Mix tons of experience, a considerable amount of big data and a start-up attitude, and you’ll end up with a company that is creating the energy retail model of the future: the orchestrator of a household’s electricity bill! This energy retailer has set foot on earth to do things differently. While still early stage, but already multiple millions of investment further, this energy retailer aims beyond Australian borders. I had the chance to interview former founder and CEO of Australian Power & Gas, James Myatt, now founder of Mojo Power.
We can state that when it comes to innovation in the electricity industry, it clearly aren’t the big incumbents that are determined to do things differently. Maybe they should, but they don’t. Interestingly, however, these big incumbents are obviously the ones to be hit hardest as the result of radical transformations within the industry. Think of the German Energiewende for example. The four largest energy companies operating in Germany that were responsible for 90% of the German market suffered immense losses and their business models have increasingly been challenged. I’m aware of the fact that there is a clear distinction between generation activities and retail activities. However, these gigantic incumbents operate in both and are being pressured on every single asset. You could think that these dominant market participants see such obvious transformations coming like everyone else does and therefore capitalise on it rapidly. Apparently, they aren’t eager to learn… These days, changes in the electricity sector are characterized as evolving at an exponential rate. The main reason for this to happen is because of the technologies that are evolving rapidly that permit people to actively engage in the activities that originally were done by such big incumbents. Interesting things are happening and today the electricity industry is becoming a playing field with radical Davids and slowly greening Goliaths. I think it’s novel worthy!
Some argue that Goliaths can capitalise quite easily on radical Davids. In my opinion, Goliath will and can to some extent. However, when talking about Goliaths that truly want to change an industry and breach the current paradigms, they simply can’t. David is there to battle Goliath!
Think of VanDeBron, the Dutch energy peer-to-peer market place for DREG, who is highly successful in the Netherlands. You know what happened? Vattenfall, the Swedish government-owned energy company, recently announced that they will launch a similar start-up to VanDeBron on the Dutch market called Power Peers. You could argue wether it’s literally a copy… Do you really think that a company, struggling with their renewable energy strategy, is able to become a leader in the clean energy transition with the same philosophy and passion as VanDeBron? I let you fill in the gap… I think David is about to win. He convinced Goliath to change its business!
In my previous article I wrote that energy retailers have to change their business models radically before they’re being put out of business. Why? Shit is about to hit the fan!
James Myatt already saw the big changes in the electricity industry coming in 2010. By that time he was running a multi million-dollar energy business that was noted on the Australian Stock Exchange. Instead of denying the potential of distributed renewable energy generation (DREG) such as wind and solar energy, he started thinking about ways to become actively involved in the transition.
“I think 2006 was the year of the catalyst that started all. This catalyst made me really think about what was happening with distributed generation. The serious tipping point occurred really after the Feed-in Tariffs that hit the Australian market in 2010/2011. Prior to that, solar wasn’t really on the radar, it had a tiny penetration, it was really expensive and the economic case didn’t really stack up. We considered it a niche. We never considered it to hit the retail world.” – James Myatt
How Do Retail Businesses Evolve in the Clean Energy Transition?
From a traditional retail energy model the introduction of solar into the mix has two negative effects on this model. Today all retailers make its profits on the amount of energy consumed by the customer. So there is a kWh-tariff set by retailers. Embedded in this retail-tariff there is a network cost for the “poles and the wires”, a charge for the wholesale electricity and a retail margin. In a previous article on pricing structures I explained the fact that higher network costs have a negative impact on the retail-tariff. Higher network costs demand retailers to increase their tariffs. However, in order to remain competitive, retailers preferably don’t change their tariffs. As a result, increasing network costs either affect the retail margin or demand the retailer to increase its tariffs. However, the retailer model traditionally and globally works in a way that the more their customers consume the greater the gross margin contribution per customer. In fact, there is no incentive for the customer to use less electricity. The more they consume, the higher the retailers profit! Furthermore, there’s actually no rationale for it… It doesn’t even align with the retailer’s cost-structures underneath, the cost to serve a customer. Actually their cost to serve a customer is a fixed cost and doesn’t increase when more electricity is consumed neither does it when more customers are acquired. The internal cost to serve a small customer equals that of a large customer.
The thing that happened when solar hit the market was the following: every time a customer installed a solar system in all of a sudden their consumption decreased significantly while the internal cost to serve that customer remained the same. The consumption could drop by 30 % up to 50 % depending on the size of the system and other dynamics. The solar customer ended up being unprofitable just because of their adoption of solar.
“Imagine! In all of a sudden the whole solar boom got loose in Australia. There were about 10 to 20 thousand customers installing a solar system every month. This seriously impacted the profitability of your business.” – James Myatt
The second effect that started to become apparent from a retailers’ perspective was the unpredictability of consumption. As a retailer you’re hedging the wholesale market. The wholesale market is such as a stock exchange a volatile market in which electricity is traded. A retailer has to hedge the market in a way that it reflects the predicted load profile of their customers. This predicted load profile is based on historical data. However, the moment that solar got big, a serious hedging problem started to occur. Retailers weren’t able anymore to predict the appropriate load profiles, because customers were using solar when the sun shined and they relied on the retailer during the times that the sun didn’t shine. The entire load chart of a customer started to change. This is the moment that James Myatt started to think that the retail model was susceptible for disruption.
