Utilities (and energy companies in general) are facing diminishing markets, tighter available margins and higher competition from both new entrants and traditional competitors. Several factors are only adding pressure to the market: the unstoppable growth of renewables, the development of distributed energy resources (including batteries that may be attached to a domestic solar panel, to a distribution grid or even embedded in an electric vehicle) and the growing demand from customers or governments to reduce environmental impact from energy-related activities. In response, utilities’ return on invested capital (ROIC) has declined by more than 20 percent from 2012-2016 in Europe and the US.1 This is a far cry from the greater than 5 percent growth that 77 percent of utilities project by 2020, according to recent Accenture Strategy research. 2
Nevertheless, information availability from different sources is now greater than ever and executives are aware of myriad alternatives at hand—becoming a blockchain platform provider, capturing value around smart grid, leveraging the battery evolution to grow the existing business, operating a car-sharing concept, among others. However, the fear of betting on the wrong business, and the potential attractiveness of many options left behind, can delay the decision-making process. As a result, companies often struggle to launch new business lines.
Survey the landscape
It is difficult to establish a repeatable innovation capability, and there are few examples of successful startups in the Energy domain.3 A more practical approach involves identifying a few dozen potential opportunities that can be filtered through a gating process that eventually leads to 4-6 qualified opportunities to be tested by the company. There is no need to reinvent the wheel when looking for diversification options.
To come up with a robust list of potential alternatives, companies should look in three directions:
- What is happening in the industry? Digitalization, decentralization and decarbonization are ubiquitous and generating new businesses on a continuous basis. Reviewing what other international companies are doing and leveraging these most recent trends already provides a very good starting point for diversification. Maybe the example of a successful Dutch blockchain peer-to-peer (P2P) power trading company can be a great starting point to develop a new business in a local market.
- What would their capabilities be able to do in other sectors? Knowing what a company’s strengths are, and discussing their potential with experts in other fields, can also identify interesting business prospects. These experts may be aware of already tested business models that require part of a core expertise and that could be attractive to a company’s interests. It could be that a proficiency in executing turnkey projects could be useful in sectors like Telecom or Retail, that might have been off the radar.
- What are peers doing? In a globalized world, the challenges that a company faces are similar to what counterparts or colleagues face (both locally and globally). It is very likely that several have already started a diversification path that can be built upon. If it happens that a Scandinavian equivalent has decided to move into the logistics business, it may be worth considering it as well.
Narrow down the selection
Criteria for selection of the most attractive options are generally related to growth potential, expected timeframes, ease of implementation or alignment to existing capabilities, but more important is moving quickly without deferring decisions. It is not necessary to conduct complete due diligence for each alternative—many can be discarded by an internal team that is aware of the company’s priorities and potential. For those that appear attractive but are not perfectly understood by the decision makers, it may be interesting to conduct qualitative assessments that can provide some additional background. The potential could be quite significant: Accenture has estimated that energy retail at present accounts for 10 percent of utilities’ revenues, and it will rise to 24 percent through the introduction of these new revenue opportunities.4
Once a few realistic propositions have been identified with this quick approach, it will be necessary to establish clear roadmaps for each of them and decision check points in which they can be cancelled or nurtured, providing visibility to the organization on what is being pursued, why and to what extent.
Are you going to wait until you reinvent the wheel or would you rather jumpstart your diversification today?
1 Accenture Strategy, “Utilities at a crossroads: Live in the past or conquer the future”, 2017.
2 Accenture Strategy 2017 Revenue Growth research.
3 MIT Technology Review, “Why Bad Things Happen to Clean-Energy Startups”, June 2017.
4 Accenture, “Positively charged: Creating a future of value and growth for utilities in a multi-faceted energy system”, 2018.