Musical wires
Why rebundling the grid can be a force for good
“Jim Barksdale, used to say there’s only two ways to make money in business: one is to bundle; the other is unbundle” - Marc Andreessen
As trivial as these two steps sound, the simple act of unbundling and bundling businesses has transformed our lives. My prediction is that energy generation will tread the same path, ending with the rebundled grid, which will empower consumers and drive renewables adoption.
Let us first refresh our memory — do you remember how music was disrupted?
Artists once curated albums and publishers sold these as 'bundles' of songs. If you only wanted a couple of the album's songs, you could purchase a mixtape more aligned with your tastes. As the dot com bubble grew, the album disintegrated. Instead of shuffling through CDs at HMV, you logged into Napster and downloaded individual songs directly from your peers. Finally, Spotify paved the way for a re-bundling. Forget about downloading each song and start scrolling through an endless list. The bundling is now done at the platform-level rather than the album-level.
In many ways, I buy electricity today the way I bought music twenty years ago. The supply of electricity resembles an album. This album is full of fossil fuels that I do not want to pay for but am coerced into consuming. Fortunately, energy is following the music industry’s footsteps, and novel approaches are sprouting to challenge the incumbent bundle.
The energy mixtape: Octopus Energy
Companies like Octopus Energy bridge the old world of energy with the new wave of consumer choice. The grid is a complex monolith full of criss-crossing wires, making it impossible to know whether coal or wind powered your lights this morning. To counter this engineering constraint, Octopus ensures that there is enough renewable energy plugged into the grid to meet the demand of its customers. Despite the grid, Octopus Energy's offer is palatable: for every electron of energy consumed, they will make sure to account for it with some form of renewable supply.
Much like a mixtape, there is no way to pick and choose. If you have a preference for wind farms and your supplier does not, you will just have to live with it. Spotify may tailor a playlist just for my morning commute but energy suppliers cannot budge on how I power my home.
What Napster and solar panels have in common
For those that do not remember, Napster bypassed publishers and empowered users to download individual songs. In a similar vein, energy is beginning to unbundle such that the intermediary company between energy generation and consumption is becoming redundant. So far, there are two types of energy unbundling: personal grids and micro-grids.
The most popular approach is to buy your own supply. This mostly applies to solar: procure your panel, stick it on your roof and reap the rewards. A few direct to consumer brands are popping up in this space, epitomised by Tesla's solar roof. There is a streamlined website with a stylish panel design and even an app in dark mode.
Add a touch of lifestyle branding plus an instagram presence and you have a business that resembles selling jeans on shopify.
For those that are not in a position to buy their own hardware, they could jump onto a micro-grid. Although few meaningful micro-grids exist today, I am quite optimistic in their ability to carve out a sizable niche. They tend to use a similar model to Octopus Energy and piggy back off the existing network. The advantage, however, is that they give the user more transparency on the source.
For example, the Brooklyn micro-grid matches supply and demand on its platform, allowing peer to peer (P2P) transactions for the residents of Brooklyn. Neighbours can bid on the excess energy produced by a nearby solar panel. Given enough demand, this mechanism pushes up the rate a supplier can charge, breaking the grid’s monopoly on purchasing price.
Finally, it is time for Napster to give way to Spotify.
The platform: buying energy in the future
The last phase is a shift from decentralised P2P transactions on a micro-grid to a one-stop shop. Imagine waking up one morning and selecting a family-run windmill in a farm in Scotland to power your home just as easily as picking Kanye for your breakfast playlist. Suddenly, we would have consumer choice in a market that has been a black box since the industrial revolution.
Consumerization allows de-commodification: 1 Joule of solar energy should not be worth the same as 1 Joule from burnt coal. The future is one in which not all energy is consumed equally. The only reason these sources are interchangeable today is because the consumer is handcuffed — energy or no energy.
Give that same person (or business with sufficient sustainability targets) a platform from which to handpick suppliers and the demand for green energy will skyrocket. While supply is fixed, this right-sized demand translates to higher prices for energy the consumer deems to be 'better'. Higher prices incentivise investors to generate more supply. Finally, Adam Smith's invisible hand can pull us in the right direction, away from this broken economy.
Spotify gave rise to a new era of consumer choice in music. It is time for the rebundled grid to do the same for energy.
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Great article Anant! What do you think of how decentralisation will bifurcate across developing and developed regions i.e. those with no infrastructure are more likely to leapfrog e.g. M-Kopa?