In recent years the utility industry is faced with unprecedented digital and business transformation. Digitalization and new technologies are driving demands for advanced strategies and integrated data-driven business solutions, providing higher operational efficiency, better financial management and advanced customer relations.
Staying relevant to the increasing customer needs and market innovations, has turned out to be a major challenge to industry players. It is worth noting, however, that a few trends will continue to lead the changes in the global business environment for these companies. And it will be entirely up to them to choose the right combination of strategies and tactics to stay in the game and thrive in the long run.
1. Customer is at the heart of the business
Utility companies tend to be listening more carefully to customers’ voice, and many are beginning to respond to what customers are saying with innovations that give them more control over energy usage. There is obviously a growing appetite and expectation for more involvement and control over electricity purchasing and use, as well as a desire to interact with their providers in new ways. This is partly generational – younger users have become very comfortable with apps, social media, and always-on connectivity. These developments are coming from all directions, not just the big-tech giants that are household names. And it all adds up to a “new normal” in the customer experience.
We’re seeing evidence of this new normal in electricity customer preferences – the desire for choice, in rate plans, in sources of delivered electricity and in options to tap into behind-the-meter or localized sources of generation, or to bundle electricity with other home services like TV, broadband, mobile or insurance, for instance. Commercial and industrial customers are looking to combine more cost and utilization control with opportunities to self-generate, while setting themselves and their suppliers ambitious targets to reduce emissions from their energy use.
On the other hand, the demand for more accurate and transparent billing has also been increasingly addressed by consumers. It is utterly clear that utility companies should invest in state-of-the-art systems and tools (such as self-service web portals and mobile apps) to enhance the customer experience with real-time billing, for instance, and provide correct bills and billing history to their customers.
For the last couple of years the digital-first entrants noticeably continue to encroach on incumbent energy providers, loosening their vice-like hold of the utility sector. Playing to their strengths in customer experience, they are slowly gaining the upper hand – personalizing, streamlining and enhancing the customer journey, making it simple to switch suppliers and move energy plans to a new location.
In Europe, the Big Six know their service has not been up to scratch, and are actively searching for ways to evolve and become more agile. There is a real drive to transform the relationships they hold with their customer base, which traditionally have been transactional, to a more personalized and customer centric approach. Innovation is desperately needed by the incumbents, with investment in the customer interface a primary focus leading into 2019.
“According to the UK government’s latest survey on cybersecurity breaches, almost half of businesses experienced a breach or attack in the last year, making the cybersecurity the 2nd most addressed topic for the UK’s utilities.”
2. Putting priority to cybersecurity
With cybersecurity becoming an ever-more familiar part of everyday life, anxiety will grow and diversity as corporations evaluate their risk alongside threats to suppliers and networks. Growing familiarity is likely to move discussions increasingly from technology to management and bring a greater understanding of the types of attacks that can disrupt service on multiple levels, from data security to infrastructure.
According to the UK government’s latest survey on cybersecurity breaches, almost half of businesses experienced a breach or attack in the last year, making the cybersecurity the 2nd most addressed topic for the UK’s utilities.
Unfortunately, digital security remains largely unimplemented during utility modernization due to cost, resource, and time constraints. This is exasperated by issues with adapting cybersecurity to operational technologies (OT) environments and an overall lack of knowledge and expertise in bridging these divides. Further, public sector efforts have withered away since 2012-2013, when both the United States and European Union were actively driving national cybersecurity strategies.
The current US administration seems to have dropped cybersecurity from its list of priorities, and the European Commission is struggling to get its NIS Directive (The Directive on security of network and information systems) off the ground and obtain adequate funding for ENISA to fulfill its mandate. Most of the EU member countries have not taken the NIS directive to cyber-secure critical infrastructure seriously.
And while power and water grid stakeholders have spent over $8 billion globally on cyber-securing utility infrastructures in 2018, only a small portion of that have been dedicated to OTs and smart systems. Grid modernization efforts are an ideal time to start designing and integrating digital security and provide an opportunity for adapting existing mechanisms and processes to the OT space – from industrial control systems to smart meters. Cyber security technology by itself, however, can only partially address the issue of cyber threats. Utilities also need to deploy the proper organization and processes in order to supplement the impact of cyber security protection technologies. One potential solution is for utilities and vendors to develop standardized processes together, so that concepts such as device configuration will be effective in a multivendor environment.
