Intelligent Utilities Must Act Fast to Reverse Declining Revenues and Capture New Connected Energy Value
- September 12, 2018
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Revenues are down. Disruption is up. We’re seeing rising environmental mandates, industry convergence and new entrants breaking into the energy market at a dizzying rate. Add to this mix increasingly energy-aware consumers, and new changing regulation, that will open the doors wider for more renewables and customer-driven distributed energy resources. Amid these trends, it becomes clear an immediate response to capitalize on this opportunity is a must.
The urgency for a new power model is growing. Energy providers are very aware of the disruption facing the industry, but their traditional business and investment planning models do not accommodate this new unfolding energy ecosystem.
Legacy players should, however, turn the business threat into new sources of revenues, unlocking value by embracing industry change. For example, Accenture research suggests that energy retail will grow from 10 percent of total industry value today, to about 24 percent, and much of this growth will come from new connected energy products, services and value propositions. Additionally, exponential growth in renewables is uncovering value for low-carbon producers, while mass adoption of electric vehicles, the development of smart cities, and the rise of DERs are opening up new value chains in energy storage, wholesale market access, demand response and other grid stability services.
To survive and thrive in a changing environment, energy providers need to become agile intelligent utilities, able to evolve in a hybrid system in which the traditional model coexists with an increasingly digital, decentralized model.
Simply put, they must use new technology and data analytics to break down functional silos to become more flexible, communicative and transparent to drive greater agility, productivity and creativity – all focused on the new value chains.
If energy providers can take the leap to become intelligent utilities, they can tap into significant value trapped in the traditional operating models - and free up investment capacity, by unlocking cash for reinvestment. Of course, the transformation of the power model will require significant investments. Across transmission and distribution and renewables, the OECD’s World Energy Outlook suggests that the required investments globally between 2016 and 2040 will hit an estimated US$19.2 trillion.
So how does a legacy energy provider reinvent itself as an intelligent utility in the wake of dramatic industry change? Based on Accenture research, we have outlined below seven steps that companies should take to jump-start progress:
- Realize a new business model: Keep up with the evolving complexity of the market and be ready to accept digitally-enabled innovations and unorthodox thinking to scale into the adjacent energy markets of the future. Energy companies need to focus on open digitally-enabled innovation and be comfortable challenging the status quo of their value propositions, consistency of their revenue models and effectiveness of their value chain. It is also crucial to quickly move from ideas into actions to capture value.
- Build an innovation architecture inside the business: To make innovations material and scalable, consider establishing or scaling digital hubs, research labs and unexpected partnerships in the energy ecosystem. This will help sustain innovation and continuously reimagine the future on an iterative basis. Embedding innovation in workforces and organization can drive top- and bottom-line growth.
- Become relentlessly customer-centric: In the digital era of hyper-relevant personalization, it’s vital to keep up with expectations realized in other industries. Consumers want more flexibility and control. Piloting more compelling customer offerings and empowering customers to engage on their own terms, for example through targeted energy efficiency and home automation, can bring in new downstream revenues and help providers to diversity outside the core business.
- Invest in digital from periphery to core: Faced with competition from non-traditional market entrants, make the company a digital factory – it facilitates business and technology teams piloting new methods and ways of working to boost processes and capabilities, delivering business value and faster time to market. Digital factories provide analytics and IoT capabilities that can also accelerate development of new services.
- Drive cost optimization: Apply technologies like advanced analytics, automation, AI and robotics to minimize errors and simplify processes in the core business, as well as to support more precise considerations for investments.
- Fuel the rise of the responsive workforce: The need for change extends to the workforce, as digital technologies reinvent the work experience, and create a need for new skills and capabilities that will help drive innovation. Effectively pair humans and machines, and consider new approaches to source talent.
- Seek and foster new market / regulatory models: Seek the right model, such as the UK’s RIIO (Revenue = Incentives + Innovation + Outputs) model, that will let innovation flourish. In so doing, it can reduce network costs and lean towards a low-carbon economy, be backed by strong regulatory support, and provide the framework for transmission and distribution operators to scale to the new.
The future of energy is certain in only one way: it is evolving. Digital technology is taking hold, enabling new value to be found in downstream, consumer-centric models, in creating smarter grids, in meeting the demand and growth of a low-carbon economy. Incumbent energy providers have an opportunity to thrive in the new power model, but if they want to continue to stay in business, they must transform and grow their core business, but also innovate to create new opportunities. Without that, they risk becoming obsolete.
 © OECD World Energy Outlook 2017, International Energy Agency – used by permission