Jeffrey Casey, UK director of business development at Burns & McDonnell, examines the four D's that are creating utility disruption and offers some ideas to stop utilities from being left behind.
Technology, regulation, government, consumer demands and financial markets are all changing the UK energy landscape. Climate change is the catalyst behind it all, with the UK committed to the goal of becoming a zero-carbon economy by 2050.
Utilities - the disrupted - are generally slow to adapt and compete relative to the free market. As a heavily regulated industry, they are guaranteed steady returns on capital as long as the lights stay on and prices remain reasonable. Furthermore, investors wouldn't expect utilities to take on undue market or technology risks - diversification comes from elsewhere in their portfolio.
Startup energy and technology companies - the disruptors - are a wholly different breed. They actively look for business opportunities in battery storage, fast-charging technology, flexibility, network management, P2P trading, and hundreds of other emerging niches within the industry. They even seek to create and facilitate whole new markets where none existed before, using traditional and leading technology such as blockchain.
Disruption eventually impacts every industry. The essential question for utilities now is: what side of history do they want to be on? Can they seize the opportunity and actively respond to the forces that are disrupting their industry?
In answering this question, let us review the four "D's" creating utility disruption.
Decarbonisation: Growing public support for a zero-carbon future requires the utilities to reduce carbon emissions and greenhouse gasses, as well as improve air quality.
Digitalisation: Communication-based technologies, and the data they generate, will increasingly force the industry to become more efficient and pinpoint and define the costs of supply.
Democratisation: Democratic principles will need to guide the energy transition toward renewables, and the accelerating integration of technology with the resulting deluge of data will enable broad public participation in energy markets.
Decentralisation: By pushing distributed energy resources and their control platforms to the edge of the grid, power quality or power fluctuations can be solved autonomously.
Companies such as Uber and Airbnb have disrupted their stable heavily regulated industries, using a wealth of data and incentives to create two-sided markets comprised of consumers and service providers, who each find mutual benefit coming to the table and engage in transactions beneficial to both. Is this out of the question for the energy sector?
Similarly, the energy industry must do more than simply acknowledge that change is here. It must embrace it, and find a way to lead instead of follow. Here are a few ideas:
- Consider leading with new business models that challenge "the norm".
- Leave no stone unturned in the quest to be a more efficient and a better-performing organisation.
- Engage in market-wide participation; there are hopeful signs such as National Grid's investment into energy impact partners and other corporate venture capital initiatives across the landscape.
- Leverage other parts of the business, particularly those non-regulated or retail sectors that exist to solve customer challenges.
- Listen to the customer and align closely to them, providing the service they want, not just need.
- Partner with the regulator to support new and innovative models, instead of being another horse in the race to the bottom.
Utilities clearly have a choice: Are they willing to lead the change? Or will they fail to respond in time and be swept out to sea like so many other industries before them? None of these items standalone will be a disruptor. Not being customer centric is the real threat to any business.
The future is open for innovative companies who can fundamentally change the way we think about energy.