From home hubs to the electric vehicle, power companies are facing industry upheaval from all sides. But what if these forthcoming disruptions could be leveraged to develop new business models and revenue streams?

Mark Coughlin explores three digital disruption scenarios facing electricity utilities and how they can move beyond adaptation to not just survive, but thrive.

The good times are over. After many decades of stability, the electricity industry has found itself grappling with disruption on multiple fronts.

New technologies such as battery storage and the electric vehicle are empowering consumers to go off-grid, threatening the dominance of the existing infrastructure. On the digital side, data analytics and connected smart home technology are destabilising the existing relationships between power retailers and their customers.

But there is a silver lining. According to PwC and Strategy&’s new report, Capturing value from disruption, with many of these changes still in the early stages, the industry has a chance to adapt and innovate, integrating new technologies instead of resisting them or standing idle.

What follows is three possible scenarios that utilise new technologies in various ways, and how power companies can best adapt. No longer confined to science fiction, these future scenes all have one thing in common: with the long-term stability of the industry drawing to a close, power utilities should prepare for a new era of fast-paced innovation and market fragmentation.

Scenario 1:
Retailers lose touch

Smart home systems, such as those made by consumer technology companies Google Nest or Honeywell, have reached widespread adoption and are fundamentally changing the way consumers use power.

Intelligent thermostats, security systems and internet-of-things-enabled appliances connect and report their energy use in real time to ‘home hubs’: apps and other interfaces that offer complete control over the whole home’s electricity usage.

With the aid of these home hubs and smart devices, users can decide to power down individual appliances, reduce the overall energy consumption of their home at will, or draw energy from installed micro-generation or energy storage facilities.

In this new paradigm, the energy gatekeeper is the developer of the home hub. Not only does the system provide superior data analytics capability compared to the utility’s previous time-based peak and off-peak methods, it inserts a whole new platform layer between the utility and the consumer, driving a wedge in the traditional customer relationship.

Leveraging its superior data insights, the home hub operator has bargaining power, pushing the utility company from an informed retailer to an energy wholesaler that competes solely on price.

How can value be captured value from this disruption?

With the race for the smart home only just beginning, utilities should look to develop and integrate their own digital platforms – or strike alliances with existing home hub providers. However, in doing so they will be entering a world well beyond their core competency.

Even with these pivots into digital, increased price competition is still a likely trend. This means victory will most probably come from the utility that can expand into digital yet still control costs.

Scenario 2:
Data dominates

The home is not the only location where technology has redefined energy management. Much of the machinery used throughout the supply-side of electricity generation – from the power plants to substations and power lines – has also been optimised by the internet of things.

With every aspect of energy production, transmission and consumption now monitored by smart sensors, a new frontier for the electricity industry has arisen: data. Fuelled by open-data policies, governments and regulators have decided to open up these new data streams to third-party access, giving birth to a whole new energy analytics industry.

Just as fintech startups began challenging banks using cutting-edge digital technologies, energy analytics startups have begun shifting value from utilities using similar strategies. By tapping into new data troves, these startups can provide localised or network-wide energy optimisation services.

These startups have also begun partnering with home hub providers, gaining access to customer-end data, widening their service offering and further fragmenting the utility-customer relationship.

How can value be captured value from this disruption?

If the deregulation of data looks likely in the long term, utilities should get in on the ground floor and voluntarily open their data siloes to third parties – ensuring the changing industry landscape occurs on their own terms.

In the short term, asset-owning utilities will reap considerable benefits from investing in internet-of-things technology, installing smart sensors throughout their network infrastructure to reduce system failures and optimise equipment replacement life cycles.

They can also begin to take advantage of their still undisrupted customer relationships, offering their own optimisation services using existing data assets.

Scenario 3:
Cars become the biggest customer

Improving battery technology and the continued spread of electric vehicles has seen cars become one of the largest retail consumers of electricity, far exceeding home-based heating systems and appliances.

Able to ‘supercharge’ their vast battery banks in a matter of minutes, automobiles become every utility’s most intensive customer, putting brief but intense strain on local electricity infrastructure.

What’s more, with their ability to temporarily power homes in times of blackouts or price spikes, these car-customers are disruptive as well as demanding. Capable of functioning as highly mobile energy platforms, electric vehicles can contribute to the power grid as well as draw from it, removing a core pillar of current electricity pricing structures.

How can value be captured value from this disruption?

To cope with this new and baffling user, utilities will have to vastly redevelop their service offerings. Networks and local circuits will require upgrading to cope with thousands of simultaneously fast-charging vehicles, while data analytics will need to predict when and where these supercharges are most likely to occur.

The arrival of hypermobile on-the-go electricity customers will also bring about a cultural change. No longer will the most intensive electricity users be assumed to occupy a single fixed geographic location such as a home or business. Instead, they’ll be capable of moving pretty much anywhere, and will come to expect reliable supercharging capabilities all throughout urban centers and beyond.

Anticipating this cultural shift, power companies should develop new marketing channels and service offerings for this new demographic. New offerings could blend fixed, per-charge and time-based products, depending on whether vehicle owners want flexible one-off charges, an ongoing charge capability or will regularly charge their cars at the same time of day, such as overnight in a garage.

Though disruptive and unpredictable, electric vehicles represent an exciting growth area for power utilities. If assets such as grids and charging stations can be integrated, utilities could develop new marketing channels to gain a loyal following of high-use customers. However, be prepared for a new breed of competitor: vehicle manufacturers.

Read more about the technologies that will likely drive change in the utilities sector in Capturing value from disruption.



Mark Coughlin

Mark leads PwC’s Australian Energy, Utilities and Resources practice.

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