Rethinking Business Models for Network Service Providers - Shadow Pricing against Storage

The potential for a dramatic transformation away from centralized grid electricity supply as a growing proportion of customers choose to disconnect from the network and self supply raises important questions for the future of network utilities. Indeed, such an outcome likely represents a far more significant challenge to the current supply industry than that of increased renewable and distributed generation since it raises the question of what future role it might have at all. This paper explores potential future business models for network service providers under such circumstances. In particular, it argues in the case where grid disconnection is less expensive than continuing centralized supply under existing regulated network tariffs, Network Service Providers (NSPs) will need to shift towards more competitively-oriented pricing in what could be an increasingly competitive market (in competition with self supply alternatives). This implies a move away from "cost recovery" pricing, towards competitive pricing approaches, such as "shadow-pricing" just below the competition (self-supply alternatives). Regulatory frameworks will need to adjust to allow such innovative pricing structures, and eventually might even become unnecessary, with consumers no longer requiring regulation beyond that applied in other competitive industries.