DESIGNING A BUSINESS MODEL

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BUSINESS MODEL

For Nedap Energy Systems

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DESIGNING A BUSINESS MODEL

For Nedap Energy Systems

University of Groningen

Faculty of Economics and Business

MSc Business Administration – Business Development Landleven 5

9747 AD Groningen

1st_{Supervisor
University:
F.D.
Streefland}

2nd_{Supervisor
University:
L.
Maruster}

Nedap N.V.

Business unit: Energy Systems Parallelweg 2

7141 DC Groenlo

Supervisor Nedap Energy Systems: A.P. Haytema

Author: Rolf Kruithof

Student number: 1687786 Arendshorst 2 9502 HE Stadskanaal Tel: +31 (0)6 43272348 E-‐mail: r.b.kruithof@student.rug.nl

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PREFACE

This report is the result of my master thesis project. The last step in completing the master Business Development of the faculty Economics and Business at the University of Groningen. The project was executed at Nedap N.V.’s business unit Energy Systems. Nedap N.V. is a manufacturer of intelligent technological solutions for relevant themes. I was involved in the opportunity of Nedap N.V. to do business in the market of housing associations with the PowerRouter (a solar inverter with batteries which is able to store solar energy).

During my period at Nedap N.V. I learned a lot of new things. It was nice to see knowledge learned from books and course lectures in practice. Nedap N.V. gave me a lot of freedom to conduct my research and the employees were willing to help.

I would like to show my gratitude to all the people who helped me writing this master thesis. Special thanks for Anne-‐Pieter Haytema for giving me the opportunity to do the assignment at Nedap N.V. Also for supervising me through the process and helping me to come in contact with several companies.

Second, my special thanks to my supervisor of the University of Groningen, Frank Streefland, for all his guidance, advice and support. In times that I was stuck at writing my thesis, his advice gave me new input to continue.

Also special thanks for my second supervisor of the University of Groningen, Laura Maruster. Her professional comments gave me the opportunity to further improve my master thesis into the report that lies in front of you.

At last I would like to thank all the persons who helped me during the process of writing the master thesis. Whether it was by taking my mind off the master thesis for a while or by reading the working document for grammatical errors.

Rolf Kruithof March 2013

“A mediocre technology pursued within a great business model may be more valuable than a great technology exploited via a mediocre business model”

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EXECUTIVE SUMMARY

An opportunity for Nedap N.V. is researched in this thesis. This research examines the potential of their product ‘The PowerRouter’ in the Netherlands, in the market of housing associations. Nedap N.V. already has launched the PowerRouter successfully in Germany, and now also wants to look at the possibilities in the Netherlands. The regulations in Germany are very beneficial for the

PowerRouter. The regulations for the PowerRouter in the Netherlands are very different. Therefore this research looks whether a successful business model can be designed for the Netherlands. In academic literature a lack of consensus can be found about the definition of a business model. Very specific definitions can be found which includes the components of a business model. Other authors use a very abstract definition and mention no components. Due to the lack of consensus about the definition, there is also no consensus about the components that should be included in a business model. Despite the lack of consensus more articles are written the last ten years about business models. The process of the creation of a business model is not widely researched. This research tries to make a contribution to these gaps by researching the opportunity of Nedap N.V. The research question of this thesis is: How should the business model for the PowerRouter of Nedap Energy Systems, that enables a competitive position in the Dutch market of housing associations, look like?

By making use of a systematic design process, three different business model concepts are created for the PowerRouter in the Netherlands. By using the weighted objectives method the most suitable business model is chosen. The chosen business model is a cooperation between Nedap N.V., a housing association and an ESCo on the Dutch market. The tenants are charged with variable tariffs for energy. The tenants can save money by using energy at times that the price of energy is low. An expert panel tested the designed business model. This has been done in order to check whether the designed business model fits all the requirements. The selected business model is tested as the most suitable business model. The test showed that a more detailed design was required. Therefore a detailed design is created for the business model. This detailed design showed that there are practical implications of the business model that makes the business model less feasible. An example of an implication is that the business model needs to start with 800 PowerRouters from the start in order to be allowed to trade on the market of energy.