How Is Mojo Power Going to Disrupt the Energy Retail Model?
Solar is only the beginning of changing load profiles. The next big thing that is about to change this load profile seriously is the emergence of customer-sited energy storage or just home batteries. If customers are about to install both solar and batteries, what is the role left for energy retailers?!
“After Australian Power & Gas I started to run Sungevity in Australia. Sungevity was an interesting solar retailer founded by Danny Kennedy. Sungevity was selling residential solar with Power Purchase Agreements (PPA’s). However, it was somehow problematic because customers were still receiving electricity bills from their energy retailers. I shared a vision with Danny that in order to become efficient in the roll-out of solar you’ll need to be an integrated energy business with one energy bill that covers all!” – James Myatt
The culmination of achieving simplicity and transparency to your customers, while at the same time willing to operate as a profitable business in the field of energy retailing and the roll-out of DREG formed the basis of Mojo Power. Mojo Power relies on a threefold platform.
The first element is that Mojo Power wants to recap the whole retail tariff. An energy retailer should no longer make profit on the amount of electricity sold. If a retailer wants to encourage its customers to use less electricity, it should make no profit on electricity. Instead, Mojo Power works with a fixed subscription fee: a monthly payment that provides their customer with retail services. The retailer manages the interface of the customer with the energy market. At Mojo Power there are different subscriptions models based on amount of services that a customer would like to receive. Each customer has direct access to wholesale rates. So there is no longer a profit margin on the wholesale rates.
“So now we say it’s 30 dollars a month and that’s what you pay and that’s where you’ll get all the retail services for. This means that in a distributed energy future where customers take 0% from the grid, there’s still a role for Mojo Power. We mange their energy interface and, basically, enable them to take 0% from the grid.” – James Myatt
The second element of the Mojo Power model is Data Analytics and distributed generation. Of course! Where is a company today without any access to valuable data on your customers? The core principal of Mojo Power is the installation of a retailer owned Smart Meter instead of a network owned Smart Meter. As a retailer you want to provide your customers with insight in their real-time energy usage through the use of an App. At the same time, this Smart Meter enables Mojo Power to analyse the customer’s data profile. This enables them to do two things. First, it provides them to better calculate the predicted load profiles of their customers. Second, all the data is stored in a cloud-based data warehouse and they can then analyse the customer’s data on a individual basis. This permits them to advise their customers on what size solar system and battery system would work perfectly given their individual usage pattern.
“One of the biggest challenges that we found at Sungevity was knowing a customer’s load profile and rightsizing a solar and storage system.” – James Myatt
The third element of Mojo Power is the combination of a third-party ownership model and operating a Virtual Power Plant model . Today, the majority of the households that operate rooftop solar can be considered early adopters. Such early adopters are highly important to kick-start the adoption of new technologies. However, having the technology adopted by the bigger majority of society is strictly more complicated. The average consumer of electricity just wants its electricity bill to be as low as possible. Therefore, Mojo Power thinks that in order to lower the customers’ electricity bill they should offer them the possibility to manage it for them. So, Mojo Power offers an asset ownership vehicle that lowers their electricity bill at no upfront cost. They own and operate the solar and battery system on the property of the customer and the customer benefits from it. Ideally, Mojo Power owns and operates the dispatch of electricity with a partner like Reposit Power.
“So if they’re paying 20 cents now, we might just say let’s put a solar battery system on your house and you’ll be guaranteed to pay only 12 cents for the next 10 or whatever years!” – James Myatt
The other aspect of this element is that Mojo Power has the opportunity to operate a Virtual Power Plant at the same time. The fact that they operate the solar and battery systems at the customer’s property enables them to share the excess electricity with the community and then the economic case does stack up.
Do you want to meet Mojo? Just watch this video!
What Is the Ambition of Mojo Power?
Mojo Power has only recently been launched and is still testing their entire software and system. However, they’ve got a highly interesting business proposition that enables their customers to truly lower their electricity bills. Ideally, Mojo Power want to become net positive by generating enough distributed renewable energy in order to meet the demand of their customers. Their ambition is to revolve into a retailer that solely provides their customers with electricity from their DREG. A crucial factor within their business is partnerships with third-party companies in order to offer additional services to lower the customers’ electricity bills. Insight in load profiles enables you to offer LED-programs, more efficient Aircon or different pool filters!
“Convincing your customer is all about engaging them and make them aware of the whole process. We need to be able to report to them in a simple way what they’ve done and what they’ve saved, then you’ll definitely be able to engage them!” – James Myatt
Mojo Power has the ambition to be different. They want to return positive energy in the business of energy retailing and they want to deliver a solid product and platform. They’re backed by ARENA, a governmental body that was established to increase the deployment of renewable energy, while at the same time making the solutions more affordable. They got a seriously generous funding from ARENA and don’t forget that Mojo Power is there to not only disrupt the Australian market, but they go beyond that and even further!