Ongoing change is uncomfortable, but it also brings new opportunities. Nowhere is this more evident than in the utilities industry. Across the globe, utility companies are rushing to reinvent themselves as maturing technologies, policy, and expectations accelerate the energy transition.

Striking a balance between decisive action and long-term vision calls for a clear understanding of the interconnected changes that together make up this momentous shift.

So, what are the key forces shaping utilities in 2021 and beyond?

1. Infrastructure transition

Infrastructure investment is a telling indicator of the future of the industry.

This year, the ongoing movement towards a decarbonized, decentralized model will be accelerated by continued investment in both renewable energies and grid modernization.

However, this process will be intensified further by the growing relevance of distributed energy resources, and the scaling up of several maturing projects involving our old acquaintance, hydrogen.

Widespread disruption of the conventional businesses model will also see utilities exploring everything from energy storage and advanced grid technologies to EV charging infrastructure to access new value pools – an essential response to mounting post-pandemic margin pressure and decreasing regulated returns (such as the new ROI allowances in the UK).

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A clear casualty of renewed decarbonization efforts is natural gas. Once considered a “bridge fuel” on the cusp of a golden age, there are now growing restrictions in place to limit the impact of natural gas on carbon emissions.

Gas utilities are actively looking for alternatives, such as blending natural gas, and growing the amount of green hydrogen and renewable gas in their pipelines with storage solutions and other alternatives being considered in the case of the power system.

2. Sustainability transition

Consumers are a driving force for climate change. In regions where government mandates and “climate diplomacy” failed to achieve the required outcomes, concerned citizens have taken charge of the agenda themselves.

However, the pandemic has seen governments take center stage in the fight for sustainability. Faced with difficult economic conditions, many consumers are delaying investment decisions, like replacing their old car with an EV or installing a solar rooftop system. This gap is being filled by governments who are preparing investment packages, many with green infrastructure at the core.

With the EU Green Deal in discussion and a new administration in office in the US, 2021 is set to be a major inflection point for clean energy and infrastructure investment; provided these developments can create new job opportunities and boost the economy.

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Striking a balance between decisive action and long-term vision calls for a clear understanding of the interconnected changes that together make up this momentous shift.

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3. Industry transition

2021 will see continued sector convergence as the faint lines between energy, utility, mobility, and technology companies continue to fade.

Divisions and designations are already changing. Oil majors are taking bold steps into the utilities business as part of long-term strategies to decarbonize their energy portfolios. Automotive brands are growing their service offerings around the Electric Vehicle. And utilities themselves have expanded their interests in areas like green hydrogen, traditionally the purview of other industries.

Although disconcerting, falling barriers between businesses can promote powerful collaboration.

Industrial clusters are a perfect example. Rather than protecting their traditional territory, factories within large, multi-function industrial complexes can use economies of scale to reduce emissions by working together to create more efficient supply chains, reuse waste, and co-ordinate clean energy procurement.

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4. Technology transition 

The strategic imperative to digitalize has proven its value in new dimensions, particularly in response to the pandemic, and paved the way for additional transformation in 2021.

Almost overnight, the barriers that many business leaders have cited to justify delaying digitalization disappeared. Distributed workforces, remote working capabilities, and the automation of manual processes became critical to the continued operation and survival of many businesses during periods of restricted movement.

This operational shift coincides with the arrival of newly-accessible technologies critical for transforming grid and plant operations. For example, Next generation AMI will bring greater edge computing power to every endpoint, which, coupled with 5G, will allow for self-managing AI systems to monitor a network of embedded sensors.

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As futuristic as these developments may feel, they require decisive actions today. Preparations like moving to Cloud-based systems, embracing AI and embedding analytics now are the building blocks of a future that blends the best of human ingenuity with technical capability.

5. Value transition

Arguably the biggest driver of change is the renewed link between financial and human values.

Again, this change has been accelerated by the pandemic. With the human impact of business choices in sharper focus, organizations are consciously factoring the environmental, societal, and business consequences of their actions into their decision-making process. Finally, people and profit are part of the same equation.

Utilities have a unique opportunity to reposition themselves by putting these values at the heart of their business. Choosing to provide power to customers facing financial difficulty because of Covid-19, for example, can help to shift perceptions about the sector.

Shifting towards a system value perspective is about more than being “the good guys”: it is key to attracting investment and staying within mandates like Phase 4 of the EU’s Emission Trading System, one of several global initiatives that will drive the achievement of emission targets.

Embracing a wider approach to value can also create new business opportunities. For instance, creating new services that help customer lower emissions and consume less energy encourages conscious consumption while generating additional revenue.

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With large investment funds like BlackRock also assessing the societal, environmental, and financial risks of their opportunities, we can expect the pursuit of system value to redefine investment and business strategy.

The seismic shifts that lie ahead for utilities have been accelerated, but the future certainly looks bright for those that embrace change and commit to decisions today that will generate 360° value in the future. Contact me to find out more.

 

Stephanie Jamison

Senior Managing Director – Strategy & Consulting, Utilities Global Lead

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