The design process used in this thesis can be used in the future to design business models. The used components for the business model (value proposition, market, internal capability factors, external capability factors, and economics) are on a high level of aggregation; therefore they can be used in other business models. The step decomposition of the task is necessary to look at the task in smaller steps; it makes you aware of the interconnectedness of the components. The output of the design process was a business model on a conceptual level, which needed more refinement. Therefore we continued with the detailed design phase.

Future research should look deeper into the design framework of business models. Where do you create go/no go decisions in the framework? More case studies are needed to show whether the design framework for business models is applicable in other situations.

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1. INTRODUCTION

This chapter starts with the academic interest in business model literature. A literature review is conducted to explore what academics have written about business models and what gaps there are still left in the literature. This research tries to make a contribution to these gaps by performing research at Nedap Energy Systems. A description of the interest in this subject by the company is given in the second paragraph. This opportunity is preliminary validated in the third paragraph. The chapter continues with stating the research goal and research question of this research. At the end of this chapter the structure of the thesis is described.

1.1 Academic interest

What explains the difference in performance among firms? Zott, Amit & Massa (2011) show that there are multiple views that can explain value creation heterogeneity. One view is the ‘industry view’ (Porter, 1980), which suggests that industry factors such as market barriers and market size form the most important factors that explain the difference in performance among firms. The second view is the ‘firm view’. In this view, the capabilities of the firms and the difficulties of replication explain the performance heterogeneity (Lai, Weill, and Malone, 2006). An example of this view is the resource-‐based view of Wernerfelt (1984). The third view is a more recent view that gives a different explanation, namely the ‘business model’ view. Business practitioners and business literature argue that the ‘business model’ explains the difference in performance among firms (Kaplan et al, 2004). Companies that are cited as successful due to their business models are eBay, Dell, and Wal*Mart. We focus in this research on the third view.

Academic literature about business models is relatively new; the concept business model emerged in the mid-‐1990s (Zott, Amit, & Massa, 2011). Academic literature shows an increased interest in the term business model. The amount of articles written per year about business models has grown rapidly (see appendix 1). The articles show a consensus about the importance of having a good business model (Alt & Zimmerman, 2001). A bad developed business model can lead to the failure of companies although they have enough opportunities, resources, ideas, and entrepreneurs (Morris, Schindehutte, & Allen, 2005). A good developed business model can explain the difference in performance among firms (Lai, Weill, and Malone, 2006).

In academic literature a discussion can be found about what a business model is and what not. No generally accepted definition of a business model can be found in literature. Some authors use a very general definition (Chesbrough & Rosenbloom, 2002; Casadesus-‐Masanell & Ricart, 2010). Other authors use very specific definitions (Timmers, 1998; Magretta, 2002). The discussion about the definition of a business model is important because it contributes to the knowledge of what a business model is (Lambert & Davidson, 2012). Due to the fact that there is no consensus about the definition of a business model, it can be argued that it is logical that there is also no consensus about the components of a business model. The amount of components differs between authors, from three components (Mahadevan, 2000) up to twelve (Hoque, 2002).

The lack of definitional clarity represents a potential source of confusion, promoting dispersion rather than convergence of perspectives and obstructing cumulative research progress on business models (Zott, Amit, Massa, 2011). The lack of definitional clarity explains why there is a lack of empirical understanding in the development of new business models (ibid.).

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Little is known about how the business model is being applied in practice (Hacklin & Wallnöfer, 2012). Much of the current research about business models is descriptive, empirical research is emerging that either tests conceptual research or is exploratory of nature (Lambert & Davidson, 2012). Former research measures the present business model applied, but there is no empirical research that aims to predict business models that will lead to future successes (ibid.).

