P&U is transforming
Why yesterday's business models won't work anymore
This is a time of monumental change for the power and utilities (P&U) sector. How energy is produced, who generates it, and how it is bought, sold and distributed is all changing – and all at the same time.
Society is also forcing this change. Consumers are increasingly dissatisfied with:
- Volatile energy prices
- Aging infrastructure or lack of infrastructure
- The environmental consequences of fossil-fueled generation.
Solving the opposing yet equally important forces of affordability, accessibility and environmental sustainability has created an energy trilemma. Change is happening today, not in some distant future. While this change is highly unsettling for the P&U industry, it also presents an unprecedented opportunity for companies to reinvent themselves – ushering in an era of cleaner, more sustainable power production and forming stronger bonds with their customers. Utilities need to embrace a culture of innovation and entrepreneurship – and that won’t come naturally to some.
In order to thrive, P&U businesses will have to:
- realign investment priorities
- rethink business models
- explore new commercial strategies
- build value-added service offerings to retain and grow the customer base
Power utilities in both mature and emerging markets face social, political and economic pressures, forcing them to redefine their businesses and the industry. Key factors in this transformation are:
Key trends driving transformation change in P&U
US$23 trillion will be required to meet future energy needs worldwide by 2040, with a further US$1trillion per annum to replace and maintain water infrastructure.
Changing energy mix
fossil fuels will still dominate 2040, but power generation is shifting to cleaner sources such as natural gas and renewables. The shift to distributed generation, combined with lower-cost energy, will challenge the traditional model of centralized supply of electricity over large networks.
once-passive customers are becoming active, engaged energy users who generate their own power and demand better choices. The battle for the customer is expected to intensify. Innovative, customer-centric new entrants will challenge incumbent utilities by offering data-driven products and services.
with the wide-scale deployment of smart meters, the key business issue is extracting value from the resulting deluge of data. With the right analytic approach, utilities can turn data into actionable intelligence to improve decision-making, business performance, service reliability and customer relationships. Big data analytics represents a huge opportunity globally, with annual spending by utilities projected to reach US$4b by 2020 compared to around US$1b today.
Market and policy reforms
will transform the electricity sector, restructuring incumbent utilities, and creating a “one off” opportunity for new market entrants to compete in newly-opened electricity markets.
new environmental rules demand that P&U businesses build more effective relationships with policymakers and regulators. Many utilities also operate in a highly regulated environment and will need to develop new rate case strategies to earn acceptable returns on investment in smart metering, energy efficiency and grid modernization programs.
as the sector becomes more decentralized, digitized and data-centric, the competitive landscape will fundamentally change. The line between utility customer and competitor is already becoming blurred and with competition in the beyond-the-meter space set to increase in coming years, utilities will need to respond by offering customers new products and services.
Talent & diversity
approximately 60% of the global utility industry workforce is over 40 years old, with many expected to retire in the next 10–15 years. Their vast knowledge, built up over decades, will not be easily transferred. Diversity at board level is also lacking in P&Us: EY research into the world’s top utilities shows that women represent only 4% of executive board positions. Diverse pools of talent with the relevant mix of technical skills and transformation experience will be needed to replace retiring workers and position utilities to respond to 21st-century challenges. The shift toward a new digital economy that is increasingly customer-centric could also benefit from fresh thinking, new talent and greater diversity.
|Source: EY research|