The European ambitions for attaining sustainability targets are visible in the policies and measures deployed by the European Commission to achieve its 2020 and 2030 objectives for emissions reduction, energy efficiency, and increase in share of renewable energy (European Commission, 2012, 2014) and in the recent adoption of the Energy Union strategy (European Commission, 2015). However, in force EU policies will be insufficient to achieve the long-term target defined in the European Commission’ Energy Road Map 2050 (European Commission, 2011). Countries leading the energy transition, such as Germany and Switzerland, adopted policies even more ambitious setting clear and long-term targets for 2050, including substantial reduction in primary energy consumption and carbon emission, increase of renewable energy share, and the phase out of nuclear power (BMWI, 2010; SFOE, 2013; Markard et al., 2015).

In this respect, a range of supportive energy policies, e.g., feed-in-tariffs and subsidies, favoring bottom-up investments in renewable energy and energy efficiency measures has been put in place (Anaya and Pollitt, 2015). Virtuous examples are the penetration of solar photovoltaic in Germany (EPIA, 2014) and combined heat and power in many other European countries (Lund and Münster, 2006; Toke and Fragaki, 2008; Fragaki and Andersen, 2011). As a result of such policies, the increasing market penetration of distributed generation – based on renewables or favoring energy efficiency in fossil-based energy systems – is observed in many industrialized countries (IEA, 2014; Anaya and Pollitt, 2015) and is expected to significantly transform the energy supply value chain (Schleicher-Tappeser, 2012).

The intrinsic technological distinctness between distributed generation and traditional centralized generation is reflected on both the economic and organizational perspectives. As discussed by Schleicher-Tappeser (2012), distributed generation challenges traditional utility business models opening up new business opportunities to horizontal integrate diverse energy services – i.e., including electricity supply, cooling, heating, and additional energy-related services – and increasing autonomy and flexibility of customers. Such customer-oriented multi-services approaches require to be addressed by appropriate innovative business models. The capability, on the one hand, of policy makers to facilitate the transition with effective regulations and, on the other hand, of market players to develop successful business models will substantially affect the speed and effectiveness of the energy transition (Schleicher-Tappeser, 2012).

The role of business model innovation in supporting the required fundamental change of value proposition and value creation logic to generally promote the energy transition has been acknowledged by a number of recent scientific works. Loock (2012) reported the results of choice experiments with investment managers for renewable energy aiming to identify which business models could succeed in the market. The study showed that business models focusing on customers and proposing high-quality services are considered more attractive than business models oriented to low price and best technologies. Richter (2012) reviewed the existing business model approaches adopted by utilities with regard to renewable energy. The results showed that even though business models focusing on large projects insure a better risk–benefit compromise, utilities should urge to invest in business model innovation to take advantage of the forthcoming business opportunities related to smaller distributed generation projects. The same author (Richter, 2013b) analyzed the attitude of German utilities with respect to photovoltaic-based distributed generation and showed that utilities tended to fail perceiving photovoltaic generation as a new business opportunity and identified the causes behind this fact. Furthermore, it has been found that creating separated units within the company to address new businesses and to emphasize external partnerships can effectively foster the business model innovation process. The establishment of collaboration between distributed generation firms has been acknowledged as a key driver fostering business model innovation also by Hellström et al. (2015). In addition, the authors concluded that business models for distributed energy systems are not only the outcomes of a decision-making process across a certain number of options dictated by internal and external conditions but instead also a continuously active process aiming to keep the local business ecosystem profitable.

As presented in this concise literature review, the key role of business model innovation in fostering the energy transition has been described from different perspectives in the available scientific literature. Nevertheless clear gaps remain in the identification of specific business model patterns applicable in the energy transition context. Research addressing this topic has been initiated in a previous work presenting a heuristic methodology easing the identification of business model patterns best suited for local energy management (LEM) – the management of energy supply, demand and storage within a given geographical area (Facchinetti and Sulzer, 2016). Building upon the previously developed conceptual framework, the present contribution aims to specifically identify and explore the impact of the main determinants (or factors) that should be considered by stakeholders undertaking a business model innovation process for an intended LEM concept. First, the main determinants have been selected through the analysis of the existing scientific literature on distributed generation typologies and related customer/investor preferences. In a second step, the impacts of the identified determinants on the business model innovation process have been investigated via the implementation of semi-structured interviews with utility managers.

Utility companies, the focus of attention for this work, are on the edge of the energy transition and face the difficult challenge of innovating their business model in accordance with a very changing environment (Sühlsen and Hisschemöller, 2014). In particular, Swiss utilities, which have been involved in the present investigation, are currently exposed to a dual challenge. On the one hand, Switzerland is one of the countries leading the energy transition with its Energy Strategy 2050 (SFOE, 2013). On the other hand, Switzerland is still in the process of achieving full market liberalization. At the moment, locally established (city or canton level) utilities control the Swiss energy retail market. However, they are being prepared to face the upcoming full market liberalization.