New knowledge is necessary to close the empirical research gap. This thesis tries to make a contribution to the gap by researching an opportunity at Nedap N.V. The presented thesis tries to move away from the broad discussions of what a business model is and what the components are of a business model. Instead of trying to resolve these theoretical aspects, this thesis puts the focus on the development process of a business model and tries to contribute to this stream of literature by designing a business model for a specific opportunity. This research could move the discussion in literature towards the design and use of a business model.

1.2 Business interest

The opportunity has been found in the management question of Nedap N.V. The company is a manufacturer of intelligent technological solutions for relevant themes. Their business unit Energy Systems was looking whether it was possible to create a business model for their product in the Dutch market of housing associations. The product involved in this research is the PowerRouter, a solar inverter with the possibility to store solar energy. The demand for energy is growing; therefore new sustainable solutions are needed. Nedap Energy Systems thinks that the PowerRouter can play an important role in the smart grid developments in the Netherlands. The business model for the Dutch market of housing associations can be a starting point for smart grids in the Netherlands. Therefore Nedap Energy Systems has an interest in a business model at housing associations.

1.3 Preliminary validation

Before we start with answering the management question of Nedap Energy Systems, we first need to preliminary validate the opportunity. The opportunity has been validated by interviewing six

stakeholders with the use of semi-‐structured interviews, attending company presentations, and by reviewing internal documents of Nedap N.V. In appendix 2 a list of the interviewees can be found together with the questions and the most important outcomes. A summary of the outcomes can be found below.

An interviewee explained that the Netherlands is becoming more aware of renewable energy:

‘Advertisements on the television is an example of the shift towards renewable energy in the Netherlands. The amount of commercial breaks about renewable energy has grown significantly’.

All interviewees mentioned that the scale of housing associations is the most interesting factor for the business model. An interviewee said ‘One single customer is not interesting for Nedap N.V.

because you have to convince everyone individually to buy your product’. One interviewee mentioned: ‘Housing associations can get insights from the energy consumption of their tenants and create new services with this information. For example the household that uses the most energy could be visited to talk about their energy consumption’.

An interviewee mentioned that with a business model in the market of housing associations lessons could be learned for smart grid solutions. During a company presentation by the business unit

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manager the current state and future directions of the business unit were presented. Smart grid solutions were one of the important directions for the coming years.

Some interviewees also mentioned that with a business model at housing associations a high level of added value per employee could be reached. This would fit the statement from the year report 2011:

‘The overriding objective … is to engage our own staff predominantly in those activities with the highest added value per employee, without losing control of our core processes’.

Overall the interviewees stated that they see possibilities for the PowerRouter in the Dutch market of housing associations. Only one interviewee added: ‘Although there are possibilities in the Dutch

market of housing associations, I think other countries should get more priority first’.

The results of the preliminary validation shows that the opportunity seems promising enough for further research. Therefore we continue with researching the opportunity. This research will be conducted within the business unit Energy Systems at the head office in Groenlo, which has around 50 employees.

1.4 Goal of the research

Derived from the business interest the following research goal is formulated:

To propose a business model for Nedap Energy Systems that gives them a competitive position in the market of Dutch housing associations. In order to reach the research goal the following

research question needs to be answered: How should the business model for the PowerRouter of

Nedap Energy Systems that enables a competitive position in the Dutch market of housing associations look like?

1.5 Structure of the thesis

This thesis is structured as follows. In the second chapter the research methodology of this thesis is explained. In the third chapter the analysis of relevant literature and company information is conducted that is needed for the design. The fourth chapter presents the actual design, which is tested in chapter five. This thesis ends with the conclusion, the academic reflection, and directions for future research.

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2. RESEARCH METHODS

2.1 Research process

This research is build around the reflective cycle of van Aken et al. (2007) and the regulative cycle of van Strien (1997). These cycles are used as the guideline for this research. The reflective cycle consists of 5 steps (Selection of case class, Case selection, Regulative cycle, Reflection about results, and Determining design knowledge). The reflective cycle starts with selection of a case class and choosing a business problem/opportunity (paragraph 1.1/1.2). By using the regulative cycle this opportunity will be researched. We will reflect on the results. This reflection will be input for similar projects in the future.

