Utilities Unbundled 16

EY - Utilities Unbundled 16: Retail
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Can utilities become consumer heroes?

Can utilities lose their traditional villain image and become a consumer hero instead? Steve Westly from The Westly Group gives his views on wearing the white hat in in the new energy marketplace.

In old cowboy movies, it was easy to tell the good guys from the bad guys. The good guys wore the white hats. The bad guys wore the black hats.

Power generation has been a bit like that for the past few decades, with utilities always cast as the black-hatted villains.

But now utilities have a chance to wear white hats. An unprecedented opportunity is arising from:

  • The rapidly declining cost of solar power
  • The growing sophistication of power conservation technologies
  • Rising customer expectations for better service
The declining cost of solar, sophistication of power conservation technologies and rising customer expectations create an unprecedented opportunity.

Just as telecommunications has evolved into a complex branded service, electrical utilities will have to start thinking and acting much more like other retail businesses. Forward-thinking companies such as E.ON in Europe, and NRG Energy in the US, are already trying to reinvent themselves for this new era, but most others have yet to catch this wave.

Reasons for resistance

A number of factors may be holding utilities back:

  • Successful companies often miss major shifts in technology.
  • The regulated nature of energy companies may have intensified this blinkered worldview.
  • Past experience is another factor. Many of today’s power executives have tried to innovate before, only to be caught short when the business cycle turned and they were left holding, say, a portfolio of imploding dot-coms. It therefore seems reasonable that some utilities are hesitant to invest in technologies like data analytics, even as new competitors like Google seem willing to lead the way in leveraging “big data” to improve customer products and services.
  • Most utilities are not paid to take risks. Investors typically look for stability in utilities – something that is hard to achieve when experimenting with new technologies and business models.

However, standing by while the transformation continues is not an option. Change is always hard — but the alternative is doing nothing while your business continues to shrink.

New possibilities

Innovation and new business models are taking hold across commercial, industrial and residential retail segments. Some of the best opportunities, in our view, are to:

  • Build stronger customer connections and unlock new opportunities through customer information and billing transformation
  • Encourage energy conservation through new partnerships with companies such as Nest
  • Redefine the company as a power facilitator and innovative financer, not just the power distributor
  • Support the growth of electric vehicles

Identifying the right offering from all these possibilities won’t be easy, and power companies will have to live in a world with more risk than they had to cope with in the past. Any utility that wants to join the white-hatted posse must accept that uncertainty.

For more information, contact:

EY - Mark Hirschey

Mark Hirschey
Advisory Services

Boston, Massachusetts, US
+1 617 375 2488