The outcome of this study is a set of Swiss utility manager’s preference indications providing an orientation toward the most appropriate business model pattern(s) to select for different LEM concepts. The present work represents a starting point toward the characterization of aspects driving the business model innovation process for LEM concepts.

The paper is organized as follows. In Section “Methodology,” the applied conceptual framework and research methodology are described. In Section “Results,” the results of the main determinants selection and interviews with utility managers are presented. The results are discussed in Section “Discussion.” Finally, in Section “Conclusion,” conclusions and policy implications are outlined.

The applied methodological framework is depicted in Figure 1. In Section “The Conceptual Business Model Solution Space,” the conceptual business model solution space for LEM developed in a previous work is summarized. In Section “The Selection of the Determinants,” the methodology applied for the selection of the determinants is described. Finally, in Section “The Utility Manager Interviews,” the research approach applied for the manager’s interviews is outlined.

Prior to describing the methodological framework, the considered definition of business model and business model innovation are here introduced. In this work, the term business model refers to the definition proposed by Osterwalder and Pigneur (2010): “the rationale of how an organization creates, delivers, and captures value.” This definition is widely accepted within the literature and in particular in the energy sector (Okkonen and Suhonen, 2010; Richter, 2012; Facchinetti and Sulzer, 2016). Osterwalder and Pigneur fully characterize a business model based on four elements, namely the value proposition, describing the offer; the customers, characterizing the customer targets; the infrastructures, including all means required to deliver the value proposition; and, finally, the financial viability, explaining how profit is generated.

Business model innovation is defined as a discipline supporting the change of value proposition to customers (Bocken et al., 2014), involving the change of the way a business is run (Zott and Amit, 2013), and considering a large number of stakeholders and a broad value-network going well beyond the existing firm perspective (Beattie and Smith, 2013; Zott and Amit, 2013).

This section explores the outcomes of the selection of the main determinants and of the utility managers interviews. The determinants are organized into three categories: related to the LEM typology, related to the socio-demographic characterization of customers, and related to external aspects. The identified determinants are summarized in Table 4.

Three sections focusing on each determinant category are presented hereafter. Within these sections, first, the selection of the specific determinants is discussed and each determinant characterized. Afterwards, the association of the determinants to the business model solution space, derived from the manager interviews, is outlined in form of preference indication (Tables 5–14).

For most of the investigated determinants, the managers provided agreeing or at least compatible answers. The reasons behind their choices were sometimes more heterogeneous, showing how the different perspectives related to their different job functions and experiences played an important role. Combining answers and explanations enabled the recognition of leading general trends pointing to more or less specific portions of the business model solution space.

Especially at the beginning of the semi-structured interviews, the managers struggled to cope with the proposed approach of investigating each determinant independently. They highlighted the fact that – the identified determinants being to a certain extent correlated to each other – it is challenging to generally judge the impact of each one separately. Nevertheless, once the managers became familiar with the proposed approach they acknowledged the advantage of focusing on a single aspect at time. This reduces the unsuitable attitude of associating existing combination of determinants to traditional business model approaches. Instead it forces broad re-examination of each determinant to identify unexplored options.

The analysis of possible correlations/dominances between different determinants is an interesting aspect to be addressed in future investigations. A better understanding of these dependencies would further strengthen the ability of the conceptual framework to support business model innovation.

Also, during the discussion, the managers highlighted the difficulty that they are currently experiencing in switching from the continuous adaptation of their traditional long established business models, which focus on infrastructures and feature little or no consideration of customer preferences, toward the creation of innovative customer-oriented business models. The related challenge is threefold. First, it entails the identification of economically viable new business opportunities in a changing market and policy framework. Second, it requires the organization of the new indispensable activities of collecting, monitoring, and understanding customer preferences. Third, it demands the development from scratch of the business models required to exploit the broader variety of emerging business opportunities and customer segments. With respect to the last point, the managers praised the possibility offered by the proposed conceptual framework to provide a comprehensive and organized solution space favoring a systematic approach to initiate the business model innovation process. Furthermore, they valued the proposed research work aiming to provide an orientation within said conceptual framework through the identification and characterization of major determinants.

Going generally across the provided preference indications, it appears that when the business conditions are favorable (e.g., growing economy, high willingness to pay of customers, high density of buildings), the managers generally orient their preferences toward business models focusing on comprehensive high-quality services. Conversely, when conditions are not encouraging, the preference goes toward basic or tailored services often in combination with customer ownership of infrastructures. This confirms that the current economic and political situation favors business models oriented to customer ownership and basic or tailored services (Facchinetti and Sulzer, 2016). Assuming that the next steps of the energy transition are characterized by a more suitable and less uncertain regulatory framework, business models offering customer-oriented high-quality services and infrastructure leasing solutions are expected to attract more and more attention from utilities. Improved macro-economic conditions would accelerate this trend. From this general perspective, the role of shared ownership approaches appears controversial. The managers rarely indicated individual preference for these approaches; instead they mostly suggested them as an alternative/complementary option to LEM ownership approaches. This evidence could be explained by the fact that these business approaches have proven their market success in the context of the energy transition in public or cooperatives businesses (Viardot, 2013; Yildiz et al., 2015). However, so far they have not been at the core of the utilities’ market strategy (Richter, 2013a).

