Sparking innovation

Utilities Unbundled - Issue 15

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Utilities must innovate to drive new growth. Eurelectric's Dr. Susanne Nies looks at the technologies, business models and new ways of thinking that will unlock future value.

“Faster innovation by utilities could be worth €70b to the EU economy in 2030.”

— Dr. Susanne Nies, Eurelectric

Utilities need innovation to face unprecedented challenges – including decarbonization, decentralization and smart grids.

According to the pan-European Union of the Electricity Industry, Eurelectric’s recent report, Utilities: powerhouses of innovation, innovation is “imperative” for both the sector and the EU economy. Faster innovation by utilities could be worth €70b to the EU economy in 2030.

Policy backflips kill innovation

The energy industry’s historically slow pace of innovation is partly due to its regulated nature. However, political uncertainty caused by the cut of generous subsidies for renewables (see Renewable views) is an absolute negative for innovation.

Utilities cannot blame external factors alone. They must move from a traditionally male-dominated engineering focus and think differently. They must get into the impatient Zuckerberg/Google kind of mindset and consider different solutions: what have they not done before? Currently, Google does more research and development than all US utilities combined.

Think beyond technology

A common pitfall is to consider innovation as just technology. In fact, I would rank business model innovation as the single most important challenge to utilities today.

We need to move beyond the model of just selling megawatt hours to more differentiated products, such as energy services, e-mobility and generation capacities.

Opportunities lie in the “new downstream,” where energy efficiency, decentralized generation and the electrification of transport and heating/cooling are on the brink of mass-market take-up.

Consumers are at the heart of these changes. Utilities need to engage with them as “prosumers,” as empowered participants in the system. Being in contact with customers for 10 minutes a year when sending a bill is not sustainable. Customers want and need more, and this is driving changes to technology, business models and process innovation.

The way forward

Partnering with other organizations, such as IT and automotive companies, may be a smart way to fast-track innovation. E.ON’s purchase of UK energy efficiency company Matrix highlights the trend for utilities to gain experience via M&A.

I believe innovation will be the critical enabler that unlocks new sources of value in future, allowing utilities to improve their offerings and better serve increasingly engaged customers.
Policymakers, too, must keep innovation “top of mind” to achieve decarbonization and energy security objectives cost-effectively.

Europe has done more in terms of R&D than their counterparts in the US or Japan. But shortfalls in the European approach include the belief that energy transition is equal to renewables deployment. In reality, the transition is more complex; it’s about megawatts, negawatts, interconnections, big data, the new downstream – and things in the future we have not even thought of.

There needs to be a place for uncertainty and surprise and the market will ultimately figure it out. While some lessons have been learned, utilities need to be more sensitive to changes and learn to adapt if they are to be truly innovative.

This article was written by Dr. Susanne Nies, Head of Energy Policy and Generation, Eurelectric.

This is an abridged version of the full article in Utilities Unbundled.

For more information on this topic, please contact Alexandra Reuther.