Future energy: Goodbye kilowatt hours, hello services and data

Gareth Morrell, director of the insights and intelligence practice at Madano, has been talking to leading scientists, engineers and industry experts about the future of the energy supply sector and whether there are lessons from other industries that the energy sector needs to learn fast.

What will the future of the energy supply industry look like? For many it is hard to look beyond the current model of producing energy in large generators or charging for metered energy use. But emerging trends are changing the industry with potentially fundamental implications for the prevailing business model. Non-traditional players like Robin Hood Energy, owned by Nottingham City Council, are offering much the same services as traditional suppliers; microgeneration is slowly cutting into suppliers’ market share. Technology improvements and falling costs will also make the value of producing and simply selling energy to consumers by the kilowatt hour decline over the longer term.

Warning signs from other industries

Trying to make a living on top of a shrinking sandcastle may not be the best strategy for the long term for energy suppliers. While energy can be a profitable industry, its situation could be likened to telecoms in the 1990s, where charging for texts and calls was a major source of revenue. Telecoms had to adapt new models with package deals and charging for different services such as data.

The future of energy in the UK will ultimately focus more on microgeneration, energy saving hardware, service packages covering a wider range of energy needs and data analysis and consultation. The successful companies of the future will be good at one or all of these areas. The current monoliths are likely to either break up or consist of different parts, legacy (fossil fuels), near future (greener energy) and distant future (service or data analysis and consultancy). Smart players will see the first two parts, visionaries the last segment.

Getting ahead of the pack

So what to do if you are a traditional energy company? Well there is still a market to aim for but it will be centered on a mix of service models that include energy supply, installation of microgeneration, connection to the grid, energy efficiency, optimisation and maintenance. From generating and supplying energy, the market of the future will sell and install energy technology, connect it effectively to the grid and other potential customers, top energy up during periods of high demand, optimise self-generation and keep the system working well for the customer.

In a strange twist of fate, there may be players who benefit from the very fact that they are currently trying to catch up. Drax, the FTSE-listed owner of the UKs largest power plant is shifting from coal, which the Government wants off the grid by 2025, towards greener energy and direct supplying to businesses. More interesting still is their move into consultancy on energy saving. The irony may be that those who have the most change to make due to changing priorities benefit from the experiences and change management processes they have to put in place when further radical change is needed as they may be more confident in taking risks.

Replace the roof while the sun shines

Energy companies are well resourced today but leaner times may be ahead. The newspaper industry had large profits in the 1980s and 1990s but many failed to invest or see new models of mass communication emerging online. That is something the energy sector could do well to remember.

One thing to expect, if incumbents are slow to adapt, is that new, innovative players will enter the market. New entrants into a market can be extremely difficult to predict. New York Times technology columnist David Pogue said in 2006 “Everyone’s always asking me when Apple will come out with a cell phone. My answer is, ‘Probably never.” With hindsight we can see that Apple’s design and desirability, as well as its hardware and software, made it ideally placed to capture this market.

So who is the equivalent of Apple in the energy sector? It may even be Apple who have a habit of being nowhere and then dominating a new technology. Indeed Apple applied for federal licenses to sell directly to customers the excess renewable energy it generates on its new campus and in facilities across Oregon, Nevada, and California, perhaps a first step that opens the door. But Google appears to be most interested and best placed to enter the energy market, particularly on the data side. Looking at today’s market the easy way to predict who will still be around and thriving in twenty years is those who understand and handle data and service well and are willing to make bold moves that may not make immediate financial sense.