This research focuses on an opportunity rather than a business problem. In order to be able to design a business model, the current state of literature was researched. The results of the literature research combined with the analysis of the current situation of Nedap Energy Systems are input for the design. In chapter 4 the design of the business model takes place. The implementation of the business model lies out of the scope of this research. Therefore in order to test the business model we used an expert panel. The results of the expert panel are used to further improve the business model. In chapter 6 a reflection is given about the design. Here, also a reflection is given about the business model design process. Chapter 6 ends with limitations and directions for future research.

2.2. Research techniques

This research used several research techniques. Semi-‐structured interviews, academic literature, company documentation, observations, and company presentations are used in order to collect data. In order to analyze the qualitative data we used the qualitative analysis framework of Miles and Huberman (1994). The use of the different techniques is explained below together with a description how the quality criteria are taken into account.

Semi-‐structured interviews were used to conduct a preliminary validation of the opportunity and to conduct a need assessment in order to come to specifications for the design. The implementation of

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the business model was not part of this research, therefore in order to test the business model, interviews were held with experts. On average the semi-‐structured interviews took one hour each. Semi-‐structured interviews are flexible; it allows new questions to be brought up during the interview as a result of what the interviewee says (Lindlof & Taylor, 2002). Semi-‐structured

interviews are prone to interviewer bias. In order to cope with this bias, notes are made during the interviews. The interviews were written down at the same day of the interview. In appendix 2 the complete list of interviewees and questions of the preliminary validation can be found. In appendix 3 the interview questions and the most important outcomes of the interviews for the needs

assessment can be found. The program Kwalitan is used for thematic coding of the data of the interviews. In appendix 4 a list of interviewees and questions of the test can be found. Appendix 5 gives an example of an interview that is written down. All external interviews were held at the head offices of the different companies.

Academic literature: a literature review is done in order to look what the prior knowledge is about the definition of business models, the components of a business model, and knowledge about designing a business model. We used the database of Web of Science to look for academic literature. Search terms included: business model, business model definition, business model design, revenue logic, and business logic. In order to find more relevant articles the snowball method is used (Flick, 2006). The list of literature can be found in the bibliography.

Company documentation: Internal documentation is used to get a better understanding of the products offered by the business unit. Documentation is also used to look at the current situation of the company. A list of the used documentation can be found at the end of the bibliography.

Observations are used in order to get a full understanding of the possibilities of the product. At Nedap Energy Systems a customer presentation and multiple company presentations are followed. The customer presentation showed all the different possibilities with the PowerRouter. The company presentations showed the priorities of the business unit. The presentations also showed the current state of developments and the financial results of the business unit. Furthermore participant

observations are conducted. For six months a working place was created among the employees. The observations were used to observe the open culture of Nedap N.V. and the way of working of the business unit. The observations showed what the priorities and interests are for Nedap Energy Systems.

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3. ANALYSIS

Existing academic literature is reviewed in order to look what the current knowledge is about business models. We looked at the current knowledge about business model definitions, business model components, and business model design processes. Furthermore we looked at the current situation of the company involved. Also the developments in the market of housing associations and energy suppliers will be described.

3.1 Business models

The concept business models emerged in the mid-‐1990s (Zott, Amit, & Massa, 2011). The amount of articles written about business models has grown rapidly and is still growing (Ghaziani & Ventresca, 2005; Morris, Schindehutte, & Allen, 2005). Zott, Amitt, & Massa (2011) give an overview in their article about the different references to business model definitions at a general level. All these different views are a source of confusion (Zott, Amit, & Massa, 2011). These differences can also be seen in the definitions. Timmers’ (1998) definition of a business model gives a description of what a business model should constitute of: an architecture of the product, service and information flows, including a description of the various business actors and their roles; a description of the potential benefits for the various business actors; and a description of the sources of revenues.

