Has Octopus Energy sparked a tidal wave of innovation in utilities?

To compete with new market entrants and business models, utility retailers need to broaden their innovation programmes. Olivia Law, innovation expert at Pollen8, explores what’s holding them back and how to overcome the barriers.

With its newly announced tech innovation hub, and ambitious plans to create jobs and champion green energy, Octopus Energy is stirring up change. The entech, and a host of other market entrants, are true pioneers, embracing the digital revolution and rising to the challenge of decarbonisation. With these players in the race, innovation is a must have, not just a nice to have.

There are countless examples of fresh thinking, and clever tech deployments in this sector, and the government’s planned green industrial revolution will support this further. Ofgem’s Innovation Link set up back in 2016, is designed to help innovators that want to break into the energy markets, but feel held back by regulation.

Sector innovations range from peer-to-peer trading of energy which is opening up the market to small-scale power producers; to allowing customers to optimise their power consumption, and lower bills. This is where Octopus continues to lead the charge.

“Innovation will be a differentiator between those companies that will be recognised as market leaders and those that will simply be part of the pack,” said Norbert Schwieters, PwC’s Global Energy, Utilities and Resources Leader, at an international energy roundtable in 2019.

However, for many long-established utility companies hoping to ride the swell of innovation, a reality check is urgently needed. Innovation culture can’t simply be conjured up overnight.

So, what are the main barriers and how can they be overcome?

Risk Aversion

Navigating compliance with increased regulatory restrictions keeps many corporate professionals up at night. A common obstacle we often see is corporate governance and risk-aversion in decision-making. One solution is to ensure you have a balanced portfolio of investments. Focusing on core improvements, alongside more transformative innovations, will enable you to present a low-risk business case, drive efficiencies and optimise energy production while unlocking new opportunities for tomorrow.

You can also reduce financial risk by providing access to shared systems which enable data-led, informed decision-making. This can be realised through a digital ecosystem such as an end-to-end innovation platform. This brings transparency to the process, provides access to shared resources and measures progress. Giving teams more direct responsibility for building and managing the innovation portfolio can help further reduce risks by providing an early evaluation of potential solutions and assessment of internal capabilities.

Cultural inertia

Often in the utility sector you get cultural inertia – individuals at all levels of the business not knowing how to take part, or why. To overcome, you need to inspire and empower internal stakeholders by providing clear strategic direction on why innovation matters, and how to prioritise efforts in the sector. Utility leaders must explain the connection between innovation activities and how these will support the future of the organisation, down to individual level.

Much work is needed in the sector to overcome the procedure-centric nature of the daily work of most departments. The norm is siloed organisational cultures, which perform the basic functions, but inhibit the drive to be innovative.

To break down this barrier, utilities must foster a safe environment for investment, development and adoption of new ideas. This is achieved giving access to increased opportunities for cross departmental collaboration. Then it’s a matter of mastering communication – creating a common language around innovation and amplifying the good news stories.

Regulatory distraction

Getting too bogged down in regulations can hamper creativity. In this respect, I would recommend building out an innovation ecosystem of developers and third parties to help play the role of being ‘unblockers’. Bring them in early to collaborate and carry out technical assessments. You can tap into a host of stakeholders – from start-ups to university research centres – who will have expert knowledge and ideas to bring to the table. It’s likely they will have navigated regulation in their area of expertise many times before.

Remember it’s essential when developing new software or apps to allow innovators to plan ahead for collecting and documenting the required levels of evidence needed for technical and regulatory approvals. This includes reducing complexity in the guidance currently provided to developers. In the power utilities sector, we’re seeing more and more strategic partnering in order to acquire the new capabilities to meet customers’ emerging needs, and to satisfy the regulators.

Move forward with confidence

To emulate the success of companies like Octopus Energy, energy sector leaders must overcome risk aversion by having the right systems in place to support their innovation efforts. By building out an ecosystem and taking a data-driven approach, companies can replace anecdotes with data, and better navigate complex business challenges and regulatory policies to unlock their innovation potential.