4 minute read 3 Jul 2018
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How utilities' approach to B2B customers can accelerate energy transformation

By

Benoit Laclau

EY Global Energy Leader

Experienced energy leader and advisor.

4 minute read 3 Jul 2018

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B2B customers are contributing to a new energy system, and utilities need to transform to keep up and keep their business.

Earlier this year, EY released industry-first data that showed the world’s utilities are on a countdown to a new energy system, driven by 10 key technological and consumer trends. Now new developments in some B2B energy customer segments hint that the first milestone on this journey – grid parity – may be achieved by these consumers much earlier. This accelerates the need for utilities to evaluate just how to respond to changes and reposition their business for radical transformation.

Multiple drivers pushing businesses to generate their own energy

As I’ve covered in a previous blog, distributed generation and the digital grid have put utilities on a countdown to a new energy future. And the growing trend toward self-generation places utilities at very real risk of irrelevancy – sooner than many may think.

At a community level, microgrids and energy aggregation schemes are allowing residential consumers to bypass the grid, while governments are exploring how to use new technologies – including the digital grid – to build the smart, sustainable cities needed to meet the demand of growing urban populations. These initiatives – and their impact on the traditional energy supplier – will be explored in an upcoming blog.

But it’s the impending grid defection of many B2B customers that may hit utilities hardest first, and bring forward the tipping points to a new energy system.

The energy B2B customer market is highly segmented but can be broadly categorised as Industrial and Commercial (I&C), small and medium-sized enterprises (SMEs) and microbusinesses. These consumers typically represent a small proportion of the total number of electricity and gas meter points for a utility, but business energy use is significant. In the UK, for example, business consumers account for nearly 40% of total energy demand.

For these customers, energy supply is not just a service but part of a wider solution to improve competitiveness, reduce costs, ensure business continuity and, increasingly, build a better, greener brand. But many are frustrated by the continuing inability of their electricity providers to recognize their needs beyond price.

More are seeking to take control of their own electricity supply through developing off-grid options, or entering into long-term power purchase agreements with renewable developers. Some, as my colleague Stuart Hartley discussed in a recent blog, are driven mostly by rising energy prices and risks of outages; but others, including some of the world’s biggest brands, are motivated by a desire to build strong sustainability credentials.

B2B grid parity may accelerate energy tipping points

How utilities respond to these developments may be a critical variable in defining the journey toward a new energy future. Will they ignore the threat or embrace the opportunity? Those that act now can take a proactive role in providing the support and ancillary services that B2B customers will need as they adopt alternative energy options, while being part of the transformation. But are they equipped to do so?

Serving B2B customers more effectively starts by understanding them better. But truly understanding the customer has never been a strong skillset for utilities, even as the rise of both digitized data and customer power have created an opportunity to do so and increasingly made it a priority.

Now the pressure to know the electricity consumer, and specifically to understand which B2B customer segments will be first to take their business off-grid – is more important than ever. The first step in doing so may be analyzing B2B consumers by considering four key elements:

  1. Consumption profile: Organizations that expend most or all of their energy usage during daylight hours – such as shopping malls or schools – can use solar generation without much need for energy storage.
  2. Density and rooftop size: Those businesses with large footprints – such as furniture megastores – have huge potential to install onsite solar generation.
  3. Average daytime sunlight hours: Clearly businesses in regions with abundant sunshine can more easily generate solar power.
  4. Access to capital: Investing in self-generation facilities requires significant upfront costs.

By considering how these factors interact, we can see that it is highly feasible that some customer segments in certain regions may be ready to leave the grid much sooner than others.

Potential for grid defection across different customer segments

This table provides an illustrative view of the propensity of different consumer groups to adopt alternative off-grid options, e.g. solar plus storage systems based on a specific set of characteristics.

In most cases, solar generation, supported by battery storage, will be the prime energy source; but in some locations, electricity will be generated through wind and biomass.

Seizing the upside of B2B self-generation

Remaining relevant to B2B customers that are best-positioned to take advantage of increasingly affordable and accessible distributed generation options will depend on the extent to which utilities can deepen their understanding of these customers.

Strategic customer segmentation can help utilities use data from the digital grid to offer the tailored, bespoke services that B2B customers demand. These may include:

  • Assets ownership: Utilities that make greater investments in energy products and services, such as solar panels, storage and the software that controls them, can take a key role in businesses’ move toward self-generation.
  • Ancillary services: Further increases in distributed generation, flexibility, smarter networks, and business demand side response (DSR) and storage provide means for local balancing and ancillary services to maintain grid stability and security.
  • Cross-industry partnerships: Innovative partnerships with companies in different industries – for example, real estate agents, property managers or developers – can better position utilities to work with business consumers to generate their own electricity.

Understanding what B2B customers need – and then how to offer it to them – could be the key to how utilities can reinvent themselves in the new energy world. Doing so will require them to adopt new capabilities, starting with deeper customer segmentation skills, and a different mindset.

Please continue to let me know your thoughts and take part in the debate. @EY_PowerUtility/#EYEnergy.

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Summary

To compete in the new energy world, utilities need to understand what B2B customers need, and how to offer it to them.

About this article

By

Benoit Laclau

EY Global Energy Leader

Experienced energy leader and advisor.