Other authors give a more general definition: ‘The business model is “the heuristic logic that connects technical potential with the realization of economic value” (Chesbrough & Rosenbloom, 2002)’. Or give an emphasis on a specific characteristic of a business model: “A business model is a system of interdependent activities that transcends the focal firm and spans its boundaries” (Amit & Zott, 2001). In appendix 6 a list of definitions adopted from Zott et al. (2011) are summarized to show the differences in literature.

This study will use a definition for the business model that is a combination of the definitions of Chesbrough & Rosenbloom (2002) and Morris et al. (2005): “A business model is a heuristic logic that

connects technical potential with the realization of economic value through an interrelated set of decision variables to create competitive advantage in defined markets”

We use this definition because it is suitable for the Nedap case. The technical potential in this case is the PowerRouter. By making a selection of decision variables the realization of economic value can be created. The definition has a high level of abstraction. The definition does not mention any components of which the business model should constitute. This leaves room to look at which components should be included in a business model. Every business model consist of multiple components, therefore you have to look at the interrelatedness of variables which should be thought of in order to create maximum potential. In the ideal situation the business model would lead to a competitive advantage.

3.2 Business model components

The components of a business model are not widely acknowledged in academic literature. Some articles state questions that need to be answered in order to come to a business model. For example Morris et al. (2005) ask the following questions: How do we create value? For whom will the firm create value? What is the firm’s source of competence? How do we competitively position ourselves? How do we make money? What are our time, scope and size ambitions? Other articles state the most used components in previous research, and use them to create their own model (Tsvetkova &

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Gustafsson, 2012). The components that Tsvetkova & Gustafsson (2012) use are customer, capabilities, value proposition, and revenue model. This difference lies in the aggregation level chosen by the researchers.

However academic papers about business models show some similarities. They all contain the component product/service. The term used for the product or service is sometimes different. Examples are: value proposition (Stahler, 2001; Rayport & Jaworski, 2001; Tsvetkova & Gustafsson, 2012), value network (Aziz, Fitzsimmons, & Douglas, 2008), and customer value (Afuah and Tucci, 2001). This research will use the term value proposition. We use this term for the reason that a company will never only deliver a product; there is always a part of service involved and vice versa (Rushton & Carson, 1989). A consumer is not interested in only the product/service. They are interested in what he or she can do with the product or service, so what the value is of that product/service. Questions that need to be addressed are: What value do you offer? Is it a product or a service? What are specific characteristics of the product? What are the benefits of the product for the consumer? Answering these questions and the creation of value provides a justification for the business entity (Morris, Schindehutte, & Allen, 2005).

The customer is a component that is included in all business models in literature. For whom do you create the value (Morris, Schindehutte, & Allen, 2005)? Who will be the target customers/which customer segments (Weill and Vitale, 2001)/market segments (Gordijn, 2002)? Who is our customer (Chesbrough, 2007)? All these different terms have to do with the market, which the company wants to enter. Therefore we will use the term market in this research. Which market do you want to enter? What are specific characteristics of that market? To whom will the company sell and what are the nature and scope of the market in which the firm competes? Failure to adequately define the market is a key factor associated with venture failure (Morris, Schindehutte, & Allen, 2005).

Capabilities is a component that is used in various frameworks of authors (Afuah and Tucci, 2001; Halme et al., 2007; Osterwalder et al., 2005; Weill and Vitale, 2001). The article of Tsvetkova and Gustafsson (2012) use the term capabilities to define how a company is able to deliver the value to his customer by using their capabilities. We will use in this research a lower aggregation level of this term. We divide capabilities in internal capabilities and external capabilities. Internal capabilities are related to the question of Morris et al. (2005): ‘What is our source of competence?’. Models

implicitly or explicitly address the internal competencies that underlie a firm’s competitive strategy. This is consistent with resource-‐based theory, where the firm is viewed as a bundle of resources and capabilities (Barney, Wright, & Ketchen, 2001). The term ‘core competency’ is used to capture an internal capability or skill set that the firm performs relatively better than others (Hamel, 2001). Development and enhancement of this competence solidify the firm’s role in the external value chain and become the focus for the internal value chain (Morris, Schindehutte, & Allen, 2005). These competencies lie at the heart of the business model (Applegate, 2001). The external capability is related to the question of Morris et al. (2005): How do we competitively position ourselves? This question concerns competitive strategy factors. Core internal competences provide the basis for external positioning. The model must delineate how the entrepreneur intends to achieve advantage over competitors (Amit & Zott, 2001). The companies need to identify salient points of difference that can be maintained. The market should be defensible with the ongoing development in the environment. The positioning should be hard to copy, otherwise other companies are able to imitate the company and all the benefits will be lost.

