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Digital Platforms in the Energy Sector: Definition and First Applications

Integrating renewables into the electricity system is a challenging task. Currently, different concepts of how to do this are being discussed. In our last two posts we focussed on different concepts for regional flexibility markets in Europe and Germany. In addition, we raised the question whether the future of the distribution grid operators lies in platform businesses or basic asset ownership. In all our recent posts the discussion evolved around markets and platforms. Though these are two important topics, they are not the same. Therefore, in today’s post we will shed some light on platforms and their potential role in the energy sector.

What are platforms?

The term ‘platform’ is used to describe many different things. As Gawer (2014) pointed out, the term platform is used in a technological (a core technology in a modular architecture), an organizational (institutions that facilitate coordination between agents) and in an economical way. For now, let us focus on the last dimension of platforms. There are certain criteria that are used to define platforms from an economic perspective. On a general basis, platforms at least have to fulfil two criteria (cf. Rochet & Tirole 2003):

1.  A platform can be defined as an intermediary between different (at least two) users or user groups.
2.  A platform addresses network externalities: This means that the individual user of a platform gains more from this service (higher utility), the larger the number of total users of the platform. Cross-side externalities are in most cases positive, e.g. the higher the number of stores that accept a certain credit card, the higher the incentive for a consumer to use this credit card. Same-side externalities, on the other hand, occur on one side of the market, either positive or negative, e.g. the higher the number of app developers for a smart phone operation system, the higher the competition, which increases price competition.

More here.

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