A new energy value ecosystem is emerging, driven by renewables, distributed generation and Business 4.0. Sudheer Warrier explains how incumbent utilities can best surf the wave.

All businesses have had to embrace technology and new ways of working in the past quarter century. For instance, insurers have had to embrace artificial intelligence (AI) to deal with the rise in big data, automotive manufacturers rely on intelligent automation to meet consumer autonomous driving demand, and utility providers have had to adapt to the rising desire for digital offerings and renewable energy through embracing the fourth industrial revolution.

For more than 100 years utilities have had a simple task: to pump out power to businesses and individual households in a secure, reliable and relatively affordable way. However, in this hyper-connected and more demanding society, this reliable business model doesn’t cut it anymore and this perception is now outdated. Customers now expect more from an on-demand economy and utilities are no exception.

How energy is consumed has become a notable focal point for all businesses. There are numerous awards available to companies that showcase their renewable energy sources. In fact, according to the European Commission, almost 17 per cent of energy consumption across the European Union now comes from renewable sources, and by 2020 about 72 per cent of European consumers will have a smart meter for electricity. The traditional approach of building power systems at scale has given way to the need to create flexible business structures that can accommodate renewable energy and a surge in consumer demand for new digital offerings.

Utilities are no longer able to focus on just providing energy. They must develop renewable, smart offerings where the consumer feels they are not supporting the rise of global warming. Therefore, utilities have had to explore new revenue streams, the likes of solar power, battery storage, electric vehicle charging, and micro-grids are all creating new areas of business and new concepts of value between utilities, their customers and partners.

Technology is the fundamental platform all businesses in the fourth industrial revolution build from, and utilities are no different. Utilities need to re-imagine themselves to both discover and create this new value. Thanks to technology, every customer is now unique, and they have been quick to adopt digital tools to take ownership of their energy consumption and spending. This places new demands on utilities, and those wanting to succeed will have to embrace some of the risk and integrate this new value into their operations and infrastructure as soon as they can.

This is the emerging energy value ecosystem, and utilities that want to succeed in it must find ways to adopt new roles, responsibilities and revenue streams by working more closely with their customers, partners and even competitors.

Data is society’s new oil. If businesses can embrace the data they gather, they immediately gain a competitive advantage and develop their understanding of customer expectations. As newly empowered consumers demand change, a joint study from TCS and IDC Energy Insights has found that two-thirds of European utilities are already using machine-generated data to meet the challenges of this new landscape, with tools like the Internet of Things (IoT) and AI reliant on open and high-quality data to power them.

The need to be nimble

The industry should not fear these changes. On the contrary, they are setting up the utilities sector to be one of the biggest drivers of global growth – a driving force of Business 4.0. According to the study, European utilities are making headway in developing fresh revenue streams – these new products and services will soon make up more than 10 per cent of revenues for 36 per cent of European utilities.

Overwhelmingly, more than three-­quarters (79 per cent) of C-level executives in the industry think distributed generation will be tied to these new revenue streams in some way, and that low-carbon producers will be the most important players in the utilities industry by 2020.

Although there are obvious signs of utilities’ potential, they must ensure they become more receptive to change and are able to build new ecosystems and adapt what they have in place in response to the ever-changing business landscape. It is good to see the research showing that the industry is starting to make this shift now. In fact, half of European utilities are already creating joint ventures to explore new ways of working, while 60 per cent are collaborating through strategic partnerships. Almost half (47 per cent) are even running new businesses within the perimeters of their organisation, while just over a quarter (26 per cent) are creating dedicated strategic units for new ventures.

The importance of the cloud for the utilities industry should not be underestimated. With this digital shift occurring at lightning speed, utilities need to be sure their digital technology infrastructures can bear the load of these changes. There’s an awareness across the industry that moving systems and software to the cloud is vital to evolve business models, with the study showing the UK and Germany leading the way over Nordic and southern European markets. However, in a world of changing consumer expectations where each customer is more valuable than ever before, more than a quarter of respondents said they will invest more in social media than any other area of technology over the coming years. This wave of social investment will finally make social networks fully-fledged customer engagement channels that also generate consumer intelligence.

The industry should be excited by all this. The new emerging energy value ecosystem, driven by Business 4.0, will push them closer to their customers and will see them evolve into real-time digital enterprises. Utilities need to seek strong technology partners and embrace the flexibility of cloud platforms as well as understand what data insights can bring. The combination of these elements is indicating huge changes in the industry.