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A last component that is always included in business model literature is a financial component. This component describes the economic part of the business model. Questions about pricing

methodologies, cost structures, margins, and expected volumes need to be considered. Economics is a core element of the business model (Linder & Cantrell, 2000). The economic model should provide a consistent logic for earning profits (Morris, Schindehutte, & Allen, 2005).

To summarize: we will use the following components for the creation of the business model: Value proposition, Market, Internal capabilities, External capabilities, and Economics. Figure 2 gives a depiction of the business model components.

3.3 Nedap N.V.

Nedap N.V. (Nederlandsche Apparatenfabriek) was founded in 1929. Originally it was established in Amsterdam. In 1947 the company moved to Groenlo. The company was one of the first companies that worked with Bakelite (Bakelite was considered as the first synthetic material). From there Nedap N.V. has grown into a manufacturing company of intelligent technological solutions in different themes like: Security Management, Agriculture, Retail, Energy Systems, Healthcare, Library Solutions, Light Controls and Automatic Vehicle Identification. An example of a product of Nedap N.V. is their security ports at shops (for example at ICI Paris XL and C&A). Sometimes knowledge spills over between business units. On the website of Nedap N.V. they state the following: ‘By making smart use of the knowledge and experience of other market groups, products are developed and launched on the market more quickly; this is a major reason for our competitive strength’

(Nedap.com, 2012). Besides the Netherlands, Nedap N.V. has subsidiaries in Belgium, China, France, Germany, Great Britain, Spain, and in the United Arab Emirates. Nedap N.V. has in total

approximately 650 employees. Of which 450 employees are working at the head office in Groenlo. Nedap N.V. is listed on the stock exchange since 1947.

Today, the organization consists of nine business units. These different business units, the so-‐called market groups are all independent from each other. Each market group is responsible for the development of its own products, but also for their marketing, sales and after sales. Nedap N.V. has a very flat structure. The span of control is very low. There are three layers: first the Board of Directors, then the business unit managers and then the employees (see appendix 7). Furthermore there are some teams among the employees level, but those are temporary and therefore not depicted in appendix 7. The benefit of a low span of control is that the management is more in touch with daily practice (Jones, 2006). The lines of control are more direct and less formal. All different functions of a business unit are put together in one large space. Therefore it is very visible of what everyone is doing. This setting should create creativity and make everyone more approachable. Nedap N.V. has a relative stable profit and turnover the past five years. Last year the company had a net profit of 10.98 million and a turnover of 152.35 million. However, 2009 was a bad year for Nedap

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N.V. due to the economic downturn. A reorganization followed, this resulted in a growth of profit and turnover. For 2012 a very positive prospect has been given.

3.4 The PowerRouter

The business unit Energy Systems started as a supplier for different companies. An example is that they developed solar inverters and battery chargers as an original equipment manufacturer (OEM). This relationship ended after a couple of years when Nedap Energy Systems found out that they stood too far away from the end-‐user. Sometimes the ‘wrong’ product had been developed based on OEM input. The specifications that Nedap Energy Systems had been given did not match the

requirements of the end-‐user. This did not fit with the way Nedap N.V. wishes to do business, which is ‘staying close to the customer’. When the OEM company also wanted to lower margins, Nedap N.V. decided to end the collaboration. Nedap N.V. continued with producing their own modular product: the PowerRouter.

