Editorial: Utilities playing catch-up to the hare

Digitalisation creates opportunities for energy companies, but also levels the playing field for a more nimble species of company.
Published: Fri 10 May 2019

For a long time energy retailers and regulated utilities seemed comfortable with keeping to a tortoise-like pace in adopting digital solutions. Despite recent energetic efforts to speed up, they are at increasing risk of being overtaken by digital “hares” in the form of information, communication and technology companies and other service providers, who are racing to grab a share of the smart energy services market and show no signs of falling asleep any time soon.

News from the UK this week that SSE Energy will cut 440 jobs in its customer service and smart meter teams should come as a wake-up call to suppliers facing increased competition alongside an energy price cap from the economic regulator Ofgem and higher operating costs.

Perhaps also partly to blame for SSE’s predicament is the UK’s haphazard smart meter roll-out, with UK union representatives suggesting low uptake is behind the job losses.  The smart meter programme is certainly a long way behind target and almost certain to fall short of its 2020 target of reaching 30 million homes.

But in spite – or arguably exactly because of these tough market conditions - utilities need to ask themselves if they could be doing more to engage their customers.

Tune in, turn on, switch

As more and more consumers in the UK wake up to the benefits of switching energy suppliers – a trend evidenced in steadily increasing switching figures over recent years – the more likely it is that they will move to providers whom they trust to provide a slick, technologically capable experience.

With the spectre of big-name brands from the world of TV or music streaming services moving into the smart home and energy services sector, more traditional energy players should beware.

 “There could be a huge shift in the way people will buy energy,” warned Rebecca Yates, policy and public affairs manager at Smart Energy at an event in London this week.

She’s not the only one warning that traditional energy suppliers are on the brink of losing out substantially to new entrants thanks to a sluggish approach to leveraging technology for sharper understanding of customer preferences.

Engerati hears this week from Stephen Woodhouse, chief digital officer at Pöyry, who says energy company understanding of customers is well short of its potential. He adds that digitalisation has opened a Pandora’s box in terms of diversified competition to incumbent energy players – lowering barriers to entry for new entrants who know about delivering digital services and who are not weighed down by responsibility for legacy assets.

Coming out of their shell

Of course, incumbent utilities are not standing by and waiting to become irrelevant. Collaborative start-up projects such as Free Electrons, a group of ten utilities which has just chosen 15 start-ups to work with this year, show that the industry is trying hard to reinvent itself for the digital future by injecting new blood.

But such initiatives are not gaining momentum fast enough according to Shuli Goodman of the Linux Foundation, which is launching an open source energy software initiative called Linux Energy with 30 members at Innogrid in Brussels next week. The scheme aims to catapult utilities’ digital capabilities forwards and enable the energy system to manage the decentralisation needed for decarbonisation.

Without a shift away from legacy, proprietary energy system software, says Goodman, smart grid and services will not emerge and emissions reduction targets will be impossible to meet while maintaining system security. “We’re hurtling towards one disruption after another. I don’t think a system composed of entirely proprietary software is safe, not to mention it will be impossible to scale fast enough from an interoperability and systems integration perspective. The more digital we become, the faster we can move if we commodify the base code plumbing. We can climb the value ladder through shared common infrastructure, while decreasing costs. Today, we are not moving nearly fast enough towards decarbonization, in fact we are crawling,” she says.

Heads up

Next week Engerati will talk to IBM’s National Grid relationship manager Jon Edmonds about his views on the opportunities for digitalisation in the energy sector. We will also examine the latest developments in machine learning and AI in data management systems in a webinar with ZE power.

We will bring you updates from Innogrid 2020+ and interviews with authors specialising on digitalisation in the book The European Energy Transition: Actors, Factors, Sectors edited by ENTSO-E’s Susanne Nies. The book will be used as the basis for an online training course on the energy transition by the Florence School of Regulation starting on 17th May.