3. Shifting regulations
For utilities, the regulatory topic and more specifically how state regulators keep up with the ever changing market dynamics is more fundamental issue than in most other sectors because incumbent regulatory structures, in fact govern so much of what utilities can do. The traditional utility regulatory model of cost recovery and allowed rate of return on investments will likely need to evolve and adapt to recognize and incentivize new technology options such as utility involvement in energy storage, two-way power flows, cloud-based solutions, behind-the-meter customer solutions, and innovative technologies throughout the business. Innovation in pricing structures and utility remuneration can enable wider deployment of innovative customer service technologies. Traditional cost-of-service regulatory structure often does not encourage innovation nor impels the investments necessary to satisfy customers’ evolving needs.
Fortunately, few flexible regulatory initiatives bringing new opportunity to utilities are already emerging in some of the progressive US states, and hopefully will be more widely adopted in the European regulators in future. For example:
- Support for advanced metering infrastructure as a way to improve the value-added two-way flow of information between utilities and customers and better facilitate demand response, renewable integration, and other programs that serve customers and improve grid operations;
- Approval of utility investment in electric vehicle (EV) charging infrastructure—with EVs an emerging new source of electricity demand, some states are approving or considering approving rate recovery for this type of utility investment;
- Offering subscription-based electricity services. For customers used to e-commerce platforms, this would similarly allow them to pay a fixed monthly subscription price and choose between varying levels of utility-provided products and services— such as renewable-generated electricity, EV chargers, and smart thermostats. For utilities, this could help them preserve revenue while promoting innovative services.
And while utility regulations in the US have been advancing at a fair pace in the last year, the recently increasing issues with insolvent energy retailers in the UK and thousands of households moved to a “Supplier of Last Resort”, inevitably raise questions over whether the regulatory regime is fit for purpose. Twelve suppliers have discontinued trading in 2018 amid rising wholesale prices and ongoing price cap, forcing energy regulator Ofgem to significantly tighten the market admission process for new entrants and provide some viable protection to end consumers.
In the light of these events, it will be of utmost importance that regulations in the energy and utility sectors globally are timely aligned with the market changes, so that they are able to adequately reflect the new reality and click with the overall disruptive transformation of the industry.
Looking into 2019 we expect that utility companies will continue working on the grid modernization, and building in resilience to weather events and cyberthreats, deploying new technologies such as digital capabilities or storage, taking their relationship with customers on an entirely new level. How they will balance the investment in ongoing operations against planning for all transformational changes will be quite interesting to observe.
- Marlene Motyka, Suzanna Sanborn, Andrew Slaughter, and Scott Smith, Deloitte Resources 2018 Study – Energy management: Businesses drive and households strive, Deloitte Insights, May 2018, https://www2.deloitte.com/content/dam/insights/us/articles/4568_Resource-survey-2018/DI_Deloitte-Resources-2018-survey.pdf.
- Jo Butlin, Energy Bridge, November 16, 2018, The Energyst: Big cracks emerging in energy retail, https://theenergyst.com/big-cracks-emerging-energy-retail/, accessed December 2018
- The National Institute of Standards and Technology, Framework for Improving Critical Infrastructure Cybersecurity, v1.1, April 16, 2018, https://www.nist.gov/cyberframework.
- Guidelines for Cybersecurity http://www.iso27001security.com/html/27032.html, accessed December, 2018.
- OFGEM Official Website, Publications & Updates, https://www.ofgem.gov.uk/publications-and-updates/ofgem-takes-action-over-payment-shortfall, accessed December 2018
- Laura T. W. Olive and Max N. Luke, Risky business: New trends in North American regulation, NERA Economic Consulting, June 26, 2018, http://www.nera.com/content/dam/nera/upload/PUB_Risky%20Business_0618.pdf, p. 2, accessed January 2019.
- OFGEM Official Website, Energy Price Caps, https://www.ofgem.gov.uk/energy-price-caps/consumers, accessed December 2018
- Adam Vaughan, The Guardian, December 16, 2018, https://www.theguardian.com/money/2018/dec/16/uk-householders-pick-up-bill-for-bust-energy-firms, accessed January 2019