The first version of the PowerRouter was developed in 2009. It is a photovoltaic (PV) system. The product collects solar energy and converts it into electricity. Part of the product line also has a battery charger, which can store the solar energy for later use or can be used as a backup when there is a failure of the grid. There are different models with different capabilities and capacities. The PowerRouter can be used to feed solar energy into the grid. An important capability of the

PowerRouter is self-‐use. By making use of batteries, you can store collected solar power in batteries. This helps a household to maximize the use of self-‐generated energy and makes them less

dependent of the grid. A last capability is the off grid energy system. The reason for these differences is due to the fact that different countries can have different regulations and different voltages of the grid. In appendix 8 you can find an overview of the available types PowerRouter.

The PowerRouter was developed to be part of a smart grid. A smart grid is a decentralized energy network with local energy generation, consumption and transport. The PowerRouter was developed to be a solution that makes the customer less dependable of the grid. Through the combination of collected solar energy and the use of batteries an uncontrollable source (the sun) can be made more controllable. The PowerRouter has an Internet connection that customers or other parties can use to monitor and manage the energy generation and consumption from a distance.

Figure 3: Visualization PowerRouter

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3.5 Renewable energy market

The PowerRouter operates in the renewable energy market. Renewable energy includes wind, hydro, solar and biomass. Renewable energy is defined as energy generated during natural processes, which are continually replenished (Centraal Bureau voor de Statistiek, 2012). This research focuses on the renewable energy: solar. Every year more solar power is produced. In table 1, you can see the growing production of solar energy in the Netherlands (Centraal Bureau voor de Statistiek, 2011). Popularity of the sustainable energy market is due to the fact that there is resource depletion of fossil energy. Also the climate change plays a factor in the transition to sustainable energy systems that make effective use of renewable sources. The fossil landscape is moving towards a sustainable energy landscape (Stremke & Koh, 2011).

Table 1: Renewable electricity production in the Netherlands

Net renewable electricity production in the Netherlands (mill. kWh)

Year 2005 2006 2007 2008 2009 2010

Solar power 34 35 36 38 46 60

Every country can have its own sets of rules and regulations because the European Union (EU) state energy policy targets which the governments and businesses need to comply to. This research focuses on one country, namely the Netherlands. An example of a country specific regulation: The Dutch market for electricity became liberalized and the consumers of electricity were free to choose their own supplier (Kwant, 2002).

The focus of this research is on the collection and use of solar energy. Solar energy has a major weakness: you can only collect sunlight during daytime. A solution to control this fluctuation is to collect and save this energy for later consumption. This would be beneficial, for the reason that you can use the energy collected during the day at night. Then a consumer does not have to buy energy from the grid. The storage of solar energy can also work as a backup when there is a failure of the grid.

3.6 Scenario Analysis

Before we can start with the design of the business model, it is needed to take a look at the external factors that could have an influence on the design. Changes in regulations determine how the business model should look like. A scenario analysis can be used to make a creation of alternative images of the future development of the external environment (Postma & Liebl, 2005). The scenarios highlight crucial uncertainties that have impact on the design and highlight the importance and consequences of these uncertainties (ibid). The different scenarios are placed in a plot (Schwartz, 1991). The y-‐axis indicates the uncertainty of the scenario and the x-‐axis indicates the expected degree of impact. When all the factors are put into the plot, the two least certain and with the highest impact is used for the scenario construction (van der Heijden et al., 2002). By putting the two factors on an axis four different scenarios are created.

A first factor is net metering (with net metering you are charged for the use of energy from the grid minus the energy generated with solar panels up to a maximum of 5.000 kWh per year). When this regulation changes a very different business model becomes possible. The impact therefore is high but also the uncertainty. At the moment there are discussions about net metering (Agentschap NL, 2012). Experts do not agree on the future of the energy market. One thinks that net metering will no longer be allowed in the future. This may cause that the Dutch situation will be changed into the

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German situation. Instead of selling it back to the grid for the same amount as you buy it, the price for selling energy back to the grid will be lowered.

