A new diet: Leveraging AI to transform the utility mindset
October 30, 2018
October 30, 2018
Increasing free power generated from renewables. Falling energy storage prices. More involved and collaborative regulatory approval constructs. Among others, these trends theoretically serve to decrease prices for and protect ratepayers, yet utilities suggest that this resulting headroom facilitates price increases. The Energy Information Administration predicts 2.4 to 3.6 percent CAGR in nominal dollars for electric prices from 2017 to 2050, representing a doubling of today’s electricity prices.1
What’s driving this? Billions of dollars of capital investments geared towards modernization and security.2 Considering utilities’ track records of average operations & maintenance (O&M) increases of about one percent for every dollar invested3, customers are going to continue seeing increases in energy prices. If we consider Hawaiian Electric’s situation as a unique case study into a future with high levels of renewables and energy storage adoption, we see declining electric revenue, decreasing net income and decreasing ROE at the utility. While decoupling is a convenient reason to maintain relevancy, utilities need to drastically overhaul their mindset and operating model for agility when transforming the core and pivoting to the new. By doing this, utilities can create a step change in efficiency to not only drive value to the ratepayer while increasing their relevance in the future.
Accenture research indicates companies on average in the United States can use AI to do the same with 35 percent less resources.4 Further, utilities can drive 2x growth with AI over 10 years. Embracing key value levers enabled by AI, such as intelligent automation, intelligent products and enhanced trust offers an opportunity to drive an average 30-50 percent increase in enterprise profitability over the same period5—translating into real customer value. Accenture forecasts $6.9B to $17.3B in value from transforming core utilities businesses to growing and scaling the new (Figure 1), and the use of AI in these initiatives can drive five-year transformation net profitability increases of $800M to $2.5B6. Utilities should focus on leveraging AI to increase the accuracy of work, reduce the labor intensity of work and perform new analyses enabled by the ability to process and connect complex datasets. Finally, automation is key to drive agility and value. Through these opportunities, utilities can enable meaningful change in not only cost competitiveness but more importantly operational prowess, which can enhance the company’s competitive position in the industry.
Figure 1.
Utilities need to drastically overhaul their mindset and operating model for agility when transforming the core and pivoting to the new.
How can companies leverage AI to pivot to new ways of doing business? There are four key steps:
1Energy Information Administration Annual Energy Outlook, 2018
2Accenture Global Utilities Trends research, 2018
3Accenture Strategy analysis
4Accenture "How AI Boosts Industry Profits and Innovation," 2017
5Accenture Strategy enterprise value analysis, 2017; Accenture Strategy: ‘AI Exponential Growth’, 2017
6Accenture "Creating a positively charged future for utilities," 2018