The Potential of Digital Business Models in the New Energy Economy

Speeding efficiency gains and increasing demand-side flexibility

The pace of digitalisation in the energy sector has accelerated rapidly in recent years, leading to a transformation of many traditional business models. Thanks to innovative technologies and access to new types of data, new revenue streams and services have emerged, costs have been reduced and barriers to new market entrants have been lowered. Energy companies continue to find novel ways of doing business and engaging with their customers.

This article highlights the potential of digital business models to facilitate clean energy transitions, with a particular focus on how they can enhance energy efficiency and demand-side flexibility. It also identifies a set of general recommendations for governments to support the scaling up of innovative business models.

Reaching net zero is a major challenge, but digitalisation can ease the transition

The energy system is undergoing deep structural change as electrification becomes more prevalent across industries and energy-demand patterns shift. According to the IEA’s Net Zero Emissions by 2050 Scenario (NZE), 240 million rooftop photo-voltaic solar systems  and 1.6 billion electric cars  are integrated into the power system by the middle of this century, while more than 85% of the world’s existing building stock is retrofitted to meet standards that are zero-carbon ready. The average annual rate of economy-wide energy efficiency improvement doubles through to 2030, compared with the average over the last ten years to 2020, in NZE. To achieve this, the flexibility of future low-carbon electricity systems (based on hour-to-hour ramping needs) quadruples to accommodate variable sources of renewable power. Batteries and greater demand-side response deliver about half of NZE flexibility improvements. Thus, accelerating action in the current decade is crucial for meeting these climate objectives.

Under the NZE, annual investments in clean energy increase to around USD 4 trillion by 2030. Close to 70% of that is borne by the private sector – consumers and investors, who will be reacting to price signals and government policies. The required measures – including building retrofits, installations of electric vehicle (EV) charging infrastructure and other initiatives – all involve high up-front capital investments. Reaching this level of financial commitment is a huge challenge, particularly – but not exclusively – in emerging markets and developing economies.

Given the magnitude of the investments needed, and the rapid pace of change required, many legacy business models in the energy-service sector may not be up to the challenge. Rapidly adapting their physical equipment and infrastructure to customers’ changing needs is difficult, for example, and their analog methods of data collection are labour-intensive and yield limited insights.

In contrast, digital business models are software-driven. Having access to more granular data, combined with advanced analytics capability, allows digitally enabled companies to more accurately quantify the benefits their solutions bring to customers. This can also help speed the development of new products and services. Digital tools and platforms can ease and accelerate the energy transition by facilitating efficiency and demand-side flexibility. At the same time, digitalisation creates new business opportunities and revenue streams for energy service providers, while helping consumers to better understand their energy use and lower their bills.

Main characteristics of traditional and digital business models


Traditional business models

Digital business models


  • Based on sales of physical products or units.
  • Limited incentives for producers to improve the efficiency of their products.
  • Based on sales of services.
  • Strong incentives for providers to invest in efficiency and maintenance as a strategy to directly increase profits.

Data collection

  • Traditional data collection methods such as surveys and market analysis. Limited data points which take time to analyse.
  • Access to granular data plus advanced analytics for new insights. Eases product development and customised services and offerings.

Time to market

  • Hardware-defined.
  • Relatively inflexible due to time needed to develop new equipment and adjust production processes.
  • Software driven.
  • More reactive and flexible, greater opportunities to adjust to changes in the market due to shorter development lead times.

Supplier operations

  • Based on physical presence in markets with limited hours of operation and geographic scope.
  • Online presence. Potential to operate 24/7 through automation and staff spread across time zones.

Customer management

  • Limited direct interaction with customers.
  • Timely and frequent interaction with customers via platforms and apps.

Supply chain and procurement

  • Highly dependent upon supply chains.
  • Assets can be sourced from a wide range of retailers and manufacturers.

Note: List is not exhaustive

Venture capital is flowing to digital energy start-ups despite the Covid-19 pandemic

Recent years have seen an increase in the number of digital start-ups in the energy sector. Despite expectations of a slowdown in venture capital (VC) financing due to the Covid-19 pandemic, early-stage investments in clean energy start-ups actually increased in 2020. 

