Global consulting firm PwC says the nature of the electricity market is changing so quickly that the traditional energy utilities are facing their “Kodak” moment. Either they change quickly, or they will lose their “right to survive”, even as the providers of what is usually considered an essential service.
“As little as five years ago electricity was something that most people and, to a lesser extent businesses, took for granted and cared little about. In marketing terms electricity was a ‘low involvement’ product,” PwC writes in a new report on the future of utilities.
“Now that power prices are rising and climate change is widely accepted, almost everyone has a view on the energy sector and what it does well and, more importantly, what it doesn’t,” it writes.
Some customers are loyal and will never change supplier for any service whether that is for energy or for banking, whereas others are always searching for the best and cheapest deal. New technologies such as solar and storage offer that avenue.
“These customer and technology factors will shape the electricity market of the future. Utilities will need to respond to the changing needs of the market or risk losing relevance or even more drastically their right to survive,” it writes.
“Those that respond will preserve or increase enterprise value, those that don’t face a very bleak future and their own ‘Kodak moment’. In the majority of cases there will be radical changes to business and operating models.
“We contend that the utility of today is outdated and is struggling to meet the needs of its customers while maintaining acceptable returns to shareholders. The so-called ‘death spiral’ is a prime example. Traditional large scale power utilities are losing relevance as customers take greater control of their own energy supply needs.
“To survive and prosper the ‘utility of the future’ will have to provide much more than reliable energy supply – it must respond to a diverse range of customer, business and community demands and do so in a rapidly changing regulatory and technological environment.
“The utility of the future is unlikely to control the value chain but will need to enable or facilitate customer energy solutions – they will become ‘energy enablers’.”
PwC identifies five value drivers that will be fundamental in the future utility market:
1. Customers are looking to take control over their energy supply and demand – they will look to manage their energy far more effectively than they can today.
2. Power generation and networks will be transformed – the energy value chain is currently subject to disruption, and this will accelerate over the next five years – those that innovate will protect and increase their value.
3. The role of the utility will transform into that of a service company that enables ‘energy solutions’ and in many cases ‘home solutions’ – this will require major transformation of business and operating models.
4. Data will play a dominant role in the future energy value chain – new value will be found within the data underlying customer energy usage patterns.
5. Governments and regulators will need to reshape energy and related services markets to keep pace with customer and ‘energy enabler’ needs.