From Traditional Utility to a Digital Utility

sunset over a power plant, utility
When most of us think about utilities, we tend to remember an energy or gas contract that we once signed with some unavoidable public-owned company. Although non-negotiable, this contract was very reliable. It ensured a more or less constant utility supply without requiring further interaction with the utility company. From that point onwards, all that was required was to pay the monthly bill.

But things are changing. Like many other industries, the utility industry is now facing a major transformation. All utility organisations must adapt – and adapt fast – to cope with new market challenges and better still make substantial gains from new opportunities.

So what’s going on?

Powerful macro drivers

For a start, some powerful macro drivers are impacting the industry. For example:

  • Climate change – Global warming is forcing us to look for new and more efficient ways of producing energy. Renewables are taking the lead and becoming genuinely price-competitive with traditional energy. But this is putting networks under new pressures – companies are moving away from the classic model of large power generating stations and towards decentralized systems with distributed generation.
  • Shifting demand – Two key forces are at work. On the one side, demand is stagnating in developed countries due to improved efficiencies, new economic conditions, and proliferation of DERs (distributed energy resources such as solar panels installed on many residential rooftops). On the other side, demand is growing fast in developing countries, especially China, India and other parts of Asia.
  • New consumer technologies – Energy networks are profoundly impacted by technologies that enable greater systemic flexibility, such as smart thermostats and energy management devices. Imagine for instance what will happen with electric cars. This type of vehicle is enjoying rapid market penetration; by 2030 the International Energy Agency forecasts more electrical plug-in vehicles than oil-fuelled cars.

Electricity storage evolution

At the same, electricity storage is rapidly evolving. Over the past few years, battery capacity has been increasing and costs decreasing. When this reaches a ‘breakeven’ state, it will unleash massive potential for new storage technologies. Rocky Mountain Institute believes that 20% of American customers will reach the breakeven point by 2030. In addition, future storage solutions are of key importance to DSOs (distributed system operators); these companies will be able to better manage and balance energy on a large scale and at national level.

Next wave of regulation

With new trends come new regulations. Markets are changing, mainly due to new legal directives to drive competition and provide open access to grids. To face competition, utility organisations need a full transformation so they can adapt and move towards greater customer centricity. Also new utility entrants are disrupting the industry landscape; for example, online channels are starting to play a major role in altering customer expectations and experience. The next wave of regulation is on its way – utility companies will have to tackle the challenges of automotive energy consumption, storage and peak management.

Smart measuring equipment

Many governments and private organisations are propelling the adoption of smart measuring equipment. Already in the utility industry, smart meters are producing huge volumes of data which is fed into CRM (customer relationship management) and ERP (enterprise resource planning) systems. Analysis of this big data is also completely changing the way that grids need to be managed. Tomorrow the whole world will be in support of smart meter management.

The ‘digital utility’ in the digital revolution

All of these trends and events are happening in the middle of a digital revolution which itself is driving many market behaviours. The Internet of Things (IoT), explosion of big data, blockchain technology, cybersecurity and other digital phenomena need to be understood, addressed, and exploited by utility companies.

One thing we know for sure is that future operations must be flexible, reliable, resilient, efficient and sustainable. But how each utility company will get there is the source of some uncertainty.

The route to the future ‘digital utility’ is sure to encompass the entire value chain, from energy generation, to trading, distribution, and retail. Utility companies need to define a strategy to face the new challenges and capture the opportunities arising from digital transformation and potential desegregation of the value chain. At least three ‘big plays’ must form part of this transformation plan:

  1. Millions of items of smart electrical equipment are being rolled out around the world (North America, Europe and Asia Pacific, particularly in China). This trend started some years ago and continues today. It enables new propositions to customers, increases grid capability and efficiency, and lowers TCO. It also impacts business processes and systems. The data created by this equipment requires new systems for its collection, storage and sharing, which is why we are seeing new data lakes and hybrid platforms. This goes far beyond historical MDM (master data management). Utility companies must to adopt a single and scalable platform to track, measure, and mitigate risk, assuring compliance. A robust framework must be defined to engage multiple partners in terms of personnel, applications, and devices. By doing this right, utilities will be empowered to create new, competitive and value-added offerings for their customers, municipalities, and commercial partners.
  1. Customer experience is becoming vitally important. With liberalisation of the energy market, customers are more likely to change their utility provider, so differentiation is key. The implementation of multiple sales channels along with provision of a superior and seamless customer experience is the minimum requirement for customer loyalty. On top of that, companies need to create customer analytics and insights to enhance and differentiate the portfolio, tailoring offerings to targeted customer demand. Customer insights will play a big role in churn control and in understanding demand response, energy conservation, and ongoing efficiency. The utility companies that drive the best customer experience will be the ones to succeed.
  1. Security is not new but it is now a priority. In fact, every time companies face a huge transformation, it appears as a major play. All utilities have had to raise their investments in security and cybersecurity over the last few years and they continue to do so. As each utility grid becomes fully digitized, it is exposed to the same threats as the rest of the world. Utility companies require protection within the IoT ecosystem to help reduce the business risks associated with data availability, privacy, and regulatory compliance (e.g., the EU’s new GDPR regulation). And ultimately, the utility brand must be protected to secure and build customer trust and confidence.

The challenges are huge, but so too are the opportunities. Utilities have a major transformation journey ahead of them in order to face future market challenges and leverage exciting new opportunities.

Manuel Maria Correia

Author: Manuel Maria Correia

Energy & Utilities Industry Leader, DXC Technology