Global early-stage venture capital investments in digital energy-efficiency and demand-side flexibility start-ups, by type of new business model, 2015-2021


Early-stage venture capital investments in energy-efficiency and demand-side flexibility start-ups featuring new or innovative business models are on the rise. In 2020, these aggregated to about USD 900 million (excluding outlier investments of USD 150 million in a single deal), an increase of 20% from 2019, and three times the level of financing in 2016. Preliminary analysis for the first half of 2021 indicates the level of investment has remained stable year-on-year.

Energy as a service (EaaS) schemes in buildings have attracted the bulk of early-stage venture investments in new business models. In EaaS models, customers pay a subscription fee in return for a package of energy services. Unlike traditional Energy Savings Performance Contracts, the upfront costs – installing “smart” monitoring and control equipment, for example – as well as the ownership and maintenance risks, are assumed by the service providers instead of the end-users. More and more, commercial and industrial customers are opting for pay-for-performance contracts with EaaS companies to retrofit their premises. Under these arrangements, they pay a contracted rate based on energy savings that have been verified, for example through smart metering. This approach is compatible with efforts by national regulators to introduce more ambitious energy efficiency requirements and it creates incentives for entrepreneurs to enter the market with new and more nimble business approaches that better meet the needs of end-users.

In 2020, EaaS providers were the beneficiaries of about half of all early stage venture funding in the sector. One such business is Veev, a company that develops and constructs smart residential and commercial buildings. Veev raised about USD 100 million in a series B 1 from venture capital in 2020 and another USD 100 million in a growth equity financing round in 2021.

Elsewhere, start-ups offering electric vehicle charging as a service are also gaining funding momentum. In 2020, such companies attracted about USD 200 million – one quarter of all early-stage venture capital investments in the sector. That corresponds to a roughly ten-fold increase since 2015 – a strong indicator of recent investor enthusiasm. Among the companies that have drawn attention in this area is Wallbox, a Spanish maker of smart car-charging stations. Wallbox received more than USD 25 million in seed money and series A 2 funding in 2019-20 to finance R&D, and a further USD 40 million in growth equity in 2021 to expand their operations in China and North America. Another example is United States-based Volta Charging, which has quickly scaled up with support from a dozen investors including Schneider Electric of France. Volta raised more than USD 170 million in growth equity money between 2018 and 2021. Both Wallbox and Volta announced “reverse mergers” in 2021 with listed, special purpose acquisition companies, raising still more capital to meet the growing demand for electric vehicle charging.

Early-stage venture capital investments in firms developing solutions for distributed energy resources (DER) and grid management have more than doubled since 2015. These account for a smaller share of start-up activity than smart buildings or vehicle charging, however. Virtual power plants (VPPs) and similar dynamic platforms and systems for aggregating DERs have so far attracted much less money. Nonetheless, these still hold potential as demand increases for smart grid technologies that enable flexibility and integration of renewable sources, energy storage and electric vehicles on the grid. Gridwiz, a Korean aggregator of flexibility resources, for example, raised about USD 15 million in early-stage financing in 2017, and another USD 40 million in growth equity in 2021. A similar though less active trend applies to investments in energy trading and peer-to-peer (P2P) platforms, which have seen a slight increase in venture funding in 2021 compared to previous years.

Digital business models can deliver additional benefits to consumers

The growth in these investments highlights the expanding role of digitalisation in the future energy landscape. By lowering the most common barriers to energy transition investment – high upfront costs, lack of access to finance, high perceived risk, lack of trust in new technologies, competing investment priorities, lack of knowledge and awareness, split incentives – these digitally enabled businesses are making clean energy solutions more accessible and affordable.

Electric vehicle charging as a service, for instance, includes offerings ranging from infrastructure installation to efficiency monitoring and maintenance in exchange for a subscription fee. ENGIE in Latin America offers such a smart charging plan to enterprise clients, which it says can reduce their infrastructure and energy costs by around 40%. EaaS models rely on internet-connected smart phones and display devices as platforms where customers can actively track their energy performance and financial status.

The peer-to-peer model, meanwhile, enables online marketplaces where producers and consumers can trade electricity without an intermediary, empowering individuals and communities to take active control over their energy-generating assets. One energy trading platform in Poland is enabling real-time auctions to buy and sell electricity, generating a total of more than USD 970 thousand (PLN 4 million) in savings for users.

