Globally, transforming into a responsible and sustainable business has become table stakes for organizations in all industries. Increasing pressure from customers, regulators and shareholders to reduce carbon emissions impacts how energy is sourced, transmitted and consumed. In the utility sector, some report and declare their carbon footprint through the Carbon Disclosure Initiative. The carbon initiative is now expanding in scope to include water use, efficiency and investments in distributed energy resources (DER). And it is likely to evolve further. While this shift is putting an additional burden on utilities to decarbonize the value chain, it brings opportunities for new business models and growth.
Beyond Selling Energy
Utility companies and governments have been driving energy efficiency programs to help consumers reduce consumption through behavioral changes and incentives. Some popular programs are rebates for energy-efficient appliances, home energy assessment programs, and incentives for energy-efficient upgrades to homes and businesses. Additional incentives are available for renewable technologies like solar panels/storage and electric vehicles (EVs).
These initiatives help customers reduce consumption, decarbonize personal transport and participate in the energy economy through feed-in tariffs, community batteries/nuanced demand response programs, etc. And with the progress in IoT and advanced analytics, utilities and customers understand energy consumption patterns and appliance-level energy consumption details. This information will help consumers change habits to reduce or shift consumption to energy-efficient sources/times. The demand for this information is introducing new business models around monetizing this data.
Energy companies are beginning to create business models where decarbonization can be profitable. Utilities can add revenue from initiatives like renewable energy credits, carbon offsets, energy efficiency programs, demand response programs, etc. Energy companies, through a combination of partnerships, acquisition of niche platform companies, or through internal innovation initiatives, are incubating and launching these solutions.Â
Customer-led Framework to Decarbonization Adds Revenue
Beyond energy commodities, energy solutions are key enablers in reducing carbon emissions. As such, they should be treated as product offerings to help customers reduce their carbon footprint. A winning model should provide customer engagement and easy adoption and tools for customers to jump onto the decarbonization bandwagon. Energy organizations can structure their products and services to align with customer segments (B2C and B2B) with the intent to decarbonize, as depicted below.
Start by adopting a portfolio approach, mapping customers’ current energy footprint, setting decarbonization goals and developing/implementing the right energy products and services to achieve those goals. These endeavors can be scaled using a suite of digital tools, (especially for the B2C segment) complemented by appropriate human touch points in customer service channels. (In the B2B segment, account managers can tailor solutions to individual customer needs.)
The framework can include the following steps:
- Review the customer’s current carbon footprint, including their scope 1 and 2 emissions.
- Develop a personalized plan that covers commodity energy (from renewables) and other products and services based on the customer’s decarbonization goals, affordability and other factors.
- Leverage their partner ecosystem (where necessary) to deliver a comprehensive suite of products and services for each customer.
- Assume responsibility for executing the decarbonization plan for their customers, review and refine their portfolio to meet their energy demands and decarbonization goals. This strategy provides a convenient one-stop approach to realizing their decarbonization goals with optimal investments.
This framework provides a solid foundation of customer relationships and behavioral insights to help customers achieve their carbon goals. When implementing the framework, energy companies will see innovative ways to develop new business models that grow their business. And energy companies can aggregate customers’ decarbonization and attribute it towards carbon displacement in their value-chain reporting to realize net zero goals.
Enabling Ecosystem
Executing the framework will require a robust digital enablement suite innate to the underlying business models. In the last five years, the technology landscape has evolved so rapidly with the explosion of cloud, analytics, AI/ML and recently generative AI. And these new technologies can digitalize all aspects of customer engagement, which has become increasingly critical to scale and deliver customer satisfaction. The right strategy should include a technology foundation that will support the acceleration of decarbonization across the industry.
The B2C business could benefit from a digital-led model (with agent support), whereas the B2B business will continue to benefit from an account management-led strategy but amplified through digital. Utility companies must focus on IT platforms and solutions based on modern IT architecture principles that enable business agility, flexibility and scalability. Government/regulatory policies that are consistent and carbon-friendly will help utility companies make bold bets without anxiety about their past financial investments and deliver profitable/sustainable growth to all stakeholders. By following a customer-led approach, utilities can achieve growth through decarbonization.