Environmental leadership will breathe life back into Utilities
Energy consumption is sky rocketing. The US EIA projects that the world’s demand for energy will grow by 28%, by 2040.1 The good news is that the use of non-carbon-based energy sources is also accelerating. But it’s not all that is needed. The entire structure of the energy & utilities market has to shift away from one-way supply flows, and towards a market where consumers take more responsibility for generating and storing energy, as well as managing its usage.
This won’t be easy. But I believe it represents a great business opportunity for energy & utility companies. Those that grab nettle and re-invent themselves as energy educators, technology integrators, and environmental stewards, can pull themselves up the value chain closer to the customer, and away from commoditization and irrelevance.
Carbon-based energy sources dominate our globe today. New research indicates that in five generations time, carbon dioxide emissions could hit the same levels as the Paleocene-Eocene Thermal Maximum (PETM), a large deep-sea mass extinction event.2
It’s not all doom and gloom though. Renewable energy sources are gaining ground faster than expected. Recently the International Energy Agency predicted that renewable energy sources could provide 30% of the world’s energy by 2024, from 26% today.3 And while most of the growth in dirty energy is coming from industrial and commercial demand, the everyday consumer has an important role as well.
Home solar panels are expected to cover 100 million rooftops globally by 2024, doubling that of today. Yet, this will still only represent 6% of the world’s available rooftops.3 The opportunity for utilities to drive this growth is clear.
And it’s not just for environmental reasons either. It’s a commercial necessity in many countries.
The global growth story hides the fact that energy demand in developed countries is flat lining, or worse. Most of the growth in demand is from developing countries. China’s energy consumption overtook that of the US a decade ago. It is now the world’s largest consumer, with demand roughly 40% more than that of the US. Meanwhile, energy markets in developed countries are stagnating. Demand for energy in the US and Germany has plateaued, while it is falling in Japan, the UK and France.4
To avoid being caught in a downward spiral of a declining commodity market, energy & utility providers in developed countries need to find new routes to add value to their customers. Personally, I believe this should be through embracing and driving the growth of the “prosumer”: consumers who generate and store their own energy, selling it back to the grid when appropriate.
The technology to support prosumers – or even just more responsible energy consumption - is rapidly maturing, but it’s not reaching the mass-market.
There are five areas that need to be addressed:
Education & Access: Consumer information about, and access to, smart home, home generation, energy storage, or building design techniques is lacking. Industry and local government must drive this more proactively. For instance, embarking on community outreach and education programs to generate more demand for smart home and prosumer technologies.
Revenue & finance models: The industry must explore a range of new higher value business models. Such working with financiers to spread the capital outlay required for a consumer to install solar panels and battery storage. Or perhaps targeting property developers and architects to be the sole energy provider on commercial or residential real estate that is designed to reduce energy usage. They could also partner with white goods manufacturers to recommend new products to their residential customers based on their energy usage.
De-regulation & support: To date regulations have primarily focused on mandating renewables goals on Energy & Utility companies. Regulators have an opportunity to facilitate a larger ecosystem that enables more cross industry sales and data sharing opportunities and financial incentives. This will drive higher adoption of renewables through increased value for the consumer.
Grid modernisation & digitisation: At the infrastructure level electricity grids need to be updated to manage two-way power flows, but they also need to be digitised at a much faster rate, so that more real time data can be collected and used to generate more value added services, and higher resilience at a lower cost of management.
Open data sharing: Along with all the above points, the industry needs to create a more open data platform where energy & utilities firms can share information and learn from each other to drive higher adoption of renewables and re-imagine the relationship with prosumers.
Together, these five areas represent both a significant re-invention of the role that energy & utilities companies play in our communities, as well as a complete transformation in the structure and model through which they operate and deliver value.
It’s nothing less than a complete revolution within the culture and focus of a traditional utility business. Yet, this doesn’t have to be painful.
I recommend that while embarking on this transition utility firms should consider Infosys’ Live Enterprise approach to developing a more agile, responsive and competitive business. At its essence, Live Enterprise is about enabling businesses to sense the world around them and to react rapidly and appropriately. Like a living organism that instinctively responds to its environment, a Live Enterprise is designed to be flexible and continuously evolving.
In the context of today’s utilities market, this means firms must first understand their environment. Thanks to smart home and energy technologies, many utilities already have several years of detailed data on their customers. But few are putting this to good use.
Analysing, understanding, segmenting and targeting are the first steps towards building a strategy that can help a utility begin to develop new higher-value prosumer propositions to the market.
Next, it’s important to build a sentient operating model – one that continuously takes into account new information and uses micro-changes to transition the organisation in response to environmental information.
In essence, energy & utilities can use Live Enterprise thinking to focus more on their customer – as well as change their business model. They must shift up the value chain to sell more technology, services and complementary products to consumers that will increasingly also become their partners in the energy grid.
It might seem a big leap away from today’s energy & utilities business models. But the door for this opportunity is wide open, and by stepping through it, energy & utility firms will not only move towards saving themselves, but the planet too. If they don’t, who will?