going to look at. Otherwise, we won’t be able to do what we need to do.”

Enel X — essentially the brand name for the company’s Global e-Solutions business — is split into four global product lines: e-Industries, e-Mobility, e-Home and e-City.

E-Industries offers demand response, demand-side management, energy efficiency, distributed generation and energy consulting services to businesses. E-Mobility offers public and private EV charging facilities and related services such as vehicle-to-grid. E-Home offers PV panels, storage systems, home energy management and smart appliances to residential customers. E-City offers demand response, demand-side management, distributed generation and integrated energy services to public administrations and municipalities, in addition to smart lighting (including lampposts with built-in EV chargers) and a wholesale fibre-optic network.

"For the new business models, it’s a matter of trying, failing, trying, failing, trying, succeeding."

“For the new business models, it’s a matter of trying, failing, trying, failing, trying, failing, trying, succeeding,” says Venturini.

Enel X expects all four product lines’ gross margins to grow substantially between 2017 and 2020: from €183m to €448m in e-Industries; €2m to €86m in e-Mobility; €98m to €261m in e-Home; and €132m to €216m in e-City.

Modest growth is expected in the more mature business lines, but rapid expansion is predicted in the up-and-coming technology areas. Demand-side management is due to grow from 3MW installed last year to 224MW in 2020; the number of installations of public EV charging stations is expected to rise from 1,100 in 2017 to 9,100 in 2020, while residential charging boxes are predicted to expand from 26,000 in 2017 to 304,000 annually in 2020.

Demand response/demand-side management

“Right now, demand response is exploding, it’s the perfect solution, the perfect product in so many markets,” says Venturini, pointing out that Enel X is already the biggest demand response player in the world, after acquiring US firm EnerNOC in August last year.

“What we need to do is to make sure that we are behind this explosion and make sure we can cover all the different markets we’ve got, which we’re very capable of doing.”

Today, demand response mainly consists of getting large industrial players to reduce the amount of electricity they are using when the grid is in danger of becoming overloaded — and be financially rewarded for doing so. In the future, residential customers will be able to take part in this nascent sector, especially when grid digitalisation allows EVs, PV rooftop systems and batteries to be aggregated.

“I think right now, for what’s needed by the system, the industrial settings are more relevant. Because when you have to respond to a demand response call, what’s needed is 50-150MW at the time,” says Venturini. “Tomorrow, when you will be able to integrate electric vehicles — which are humungous batteries on wheels — into the grid, it’s going to be much closer to residential customers.”

The second step in this arena, Venturini says, is demand-side management, in which customers use batteries to help manage their loads and reduce capacity charges — the specific line items on electricity bills where utilities charge a fee corresponding to the customer’s peak demand during the billing period.

“And then number three,” says Venturini, “is how do you use electric cars to do exactly the same thing. How do we use electric cars to provide services and exchange energy into the grid? I think we are way ahead of others in developing the technology to allow something like this.”

These three services will all help to balance the grid and postpone or eliminate the need for grid expansions.

“What you try to do is provide solutions that are not as expensive as using gas-fired [peaker] power plants for 200 hours a year,” he says.

“For example, New York City needs to invest tons of money in the local grid, which, by the way, is mostly underground, so to upgrade the grid is extremely expensive. And you need new substations and so on. If you use demand response in a smart way within the city, and then demand-side management… you can delay — or better, move out over a long period — the humungous investments you need to make in the grid.”

EV charging

Enel is the first utility to build a network of EV charging stations without any public financial support, Venturini tells Recharge.

“EV is the future. We are going to deploy up to 14,000 public charging stations [in Italy] by 2022, we’re going to create the biggest and most comprehensive charging network in the world,” he says.

“At the end of 2018, we will already have 2,700 of these charging stations operating — you will be able to go all over Italy with an electric car with no problem.”

While oil companies such as Shell are betting that drivers will want to charge their cars at filling stations, much as they do now, Venturini points out that is not yet clear where EV owners will want to charge their cars.

“I would say, in the majority of cases, EVs will either be charged at home during the night, or even more often, as far as we can tell, at their office during the day, assuming that their office provides the necessary infrastructure.”

“My bet is they will be like phones — everywhere you find a plug you try to recharge your phone because its extremely important that the phone stays charged. It’s going to be the same thing with cars.”

That is why the majority of the charging stations Enel X is building are either in public spaces or private car parks available to the public, such as those belonging to supermarkets or restaurants.

Vehicle-to-grid

Enel X — which actually makes and installs its own EV charging stations, ranging from residential units to 150kW fast-chargers — has the “the most powerful platform” for vehicle-to-grid in the world, thanks to last year’s acquisition of California start-up eMotorWerks.

Vehicle-to-grid is often shortened to “Vehicle 2 Grid” or V2G, which indicates its two-way nature — taking energy from the network and sending it back when needed to help balance the grid or for ancillary services such as frequency response. But Enel X also talks about “Vehicle 1 Grid” or V1G — smart solutions to manage one-way EV charging — taking energy from the grid to provide frequency regulation and demand-response services.

“You can think about V2G as a bidirectional exchange of electricity, which is an expensive way of doing vehicle to grid and probably the optimum for this technology,” Venturini explains. “But if you think about it, you can do exactly the same thing by suddenly stopping many cars from charging at the same time. So instead of doing in-out, in-out, you do on-off, on-off. That’s zero degrading of the battery, and you’re substantially providing frequency regulation and a big demand-response service in that way.

“If you suddenly have [grid] congestion in a specific area, you can tell all these cars to stop charging for an hour because the wind is not blowing for that hour, but it’s going to pick up in an hour from now — that’s an even better service that you’re providing to the network.”

But then, he adds, the cost of batteries is falling so quickly that any degradation of the battery from the in-out of V2G will soon be irrelevant.

Rooftop PV

Of course, a similar role can be played by rooftop PV/battery systems, which Enel X also offers to customers.

“[Rooftop] PV is decently interesting in Europe today,” Venturini says. “But I think it’s going to be extremely interesting in one to one-and-a-half years. So we are getting ready.

“I think [in the future] in Europe, it’s going to be more and more difficult to do utility-scale projects of a big size [due to land constraints]. Roof-mounted PV is going to be extremely important, especially with a battery.”

Utility 2.0

Enel may be at the vanguard of this Utility 2.0 phenomenon, but other companies — and other sectors — are also examining the new energy business models.

The automotive industry is investigating how to incorporate V2G into its vehicles, Venturini says, and even corporate players from outside the traditional energy sector have been contacting Enel X to find out more.

“There is a lot of interest from the digital world, such as Microsoft, Google, Uber, they see the old business models as something they can extract value from,” Venturini explains. “So they’re very interested in looking at how potential business models can be something where they can take a piece of the pie too.”

And while he claims to be uncertain as to what other European utilities are doing in this space, he says he is working closely with “very big US-based utilities because they’re trying to figure out what’s coming”.

“They got hit by the big wave of renewables — most of the European utilities went into North America to develop new projects, taking the US [utility sector] by surprise. The biggest [US utilities] are trying to avoid this happening again.”

Venturini sees EVs, demand response, PV, batteries and home energy management as all part of the same ecosystem — one in which Enel will be a global leader. So when does he think these elements will take off?

“I would say demand response is the next two years, demand-side management is the next three to four years, electric vehicles in the next six years, and home-to-grid goes in parallel with the explosion of the electric-vehicle market,” Venturini says.

If, as a utility, you can make all these things work together, in conjunction with smart appliances, he adds, “then our job is done”. 

Transition

Enel X: Utility 2.0