7 minute read 17 May 2021

Can digital reinvent utilities?

By Igor Sadimenko

EY Oceania Partner, Energy Market Leader

Business strategy professional. Transformation leader.

7 minute read 17 May 2021

Why traditional utilities must look at productivity through a digital lens

In brief
  • The energy transition demands total transformation of utilities’ business models and operating models.
  • Utilities must become digital to take on industry newcomers and create an alternative future.
  • Enhanced productivity, from a range of services that go beyond their core competencies, is utilities’ reward for business transformation.

With a global exodus from fossil fuels and growing focus on cross-industry decarbonisation, Australian energy businesses are left with no choice but to reconsider their carbon footprint and future strategic direction. In particular, those businesses that generate energy from fossil fuels are under immense pressure to look at alternative scenarios and implement alternative technologies to accelerate the transition. Companies are considering multiple options including green hydrogen and carbon capture storage (CCS) and more investment into renewables and grid-based storage capabilities. These businesses are seeking survival through adopting a transformative, more productive and resilient way of operating.

But many other utilities are paralysed by short-term costs and pressures that prevent them from making the radical moves required to thrive in a new system. They dare not disrupt their own business models, let alone the energy sector. That, they leave to newcomers.

Sharks in the water

Tumultuous changes in the energy landscape shake up utilities’ future prospects

Many Australian utilities have seen their profits more than halve in the past year. Bad debts and huge capital constraints are part of COVID-19’s miserable legacy. Utilities are cutting back where they can but, while short-term cost reduction may give short-term relief to shareholders, it will persuade neither customers nor employees of utilities’ future viability. At least not in their current form.

Meantime, the energy transition, driven by the shift from fossil fuels to renewables and the electrification of everything, is accelerating. The 3Ds – decarbonisation, decentralisation and digitalisation – are transforming how energy is generated, distributed and consumed. All make demands on utilities’ time and budgets. Yet some in the industry perceive the transition as an event that is happening to them, rather than as a lever for futureproofing their own businesses.

Given all the changes that are going on, now is not the time for tweaks and adaptations, but for wholesale transformation through digitalisation. Within five years, artificial intelligence, data analytics, blockchain and other digital technologies will fundamentally change the way that utility businesses interact with their customers, employees and assets. It is not so much about doing digital, but being digital.

Within five years, artificial intelligence, data analytics, blockchain and other digital technologies will fundamentally change the way that utility businesses interact with customers, employees and assets.

Indeed, market intelligence analysts at IDCpredict that 35% of energy utilities will drive at least 30% of their business via digital cloud platforms by 2025. They predict that 40% of electric, gas and water companies will prioritise wellbeing monitoring and personal safety in 2021, which will, in turn, improve the employee experience by 30%. And, given the growth in the number of prosumers feeding energy back to the grid, 35% of grid operators will deploy artificial intelligence by 2023 to enable predictive grid maintenance.

Utilities that hesitate to transform through digital now might not exist in five or 10 years’ time. They might be consumed by a new breed of competitor altogether.

Disruptors disrupt

Traditional energy companies must transform to compete with industry newcomers

According to the Clean Energy Council, renewable energy was responsible for 27.7% of Australia's total electricity generation in 2020. This represented a new record and the growth trajectory is not slowing down. Energy derived from solar, wind and hydrogen is backed by both the wider energy sector and government institutions, making it a compelling proposition for acquisitive players in unrelated industries. Banks, telecoms companies, internet giants and others are coming to the renewables market to procure and sell energy to their vast networks of customers.

Among them is Google. It has joined forces with a major Australian energy retailer to help households monitor their energy use and greenhouse gas emissions and teach them how to reduce consumption and save money. And green newcomer Octopus Energy,2 which aims for one billion customers globally, is sending shockwaves through Australian energy retailers. Using advanced data analytics and machine-learning, Octopus disrupts by automating the energy supply chain and focusing on great customer service and efficiency. Its digital business model and totally flat structure make players that have built their businesses around a traditional market value chain and functions appear cumbersome in comparison.

