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Customer focus could save utilities from death-spiral

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This article is the first in a three-part series that explores how electricity utilities can avoid their very own “Kodak moment” by becoming more customer-focused and creating a diversified offering portfolio that meets the conditions of a new competitive marketplace.

Utilities can no longer be considered as the sole-players in regulated markets but as the dominant incumbents in competitive, geographically-limited markets.

By 2018, the combination of solar power plus battery storage is expected to be financially viable for Australian energy consumers. Therefore, consumers will be able to address the majority of their power needs and effectively compete with utilities. Furthermore, energy consultancy Accenture has determined that Australian energy users interact with their utility provider for an average of just 12 minutes per year and that the majority of energy users do not interact at all.

electricity-meterFor utilities, the combination of disruptive technology plus poor customer engagement could bring about a huge and devastating loss of market share. In the US, where market conditions for utilities are comparable to those in Australia, the investment community has already started taking note. Investment bank Barclays became the fifth major Wall Street firm to issue economic analyses or downgrade warnings for the power sector.

However, this need not be the case. Utilities have a small window of opportunity to innovate out of their dilemma. A renewed focus on the customer will be the key to their future.

Utilities have two major problems when facing this challenge. The first is their legacy issues. They developed to provide electricity to every home and business in an economically efficient way. They have built huge and complex empires amidst tightly controlled regulation and have been very successful in doing so.

Utilities also own some of the oldest business models on the planet. So change will not be easy and they will meet strong headwinds from inside and outside their organisations as their time-honoured business models come under challenge.

The second is lack of vision or, perhaps, an inability to clearly articulate it. Utilities appear to be holding onto their traditional business models for dear life. The attempts to demonise renewable energy are strong evidence for this. But a powerful and catalysing vision that is well-articulated to their employees, regulators and customers will help them to change the game.

For a suitable vision, they need look no further than their customer’s list of expectations. Anecdotally, energy users expect their electricity supply to be:

  • affordable over the long term
  • produced in an environmentally sustainable manner
  • reliable
  • safe, and
  • transparent in terms of cost; and furthermore,
  • the average consumer now has high service expectations from modern businesses (e.g. Apple and Google) and utilities should allow their customers to engage with them in easy, interesting and profitable ways.

At the moment we have an industry that really focuses on only two of these attributes – reliability & safety – whilst either ignoring or window dressing the rest. These two attributes are unquestionably important, but should not trump the rest.

Furthermore, utilities need to start looking at the grid as a means to an end, not as an end in itself, just as customers do. So, what is the future of utilities? Unquestionably they need to think big. They also need to think well beyond their current regulatory and economic constraints, and develop a vision that places the customer first to ensure their future.

Over the next two articles, I will show how utilities can start thinking customer-first. This will be boiled down to a simple strategic marketing structure of the “seven P’s” – Place, Positioning, Product, Price, Promotion, People and Processes. As introduction to this, let us consider the first “P” question to be addressed – the place that a utility competes.

Place – the customer comes first

For a utility, their market place is largely fixed by the geographic area in which they operate, but what is more interesting is what happens within that area. Given the new technology in play, utilities need to think how every consumer could become a prosumer (both an electricity producer and consumer). What type of grid would we need if every building had solar panels on its roof and battery storage in the garage? And how would our grid look if every large commercial and industrial facility ran a cogeneration or trigeneration plant? What if homes could sell their power directly to aggregators and businesses, and manage their home consumption to increase their market offering?

Utilities need to evolve from being distributors of electricity to energy enablers. It will require utilities to prioritise their resources in enabling their customers to interact with the grid rather than getting more power into and through it.

Enabling ideas like this not only requires regulation changes but a whole different set of skills, products and processes which I will address in the next two articles. The second can be read here, and the third here.

James Allston, an Australian, is the Strategic Marketing Manager for Energy & Environmental Services at Siemens AG in Germany, and a co-founder and former Vice-President of the Energy Efficiency Council in Australia. He is a specialist in strategically marketing and developing businesses that create a sustainable energy future. His views are his own and not representative of Siemens AG or its subsidiaries.   

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  • patrickg

    Looking forward to the rest of this series. The reality is, of course, very few organisations cope with disruptive technology as it applies to their business model. I suspect what will happen to the utilities – is already happening to a small degree – is smaller, more agile competitors eat them for breakfast.

  • Robert Johnston

    Its kinda ironic that renewable developers (like me) have been bemoaning the lack of PPA’s in Australia from utilities created by RET uncertainty and an oversupply due to earlier policy failure in the FiT/rooftop PV space (failure in that it destroyed the REC market through oversupply not that it failed to encourage installation – quite the contrary!), whilst all the time the structural changes described in this article are actually making the utilities less and less bankable counterparties – so us renewable developers also need to adapt or face our own Kodak moment of having a willing PPA counterparty but being unable to find a lender willing to finance against it. Interesting times.

    • TechinBris

      Try crowd funding. When it can capture the Community’s imagination, has a solid business model, the potential investor can gain advantage from it, even if a Bank refuses to give a loan because it will not fit with it’s desired model dogma, or it is a business activity that threatens their desired outcomes to they invested programs, the public still always has opertunities, even if the old way of getting it through our Governments has been usurped from us by the Big end of Town.
      Makes you wonder why in this modern age of instant communications, that we need Politicians and Governments anymore, especially considering they seen intent on hurting us more than helping us in recent times.

  • Max Boronovskis

    Great article, it is a conversation we need to be having, unlike Kodak we are all stakeholders in our utilities, especially the poles and wires. Regarding what kind of grid we would need if every building had solar and storage, I guess we could look to Germany and see how they are coping and adjusting. Maybe some of the variation could be on the solar and storage itself, like Radio frequency adjustable output chokes on the PV systems so that they don’t all crank on at the same time and hit the grid to hard, or just varied inverter ramp times by 30 seconds for gentler grid wide ramping (both exist in Germany I believe).

    With storage I like the idea of optional (and incentivised) utility access to the stored energy (like the Sunverge Solar Integration System). It could help in so many ways.

    As to how our grid would look if all large users had cogen / trigen, I guess reduced demand and a more resilient grid with every user also a potential generator to help reduce demand peaks. With two way metering we could see a reduced role for centralized power generation and an increased role for the poles and wires and retailers to act more as a clearing house to facilitate energy transactions.