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1.2 Importance of the Business Model in the Smart Grid

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The smart grid is more technology oriented as compared to the traditional grid. Value from new technology can be captured by a firm in two basic ways: through incorporating the technology in their current businesses or through launching new ventures that exploit the technology in new business arenas. Unlike other tangible products sold in the market that can be stored and sold at a later date, electricity cannot be stored and should be consumed as soon as it is generated. Hence, for other tangible products that are able to capture the value from new technology through storage, electrical businesses must use another way to capture value from new technologies that is more suitable for an electrical business. However, power distribution utilities function under the traditional grid operation mode and are following the trend of technology adoption through storage and hence are failing to capture the values from the newly developed technologies during their transition toward the smart grid. Thus, an alternative way is an essential need under the smart grid operation mode. Various technologies have been developed that could be useful for pursuing different tasks in the distribution business will have to be taken to the market through a venture shaped by a specific business model.

Unless and until it is commercialized, the inherent value of a technology remains latent. A correct business model helps in the commercialization of a new technology and may become the architecture of new revenue. If a firm fails to select a correct business model, technology will yield less value to the firm than might otherwise have been the case. If the firm fails consistently in selecting an appropriate business model, it fails its various commitments. Because of the non-availability of an appropriate business model for the power distribution sector, ideal technologies developed especially for the sector are not being utilized properly toward developing the sector. Various Information Communication Technology (ICT)-based technologies that have been developed especially for the sector are not being properly utilized because of the unavailability of an appropriate business model. Time of day (ToD) or time of usage (ToU) pricing, average billing rate (ABR) fixing, theft control, etc., are being designed through technology implementation, but because of the absence of a right business model, these technologies are inactive in fulfilling their objectives of demand side management.

Similarly, adequate technological developments have already been done for reactive power management and voltage stability control, but they are still failing to meet their objectives because of the absence of a correct business model. Again, the commercial losses (excluding theft) taking place in the sector are very high and cannot be addressed through technology development, although they can be addressed through implementation of a correct business model.

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