The crucial aspect of all digital models is that they are software-based. This makes them inherently more flexible, customisable and intuitive for end-users. This can be of particular benefit to consumers in emerging markets and developing economies where energy access is often an urgent problem and overcoming cost barriers is a persistent challenge.

Pay-as-you-go (PAYG) schemes spare customers in these markets the burden of shouldering the full cost upfront. Instead, ownership of solar kits and clean cooking solutions  is transferred over time via a periodic payment plan. Such models are especially suited to rural communities, enabling customers to purchase equipment using fintech-enabled digital wallets.

Uganda-based Fenix, for example, provides solar systems to households, farmers and small businesses. Its platform enables access to ultra efficient technologies such as LED lights, TVs and other appliances, coupled with off-grid solar and storage. Alternative payment options exist to accommodate customers without access to traditional banking services, while instalment schedules can be adjusted for those whose incomes are seasonal or irregular.

Similarly, cooling as a service makes clean and efficient cooling accessible to those who might not otherwise be able to afford the upfront cost of equipment. Users pay a monthly fee based on the amount of cooling used. This model also creates economic benefits beyond energy. In India, CoolCrop, supported by the Basel Agency for Sustainable Energy, provides off-grid solar powered refrigeration with digital controls to farmers lacking cold storage resources. CoolCrop’s initial assessments indicate that energy consumption can be reduced by as much as 20% compared to conventional cooling thanks to a remotely accessible control module that optimises energy use. Lower energy bills have the further potential to increase farmers’ incomes by 50% or more and can reduce post-harvest spoilage by more than 20%, the company says. Similarly, in Nigeria, ColdHubs provides a plug-and-play, modular, efficient, solar-powered walk-in cold room. The company says its solution reduces post‑harvest losses by 80% and increases farmers’ annual income by 25%. (ColdHubs also happens to be contributing to gender equity in India by hiring mostly women for operations management and revenue collection.)

How digitalisation lowers barriers for energy-efficiency and demand-side flexibility solutions

Barriers to implementation

Digital solutions

Business model examples

  • Potential benefits are limited and distributed across a range of entities
  • Systems to monitor, forecast, and trade services.
  • Pooling of resources to achieve sufficient scale to attract investors.
  • Virtual power plants that aggregate distributed energy resources and enable participation in electricity markets.
  • Insufficient incentives, low and/or slow returns on investment  
  • Apps and platforms which bundle multiple value streams to improve economies of scale. Known as “value stacking,” this can improve returns and shorten payback periods.
  • Vehicle-to-grid solutions that allow EVs to send power into the grid when not in use.
  • Use of DERs to lower electricity bills, reduce peak demand or regulate voltage and frequency.
  • High upfront asset costs and/or perceived financial risk, lack of access to finance
  • Apps, management platforms or licensed software that remove the need to own or invest in hardware or infrastructure.
  • Remote monitoring and control.
  • “As a service” subscriptions to efficient and smart cooling or heating systems, charging infrastructure or other services.
  • Limited end-user access to energy, smart technologies, means of payment or finance
  • Stand-alone smart equipment.
  • Mobile payments, virtual wallets and other digital payment apps or platforms.
  • Pay-as-you-go for home solar kits and clean-cooking solutions for off-grid users.
  • Lack of empowerment or influence over electricity distribution systems
  • Multi-sided buyer-seller configurations enabled by IT platforms.
  • Online peer-to-peer platforms that allow users to trade power produced by their own assets (e.g. rooftop PVs) without an intermediary.

Note: List is not exhaustive.

Digital business models support the deployment of innovative technologies and create new revenue streams

Digital business models leverage technological advancements to alter and boost the revenue streams of stakeholders, making way for a range of ancillary benefits. Large corporations are increasingly looking to tap into these opportunities.

Digitalisation is creating new opportunities for legacy energy companies. It is also attracting large technology corporations to the energy sector. Increasingly, energy and tech companies are investing in projects, partnerships and digital energy companies. For example, at the end of 2020, Sidewalk Infrastructure Partners – a venture backed by Google’s parent company, Alphabet – invested USD 100 million to build a virtual power plant in California that plans to aggregate 750 000 electricity customers. In early 2021, Enel X of Italy and the Indian engineering group Sterling and Wilson announced a 50-50 joint venture to sell, deploy and manage smart electric vehicle charging infrastructure across India that uses a software-as-a-service model. Additionally, the British energy group BP acquired Open Energi, an AI-driven company that integrates DERs into power markets.

