A memorandum for transformation

Utility Week’s community of innovation and technology leaders were asked to summarise the key transformations utilities must achieve within the 2020s in order to sustain relevance and legitimacy in a changing world. Here’s what they said.

We asked our technology and innovation leaders to identify a set of core shifts which they consider it is essential UK utilities achieve in the coming decade. Using their input, Utility Week has created  a “memorandum for transformation” for the sector in the 2020s.

Memorandum points in brief:

• Universal adoption of open data principles
• A new reference base for cost, price and value
• Creation of effective, anticipatory consumer protection

read on for more detail….

To say that the UK utilities sector is in a crucible of radical transformation seems an epic understatement. The impact of coronavirus on the sector, and the entire global economy, is still playing out. We know it will change the way in which businesses operate, consumers behave and society functions for the long run, even if the detail of this change is not yet clear.

But even before the coronavirus pandemic arrived in the UK, utility companies were viewing the dawn of a new decade, with some trepidation and excitement, as one in which some major transitions from legacy assumptions to “new normal” needed to be made.

In February, Utility Week and global technology and innovation consultancy Wipro, hosted a meeting of senior leaders from across the UK utilities sector to discuss these upcoming disjunctions and ask them to create a focused “memorandum for transformation” for the sector in the 2020s. We aimed to pinpoint a core set of transitions which all could agree were essential in order to allow utilities to retain relevance and legitimacy in a world adapting to the realities of climate change, shifting population demographics and rising expectations around social purpose as a strategic “true north”.

In a discussion including participation from over 40 technology and innovation leaders a wide set of opportunities and challenges for change in the coming decade were explored. The eclectic mix included observations on the difficult choices many companies will need to make in the years ahead over whether to invest in new technology stacks, designed specifically for new business and operating models, or whether to optimize legacy systems.

With the Utility Week dinner taking place just before the announcement that incumbent energy supplier Eon has forged a deal to move its customers onto Kraken, the customer platform developed by challenger brand Octopus Energy, this point was uncannily prescient.

Another observation made by the group included the need to significantly shift board level appreciation of the value of data assets and the need to decentralize ownership of data insights, moving this out of core IT or data science department and out into business operations. There was also extensive discussion of the well-trailed need for more bespoke customer experiences, executed with the support of granular situational and behavioral data.

Symbiotic utility-customer relationships are the key to a brighter future – read strategic commentary from the sponsors of this Utility Week technology and innovation leaders’ event…

Around the world, utility companies are entering a new age of customer power. Gone are the days, when inelastic demand allowed the option for companies to pay lip service to customer engagement. Today, the convergence of technological progress with the drive for sustainability and decarbonization, alongside regulatory intervention in the interests of consumer choice, mean companies must recalibrate their relationships with customers as valuable, autonomous assets within their systems. They need engagement which is not only service-based, but symbiotic….read more.

And inevitably, regulation got a weighty mention, with participants calling for more agile and enlightened regulatory thinking about how to allow new business and operating models, based on novel interpretation and exploitation of data, to come forward in the sector, without compromising consumer protection.

Many of these topics relate to ongoing changes and developing capabilities in emerging technologies, which have been talked about for years. But conversation amongst our leaders reflected a common expectation that the coming decade will see these issues shift significantly, become more focused and drive towards more specific outcomes.

This expectation can be largely grouped into three main points which participants agreed – no matter what their position in the energy and water value chains – should be included in our “memorandum” of essential transformations  to be achieved by the sector before the end of the 2020s.

Universal adoption of open data principles: By far the most unifying point made throughout the four concurrent round table debates which took place at our event, was that principles of open data need to be adopted within companies – to help individual organisations make better use of their data assets and apply data insights in a more agile way. But crucially, there was also a common determination to see open data principles adopted as a strategic “must have” across and between the energy and water sectors – and between utilities and other parallel sectors.

This march towards “presumed open” data principles across the board was highlighted as fundamental to the ability of utilities to step up to their social and environmental stewardship responsibilities. Only by aggregating a wide range of varied data sets will utilities be able to make breakthroughs in areas such as support for transient consumer vulnerability, anticipation of social equity issues and operation of efficient, flexible infrastructure from and “whole system” perspective.

Making these breakthroughs is not just important because of the smarter experiences and system capabilities they will unlock. It will also deliver lower overall costs of service and system operation, and enable far more proactive risk management, reinforcing resilience.

A new reference base for cost, price and value: Conversation around this point went far beyond the need to see a more mainstream shift in customer offers – away from unit pricing and towards “lifestyle” packages for utility services. A range of participants, from both the energy and water sectors, spoke of a need for a whole system recalibration of investment models and wholesale and retail market structures in order to adapt to an age where commodities are close to zero marginal cost and where data is king.

A fundamental shift in the model for investor returns, both for infrastructure and service-based companies, might allow for a more focused approach to optimizing infrastructure for a climate stressed world. For energy, participants agreed a meaningful shift to nodal pricing and valuation of capacity, or asset availability, in a flexible energy system would be desirable before 2030. And water participants agreed a similar shift in that sector could be a game changer in a world of escalating water scarcity.

Creation of effective, anticipatory consumer protection: As utilities eyed an exciting range of opportunities for innovation in the applications of new technologies, creation of new business models and reinvention of markets, a golden thread running throughout conversations was the need to keep sight of the social purpose that gives utilities their legitimacy, and to leave no customer behind. To ensure utilities, individually and collectively, do not exacerbate or create new forms of consumer detriment in their enthusiasm for delivering smarter, more efficient markets and products, the leaders agreed there is a need for a more agile and anticipatory approach to consumer protection. Regulators, consumer advocates and companies, it was agreed, need to work together to create an environment where it is not just easy for customers to find the deals and experiences they want, but where it is nigh on impossible for a consumer to unintentionally make a choice which will significantly disadvantage or endanger them – in terms of undermining financial or mental health, for example.

This will require better collective leverage of data, but also a focus on interoperability between technical market functions, services and regulation, our leaders said.

Clearly, since this meeting took place, the impact of coronavirus have overtaken the sector, potentially recalibrating innovation priorities and the focus companies are bringing to the exploitation of technology.

Arguably however, the intensified significance which the fallout from coronavirus will bring to the affordability agenda and the need to spark a low carbon economic bounce back as soon as reasonably possible, mean that the big picture industry shift identified by our leaders not only stand firm, but take on added weight.

As the crisis unfolds and, eventually, dissipates, Utility Week will revisit this memorandum with the individuals that set it out, to test its enduring relevance.