Another possibility in the energy market is that energy suppliers will charge variable tariffs for energy during the day per quarter of an hour. The price of energy will fluctuate during the day. However, at the moment a flat fee is charged. An energy supplier in the Netherlands is looking at the possibilities to charge variable tariffs per quarter of an hour. The unique selling point of the PowerRouter (the battery solution) would be perfect in this situation. The price of energy will be one of supply and demand. When the grid has a shortage, the demand of energy is high. Therefore the price of energy fed back into the grid will be high. When your battery of the PowerRouter is full you can choose to deliver energy back for a high price. The battery will be recharged with solar energy, but a consumer can also choose to buy (cheap) energy to fill the battery (for example at night) when there is a surplus.

Another factor is the energy price. There is a reasonable certainty that the price is rising

(Rijksoverheid, 2011). But it is hard to predict with what rate and for how long. The last five years the energy price rose with 4.5% per year (Energie Nederland, 2011). Here the uncertainty is low, but the impact is high. Furthermore there is at the moment an economic downturn in the Netherlands. Therefore companies are less interested in investing large amount of money. However, this influences all the involved parties. Therefore the impact is low. The uncertainty is also low. A last factor is improvements and developments of the involved techniques. How fast are the technologies of the solar panels and the batteries improving? Are new and better techniques upcoming? The impact for the design is high. The uncertainty is also relative high. Figure 4 depicts the scenario analysis described above.

A. Net metering B. Energy price

C. Economic downturn

D. Technological improvements E. Variable energy tariffs

Figure 4: Scenario analysis

In the plot factors A and E are the two factors that are the least certain and which have the highest impact. These two factors are used for the scenario construction (van der Heijden et al., 2002).

High

B

C

Certainty

D

A

E

Low

High

Impact

(17)

Figure 5: Scenario construction

The current situation in the Netherlands is scenario 4. In this scenario there is net metering and no variable tariffs per quarter of an hour for energy during the day. Scenario 3 is a situation where net metering is no longer allowed and there is fixed prices for energy. This would lead to a situation that looks like the German situation. In the German situation the price for selling energy back to the grid is lower than buying energy from the grid. In this situation it is beneficial to use your self-‐generated energy instead of selling it back to the grid. Scenario 1 is a situation where both net metering and variable tariffs for energy during the day occurs. In scenario 2 variable tariffs for energy during the day occurs but there is no net metering.

We use scenario 2 as input for the design of the business model. The reason for this is that scenario 4 already occurs in the Netherlands. Scenario 3 looks like the German situation; Nedap N.V. already has a business model for this situation, therefore this situation is not interesting to research. In scenario 1 the benefits of variable tariffs per quarter of an hour decline due to net metering. Net metering is allowed up to a maximum of 5.000 kWh per year. After this maximum the benefits of variable tariffs would apply in scenario 1.

In scenario 1, energy suppliers have the obligation to transport the solar energy generated by households. With net metering all the solar energy generated will be directly transported over the grid. For this transportation of solar energy the energy suppliers do not get compensation. In scenario 2 less solar energy will be transported due to the use of the battery. In this scenario it is beneficial to sell as little as possible back to the grid. Therefore we use scenario 2 as the starting point for the design of the business model.

Net metering Scenario 4 Scenario 1 No variable tarrifs Variable tariffs Scenario 3 Scenario 2

DESIGNING A BUSINESS MODEL

BUSINESS MODEL

For Nedap Energy Systems

DESIGNING A BUSINESS MODEL

For Nedap Energy Systems

PREFACE

EXECUTIVE SUMMARY

Table of Contents

1. INTRODUCTION

1.1 Academic interest

1.2 Business interest

1.3 Preliminary validation

1.4 Goal of the research

1.5 Structure of the thesis

2. RESEARCH METHODS

2.1 Research process

2.2. Research techniques

3. ANALYSIS

3.1 Business models

3.2 Business model components

3.3 Nedap N.V.

3.4 The PowerRouter

3.5 Renewable energy market

3.6 Scenario Analysis

High

B

C

Certainty

D

A

E

Low

High

Impact