So competition is ramping up and utilities are exploring how to keep pace, by effectively turning their businesses upside down. Embracing digital capabilities can be the route to becoming functionally flatter, more cost-effective and customer and employee-centric.

New era productivity

Upturning the business model to become a leader in digital

Productivity in this new era will come from transformation, rather than continuous improvement. Small steps, like going contactless and enabling agents to work from home, as we saw during the height of the pandemic, are efficiency-related transitions. They are not transformational.

Productivity transformation starts with redefining both the utility business model and the operating model. So, expect gentailers (traditional generation plus retail utilities) to split or merge, as has happened in Europe, and to sell off their coal assets in order to focus on clean generation and become attractive to investors.

Network businesses – in so far as the current constraints of the regulatory framework allow – will use digital capabilities to anticipate rather than react to the bi-directional flow of electrons from customers who generate their own electricity and sell the surplus back to the grid. The regulatory framework will evolve as consumer demand for renewables intensifies, and as a decentralised electricity system becomes mainstream.

Like telecoms operators that have ventured into broadband and TV, new era utilities will compete to supply multiple commodities and become, in effect, digital houses. Via an interactive site, customers will configure services, like electricity, water and broadband, to suit the devices in their homes. And they will offset costs against their decentralized solar plus battery generation.

This will transform productivity across the whole model of energy generation, distribution and consumption. And it will change, profoundly and forever, the existing purpose of utility businesses.

This will transform productivity across the whole model of energy generation, distribution and consumption.

People at centre of digital matrix structure

With a fundamental transformation in business model and purpose come major changes to functions and employment too.

Fewer people in traditional roles is inevitable. But jobs will not be lost to digital. Instead of monitoring devices or responding to asset conditions reactively, former power station workers or transmission system operators will manage assets and “networks” proactively. They will use predictive technologies, such as Internet of Things (IOT) analytics, automation, and digital twin capabilities to replicate physical devices virtually.

Industry-wide reskilling will equip people with the capabilities for a totally different workplace, which will bring opportunity and competition for digital skills, both from within and outside the energy industry.

By becoming digitally integrated, the utility of the future will shift from a hierarchy of business units, to a matrix structure. Functions, like finance and HR, will not standalone but be interwoven into every facet of the matrix. And within the reconfigured business and operating model, people and technology will sit side by side as the primary fundamentals.

The future has arrived

Energy transition is underway, whether you are ready or not

The AEMO Integrated System Plan sets out the reform roadmap and scenarios for the national electricity market in Australia, dependent on advances in technologies and the decarbonisation agenda. But can traditional utilities wait for policymakers to set the new direction or redesign the industry framework?

The energy transition is happening now, ready or not. Though traditional market participants cannot control the pace of external change, they can influence their own spheres of activity. Players must innovate to secure their place within an ecosystem on the brink of transformation. These businesses will discover new productivity in redefining their fundamental purpose within the context of the energy transition. The utility of the future is moving on.

Five priorities for transformation

1. Re-define the Organisational Purpose in the new energy future
2. Set a clear strategy with strong ESG focus
3. Define an integrated business model underpinned by an agile and flexible digital footprint
4. Thoroughly plan the workforce transformation
5. Prepare the organisation for transformational change

But those that lag behind, waiting for green lights and frameworks from policymakers, will be disadvantaged by disruptors keen to get a foothold in the renewables sector. Planning for this future started yesterday.


Energy is in transition and utilities must transform. Reinvention means overhauling business and operating models to become more relevant and productive in the energy future. Being digital, not just doing digital, will be critical to the transformation, enabling utilities to fundamentally repurpose the way in which they deliver energy, and other commodities, to consumers.

About this article

By Igor Sadimenko

EY Oceania Partner, Energy Market Leader

Business strategy professional. Transformation leader.