Digital business models can also unlock new revenue streams for retail power suppliers and can support the creation of new entities. Through virtual power plants, for example, electricity suppliers and aggregators can earn revenue by providing balancing services to the local network through matching DER operations with grid needs. These entities can also trade in the wholesale power market and provide retail power supply, as in the case of Centrica’s USD 23 million virtual power plant project in Cornwall, in south‑west England.

Entrepreneurs have also been stepping in with innovative models that build on technologies developed by others. Some, for instance, have leveraged existing smart building technologies to develop new engagement channels with their customers (including through in-home displays and apps), generating revenue and cost savings through more efficient energy use.

By reducing upfront investments and risk, and helping to optimise capital expenditures, digitalisation can also accelerate the adoption of advanced technologies and foster innovation among utilities and grid operators. In areas where cybersecurity is sufficiently robust, for example, utilities can switch to software as a service (SaaS) – i.e. buying online licenses or subscriptions instead of investing upfront on the software itself – to enhance grid planning and dynamically monitor their assets. Furthermore, the inherent flexibility of SaaS facilitates upgrades or other system changes as technologies evolve.

Aggregation models can also help utilities to better plan their grid investments, lower their costs and improve efficiency by providing flexibility at peak hours through virtual power plants and electric vehicles. In the United Kingdom, regulators estimate that vehicle-to-grid applications enabled by smart charging save around USD 3.5 billion per year in electricity network reinforcements.

Limited access to finance and public budget constraints can present challenges in both advanced economies and emerging markets. At the same time, these obstacles represent significant opportunities for energy entrepreneurs. Acting either as investors themselves or by mobilising other sources of capital, energy start-ups and more established players can help to identify and fill funding gaps – contributing to the Sustainable Development Goal of affordable, reliable and modern energy services by 2030. Population growth, coupled with a recent slowdown in new investment, has resulted in an increase in the global number of people lacking access to electricity for the first time since 2013. Approximately 600 million people in Africa still have no access to electricity and millions of people are relying on petrol and diesel generators as their primary source of power: In Nigeria alone, back-up generation during frequent blackouts amounts to  USD 14 billion of spending on fuel and equipment each year. Having spotted the opportunity to serve this population, multiple companies – BBOXX, Baobab+ and Engie Energy Access (grouping Fenix, Mobisol and Power Corner) – have moved in to provide stand-alone solar home systems. These solutions also incorporate mobile pay-as-you-go (PAYG) systems. In 2020,  2.1 million PAYG solar systems were installed across Africa, providing electricity for homes, schools, health care centres, and small enterprises. Globally, the volume of capital flowing into off-grid solar increased to more than USD 310 million in 2020 from just USD 50 million in 2014. In 2020, more than two-thirds of the global spend on such off-grid solar went to sub-Saharan Africa. Nonetheless, this pace of investment remains insufficient to achieve the sustainability targets for the end of this decade. 

Suitable infrastructure as well as digital-ready regulatory frameworks are essential

With growing deployment of, and investments in, digitally enabled business models, there are concerns about the readiness of digital infrastructure, the adaptability of energy markets and existing regulatory and policy environments.

The Internet is the main information exchange medium for these businesses. That means digital infrastructure must be upgraded, both in terms of performance as well as coverage. Weak or unreliable connectivity disrupts communication, hindering the transmission of metering data and interrupting online payments as well electricity-trading platforms. Internet outages and poor connectivity create headaches for rural communities, especially in developing countries. Targeted initiatives to support digital development are therefore required. One project tackling such barriers for new businesses is the African Union’s Digital Transformation Strategy for Africa (2020-2030), which supports affordable access to broadband Internet through smart devices as well as cyber-security measures.

Real-time digital communication also depends on an efficient and reliable electricity infrastructure. IEA analysis shows that the deployment of smart electricity meters must be accelerated, particularly in developing countries. In the last five years, emerging economies, excluding China, have invested less than USD 2 billion per year in smart meter installations – one-third of the USD 6 billion annual investment that the IEA’s Sustainable Development Scenario envisions between 2026 and 2030. 

