From Utility To Energy Services

The utility transformation should be built on the customer experience, the operational process and the business model.
Published: Thu 01 Oct 2015

In the changing energy world characterized by digitally connected prosumers generating, storing and managing their energy use, a new business approach is needed for incumbent utilities to compete and thrive. The question is what that approach is and how utilities can get there.

“To understand the new paradigm we need to go back to the what and why,” explains Perry Stoneman, Corporate VP and Global Head of Sectors & Utilities Global Sector Leader at Capgemini, who has been at the forefront of vocalizing these changes and developing the concept of the utility of the future as an ‘energy service company’. [Engerati-Utilities Fight Back With New Ideas]

In an exclusive interview, Mr Stoneman outlines essentially two disruptive threats to the current utility model – the fast declining costs of solar PV and storage, which is making these increasingly affordable to consumers, and the emergence of new agile, digitally oriented companies offering new energy and home services. Think for example of Google, with its latest Project Sunroof. [Engerati-Google’s ‘Project Sunroof’ To Map Solar Potential]

“Utilities that deliver electricity through the traditional regulated business are coming under increasing threat of attack from these parties, as they are not designed to implement solar or to be in the home with customer engagement tools,” says Mr Stoneman. “Accordingly, to remain  competitive in the future, utilities need to become more like these companies, more digitally oriented with new streamlined operational processes and models. We envisage the utility of the future will look more like a modern digital retailer than a traditional utility.”

Utility as energy service company

The three pillars of Capgemini’s energy services company model are the customer experience, operational processes and the business model, each of them with multiple goals and strategies.

“Utilities can either add the systems they need or build out net new,” says Mr Stoneman, pointing out that examples of both are starting to be seen in RFPs and in Capgemini’s work with utilities. “For example, we are working with three major utilities that want to build a new unregulated business to offer new services alongside their regulated business.”

One example of a utility following this approach is Eneco in the Netherlands as part of its Sustainable Energy Vision 2020.

The utility transformation

Stressing there isn’t a single model to aim for, Mr Stoneman says that utilities that want to transform need to have a plan to follow. “You need to decide if you want to be on the rooftop or in the home, or both. You need to decide if you will build or rent the IT platforms needed for this agile future. For example there are platforms that can be whitelabelled to get to market quickly.”

To support utilities in this transformation Capgemini has developed the new u2es offering, with specific services and solutions within each of the three pillars as well as transversal solutions across them. Notably the transversal solutions – such as cloud services and application management – all have as their goal cost reduction of current operations, which Mr Stoneman sees as fundamental to free up capital to plough into the new systems and products and to the staffing for them.

“In our experience where utilities struggle most is the marketing and customer experience dimensions. You need a storyline showing interest in what customers want and telling them why you are making the changes. And it needs to be done digitally rather than through traditional marketing channels.”

The penalty for not transforming

Mr Stoneman points to geographical differences in the approaches that utilities need to make and the speed with which these should be done. For example, in parts of the United States such as California and Arizona transformation is already under way, whereas in many of the states there is still a 3-5-year window. Parts of Europe are also being disrupted very rapidly, led by Germany. Conversely in for example India, where there hasn’t yet been significant PV penetration and many utilities are state owned, such transformation is still further off.

But whether sooner or later, the need for transformation will come and utilities that fail to move are likely to become devalued by the market, at risk of losing revenue and customers and ultimately also staff. As an example of the ease with which that can happen Mr Stoneman cites a company that lost all its new graduate engineer recruits within the space of a few weeks over its unwillingness to switch from manual to digital work management procedures.

Conversations utilities should be having

Looking ahead to European Utility Week, where Capgemini will be presenting its u2es strategy, Mr Stoneman says conversations that he would like to have with utilities, and that they should be having amongst themselves, is how they perceive the market changes and their impacts on their businesses and the tactics and strategies they plan to defend their service territories.

He also raises the potential for utilities to create alliances to develop joint platforms or solutions, with agreement to recognize each others’ service territory integrities.

Then there is also the role of the regulator. “The traditional role of the regulator is to protect the customer, but the regulator also needs to protect the utility business. The regulator could help by moving to allow utilities to redefine themselves as quickly as possible and letting the new business model evolve. Think about the threat of not allowing utilities to diversify.”