With the introduction of renewable sources and the growth in prosumer numbers, it is clear that the utility industry has to change. The move from fossil fuels to renewable energy is having a major impact on the entire value chain.
The electricity system has to be monitored differently, thereby driving the need for innovation and further investment in the current grid infrastructure. Prosumers require additional services to support their clean energy production and promote energy conservation, especially in Europe where the power demand is stagnating. The increase in prosumer numbers and the concern around climate change has seen consumption levels decline steadlily.
According to Marie Fossum Strannegard, Head of Energy & Utilities at Ericsson, a speaker at this year's European Utility Week, many aspects within the traditional utility business must be changed in order for them to prosper in the future. She points out that many utilities have already made some changes because they realize that the future has already dawned.
While there is a growing realization that change is inevitable and very necessary, there are a few challenges utilities face.
Firstly, the energy sector is heavily regulated-more so than in other industries, explains Mrs Strannegard. She recommends that regulators work alongside utilities and support utilities through the transformation process. She adds, “There is a need for a regulatory framework that supports this change. Regulators need to stimulate the change as utilities cannot be expected to handle the transformation alone.”
Lessons from telco’s
While regulation can be a challenge, the energy sector can draw experiences from other industries that have had to transform and innovate in order to survive in highly competitive conditions.
One such sector is telecommunications. Back in 2000, this sector was also faced with decreasing margins, and revenues, forcing them to revise their cost structure and improve the efficiency of their operations.
“This resulted in much larger outsourcing, explains Mrs Strannegard, “Telcos had to think about what their core business is and decide where their focus should be in order to make necessary change and remain competitive in the sector.”
Telcos were forced to change their business models since they could no longer rely on selling phone call time, just like the energy industry cannot rely on selling kWh alone. “Telcos had to find another revenue stream in order to remain competitive. They had to be more creative and innovative. Many new products and services were tested in the market with the aim of finding sustainability.”
Mrs Strannegard says that the telco industry experienced a lot of what the energy industry is experiencing today. In fact, Ericsson’s strategy is to enable the energy transformation by drawing on learnings from the telco industry.
For instance, system losses. “Ericsson is working to help utilities reduce grid losses by measuring and monitoring the grid in a different way. We draw experience from the telco industry which had similar challenges. They were also faced with both technical and commercial system losses.”
Other parallels include handling real time data effectively, consumer consumption and behavioral patterns, consumer segmentation, new products and services. “Ericsson applies their experiences with the telco industry and applies it to the energy sector to enable the transformation taking place. All of these experiences are pulled together so that an end to end solution is created for the utility customer.”
New strategies and new skills
While it is difficult to predict what will work in the market, a large portion of this transformation involves risk taking when introducing products and services.
“Utilities are not accustomed to taking risks, especially short term ones. For the last 60 years, the energy industry has taken very calculated risks on large and long term investments. However, to meet customers’ changing and more complex needs and expectations, utilities need to revise their time to market.”
Mrs Strannegard says that what’s interesting is that for the first time in Europe, utilities all have different strategies. “Going back 5 years, everyone was generally doing the same thing and putting money into the same boxes but now, companies are changing their strategies to gain competitiveness. Some companies are focusing on generation for instance while others are focusing more on grid infrastructure. Today, there is a great deal of uncertainty as no-one knows what to invest in and when. But, there is this growing need to do something different.”
According to Mrs Strannegard, the technology to support this change already exists. Some of these technologies already exist in other industries and can be adapted to suit the energy industry. However, cultural change can be a bigger challenge. She adds, “The introduction of new blood to the energy industry will help utilities make the necessary cultural change by creating fresh new and out-of-the box ideas. It comes down to the cost of the technology and willingness of management to make the changes which can create challenges.”
Playing a part in the future energy system
There is no doubt that utilities have to make the transformation towards a more digital and customer-centric business model otherwise they will struggle to prosper in this new business environment.
“To become a more sustainable business, they need to reduce costs, become more efficient and find new revenue streams if they are going to turn challenges into opportunities. New products and services will help them formulate new business models,” explains Mrs Strannegard.
She adds that utilities will need to act faster and think more innovatively than ever before if they are going to snap up the many opportunities that are becoming available.
“There are already some frontrunners in the industry. In a recent study we have done at Ericsson we wanted to see if successful energy companies (retail or DSO) have something in common. We looked at companies that outgrew their respective market in the last couple of years. From the study we could see six common traits that these energy companies share, six traits that we call growth codes. This is something we wish to talk more about at EUW.”
To drive innovation, utilities also need to attract new talent. “This shouldn’t be too hard to do since the energy sector is undergoing a major transformation and this will prove exciting for young talented graduates. Many will be excited by the prospect of being able to make a difference especially when it comes to reducing the environmental footprint.”
In conclusion, Mrs Strannegard says that EUW is a perfect opportunity for utilities to be exposed to innovative companies and see how new revenue streams can be captured using existing technologies. She adds that it is also a platform for higher level strategic conversations with existing and potential customers, and customers get the opportunity to also have interesting discussions and share learnings. The event highlights the important role that utilities will play in the future.”