Clearly, the present work bears limitations that should be considered. The fact that the analysis has been restricted to a very specific empirical context and to a limited sample of managers makes the outcomes difficult to generalize. The applied explorative qualitative research approach is not meant to derive exhaustive and general conclusions, but instead to provide a first contribution to understanding the link between business model innovation and stakeholder preferences at this stage of the energy transition. We expect to address in follow-up works the further consolidation, refinement, and extension of the proposed preference indications through a deeper analysis involving a larger number and variety of stakeholders.

The effective accomplishment of the energy turnaround relies on a deep reorganization of the energy market. Business model innovation is recognized as a key driver of this process. The present paper contributes to this topic by providing to stakeholders and policy makers an orientation within the vast business model solution space of LEM concepts – defined as the management of energy supply, demand, and storage within a given geographical area. The contribution of the present work to the existing literature on business model innovation for the energy transition is twofold. First, based on comprehensive literature reviews, it provides a structured selection of main factors to be considered by stakeholders undertaking a business model innovation process for an intended LEM concept. Second, based on interviews with utility managers it provides indications for the identification of specific business model patterns most appropriate to valorize LEM.

Building upon a recent previous work (Facchinetti and Sulzer, 2016) in which the LEM business model solution space was characterized through the definition of a conceptual framework, the present work goes one step further. The main determinants to be considered within the business model innovation process have been selected through reviews on distributed generation typologies and customer/investor preferences related to new business opportunities emerging with the energy transition. The identified determinants have been organized into three categories: related to the LEM typology, related to customer characterization, and related to external aspects.

The impact of the identified determinants on the business model innovation process has been investigated through an explorative qualitative research approach collecting the opinions of Swiss utility managers through semi-structured interviews. The outcome of this study is a set of preference indications associating the identified determinants with the most suitable region of the LEM business model solution space (Tables 5–14).

The interviews confirmed existing literatures (Richter, 2013b; Helms, 2016) and shed light on the challenge that the utility managers are currently facing: discontinuing the adaptation of traditional long established business models, focusing on infrastructures and with little or no customer preferences consideration, in favor of pursuing new business models built around customers’ needs and preferences. From this perspective, the managers acknowledged the support offered by the proposed systematic and comprehensive conceptual framework for LEM business model innovation.

The provided conceptual framework offers to potential LEM stakeholders a structured guide through the business model innovation process. Characterizing the intended LEM with regard to the determinants identified in this work, and then following the corresponding preference indications, would lead stakeholders to the most appropriate portion(s) of the business model solution space in accordance with the utility manager’s preferences. Each solution space portion is characterized by clusters of generic business model ideas referring to the different LEM value chain steps (Facchinetti and Sulzer, 2016). Through combination and adaptation of the identified business model ideas, stakeholders can develop suitable business models tailored to the intended LEM concept.

Policy makers could take advantage of the presented conceptual framework by using it to understand and predict a LEM stakeholder’s decision-making process in a comprehensive variety of scenarios. Analyzing the impact factors influencing the business model innovation process should ease the determination of outdated policies hindering the penetration of innovative business approaches, and accelerate the development of a more segmented and flexible regulatory framework appropriate to favoring LEM market penetration.

The following main outcomes have been derived from the managers’ preference indications. The utility managers appeared generally inclined to favor business models focusing on high-quality comprehensive services when business conditions are favorable. The mentioned favorable business conditions include supportive policies scenarios, a growing economy, new development projects involving multiple energy carriers in areas characterized by a high building density, and target customers with a high willingness to pay. When conditions are more adverse, the manager’s preferences are generally oriented toward business models relying on basic or tailored services, often in combination with customer ownership of infrastructures. This evidence suggests that in the current political and economic situation business models focusing on customer ownership and basic or tailored services are preferred. This conclusion confirms previous findings based on a market analysis (Facchinetti and Sulzer, 2016). In other ways, assuming movement toward a more suitable and less uncertain regulatory framework, business models focusing on customer-oriented high-quality services and infrastructure leasing solutions should attract more and more attention from the utilities. From this perspective, in order to increase the appeal of LEM to large investors, policy makers should develop suitable regulatory frameworks guaranteeing consistent and stable policies across a time period compatible with the long-term investment required. Finally, the analysis has shown that, in the view of utility managers, the role of business models characterized by shared ownership approaches is controversial. Indeed, the managers rarely indicated individual specific preference for such approaches. Considering the intrinsic suitability of shared ownership approaches to LEM concepts, policy makers should encourage such approaches so far only to a minor extent addressed by the legislation and applied in the energy market.

EF: main author, main contribution to the conception of the work. CE, AB, and SS: significant contribution to the conception and critical revision of the work.

The authors declare that the research was conducted in the absence of any commercial or financial relationships that could be construed as a potential conflict of interest.