In the course of my everyday work with utilities, I often have conversations with clients about the seismic shifts underway in the global energy market—and about how they can best respond to sustain their profitability and growth.
Clearly, my answer always reflects the client’s own specific market landscape and business model—and the opportunities and challenges it faces as a result. But you can guarantee my response will always contain two key watchwords: digital and innovation.
Why? Utility companies worldwide are facing a situation where technology is changing the game, conventional business is under pressure, and big investments and transformation are needed everywhere across their operations. In response, they’ve already come a long way in restructuring and transforming their businesses.
But they still have much more to do. In my view, what lies ahead now for utilities is the entire industry moves to a new power model. And the only way to deliver such a model is to apply digital and innovation—not in isolation, but together. Because it is their combinatorial effects that have the ability to transform operating and business models to enable the higher efficiency and renewed growth that utilities so urgently need.
To understand why this reinvention is needed, look at the sheer scale and scope of the myriad parallel changes in the global energy landscape. Take the rapid advances in generation technologies: Wind, solar, battery and LED technologies have all seen cost reductions of 50 to 100 percent in just a few years. What’s more, this reshaping of the energy landscape is coinciding with a “Fourth Industrial Revolution”—or Industry X.0 enabled by the Industrial Internet of Things that is gaining pace and momentum.
Utilities are making major strides towards digital transformation, leveraging cloud, big data analytics and mobility to boost the productivity of field services, interact with customers in new ways, and undertake predictive maintenance based on IT/OT analytics. But these advances are just the beginning: Add the power of next-generation technologies like AI, and quantum computing, and the opportunities multiply.
Yet the pervasive changes underway also raise significant challenges on utilities’ road to reinvention. For example, growth in energy demand is flat or even negative in many mature markets. At the same time—as we all know—the power system is decarbonizing: For the first time since the 1970s, the power sector is now emitting less CO2 than the transportation sector.
A related shift is that the generation mix is becoming more renewable and intermittent, with 2015 having seen additions of renewables (excluding large hydro) exceed all other sources combined for the first time. And the future is also more distributed, as consumers and businesses move to self-supply through technologies such as solar.
So, a new power model is developing: more decarbonized, more decentralized and more intermittent. This is a more expensive energy system as well, with subsidies for emerging technologies, more grid complexity to integrate more distributed energy resources and more need for back-up capacity.
The need to adapt to this new world is why utilities must reinvent themselves, seek out new revenue sources and capitalize on the opportunities presented by the new power model. Full implementation of the new model will take several decades—and delivering it will require utilities to focus on three strategies simultaneously.
In my next blog, I’ll drill down into what these three strategies are how they interrelate. Stay tuned!