Governments can take steps to support the scaling-up of innovative business models

Transitioning toward NZE requires significant leaps in clean energy investment, technology deployment and demand-side flexibility. Digital business models offer opportunities to help fill this gap in cheaper and more efficient ways – but they frequently face regulatory and other hurdles.

The growing interest from venture investors and large corporations in digital energy innovators signals how high the expectations are for growth in this sector. But these companies urgently need governments and regulatory bodies to create suitable frameworks that can help them to scale up. At the same time, consumers need regulations that can protect them from abusive business practices, ensure transparency and make sure any personal data shared with digital companies is appropriately used and protected.

Economies are now rebounding from the Covid-19 recession. Government recovery plans that include measures to encourage more user-centred innovation, as well as incentives to upgrade energy and digital infrastructures, can create new opportunities for digital businesses.

Regulatory frameworks

In addition to adequate infrastructure, digital businesses need an innovation-friendly regulatory environment. Peer-to-peer and virtual power plant models can only thrive if producers and consumers are allowed to take part in aggregations and if the roles of potential stakeholders are clearly defined within the legal framework. The announcement of the US Federal Energy Regulatory Commission's Order 2222 – allowing aggregations of DERs in the United States to compete in wholesale power markets – quickly led to more than USD 1.2 billion of investment commitments for virtual power plants in early 2021.

Eliminating ambiguities in the law and industry standards can also help pave the way for new business models to emerge. One example involves licensing electric vehicle charging operators. In Indonesia, licensing rights and processes are clearly identified as part of a legal framework. In India, however no license is required, but operators must meet a set of technical and safety standards. Peer-to-peer communities also need consistent rules and procedures that govern their relationships with utilities and retail customers, as well as a system that manages potential charge imbalances.

Standardisation and interoperability

Another frequent source of uncertainty facing new digital businesses is compatibility with existing platforms and systems, as well as potential issues linked to upgrade processes. Since technology evolves rapidly, standardisation and interoperability are critical. For any consumer device connected to a digital network, embedded interoperability should be the norm. The Energy Networks Association (ENA) recently established a streamlined process for connecting smart heat pumps and vehicles to electricity grids. Openly disseminated standards identify performance benchmarks for businesses and lower barriers to market entry for manufacturers and service providers.

Social acceptance and cybersecurity

Social barriers can also be an impediment to the uptake of smart technology, especially among consumers who are concerned about data privacy. Once again, government regulation can play an important role in building confidence by establishing safeguards to secure and protect access to customer data by third parties. The EU’s 2019 electricity market directive, for example, requires third parties that take on the “installation, operation, data handling and maintenance” of metering devices to adhere to strict EU data protection and privacy rules. By communicating these regulations – along with the benefits and risks associated with digitalisation – through public awareness campaigns, governments can foster broader acceptance of digital business models.

Meanwhile, because they rely on connected devices and technologies, digital businesses and their customers are inherently more vulnerable to potential cyberattacks. Governments, in collaboration with relevant stakeholders, can ensure that the entire energy value chain is cyber resilient, be it through regulatory frameworks, establishing best-practice guidelines, international certification or other similar mechanisms. 

Building capacity and sharing knowledge

A lack of digital literacy – among consumers as well as within companies – is yet another obstacle that can hinder the progress of digitalisation in the energy sector. This is of particular concern in underprivileged communities. But the private sector, governments, and international institutions can play an important role by supporting digital skills education. The Microsoft Airband Initiative aims to enhance digital inclusiveness by offering affordable Internet access, digital devices, and skills training across Asia and Sub-Saharan Africa. Similarly, the IEA Global Commission on People-Centred Clean Energy Transitions, established in 2021, supports digital upskilling to ensure a socially affordable and equitable energy transition.


The IEA would like to thank the participants in the IEA Digitally Enabled Business Models Roundtable held on 29 July 2021, which significantly informed the article.

The IEA gratefully acknowledges the support of the Italian Ministry for Ecological Transition as part of its contributions to the IEA’s Digital Demand Driven Electricity Networks Initiative (3DEN) and to the Clean Energy Transitions Programme.

  1. Series B refers to funding aimed at supporting the growth of a company after the initial stage of development and earlier funding.

  2. Series A refers to funding directed to companies at an initial stage of growth, to kick off the business and flesh out a strategy.