- Little doubt among power and utilities executives that their organisations are facing major disruption.
- The role of those businesses set to transform into service companies that enable energy solutions.
- Data provides the key to reshaping the industry’s business models.
The role of energy and utility companies is set to be drastically redesigned. There’s little doubt about it. In PwC’s Global Power and Utilities Survey released in May 2015, we discovered that an astonishing 97% of the industry’s senior executives expect it to be heavily disrupted by 2020. The momentum is actually growing, making that timeline a conservative estimate.
Where once consumers received their energy supplies from a limited, if any, choice of provider and had little sway over the form or source of their services, new technologies and evolving customer expectations are now forcing the industry to carve out new business models – and data is key to their new physique.
information is power
As is happening across all industries, consumer power and influence is rising. Customers are taking greater control of their energy supply and demand. Many are transforming from consumers to producers (known as ‘prosumers’), installing solar panels that feed energy back into the grid, for example. Energy is no longer seen as something to be passively received – customers also want to have visibility over its production and the flow into and out of their homes.
The shifting cognisance, along with deregulation, has led to greater choice of energy provider, who may not necessarily be producers of the final product. New entrants are stepping into a market that’s gradually becoming more open, taking advantage of opportunities to leverage new technologies as well as extraneous capabilities to scoop up a fresh customer base. Whereas assets and economies of scale were once the driver of strategy for power and utilities companies, customer solutions are now leading the way.
Our research shows that 66% of executives from power and utility companies believe that business model change is becoming urgent. Responding to customer needs in agile ways will provide the route forward. So how does data play into this new paradigm?
better customer relationships
Energy providers need to push their customer interaction beyond mailing out a paper bill once a month.
There is currently a vast data pool that lies with utility companies but, particularly in Australia, they have traditionally been slow to embrace digital capabilities. Smart meters are the new generation devices that can accurately track and communicate energy use in real-time. Although Victoria has been the first in Australia to roll out smart meters state-wide, this information is not currently being leveraged to offer incentives or financial benefits to customers.
On the other hand, globally we’re seeing industry organisations use data analytics to revolutionise the customer experience.
The largest power company in India, in 2015 Tata Power launched the country’s first automated demand response project, which allows customers to access their live data and actively select their energy supplier. Tata’s CEO Praveer Sinha told PwC: “The consumer wants […] to be able to say ‘I will only buy renewables or for certain hours of day I will buy from X supplier and other hours from Y supplier’.”
Oncor, an electricity distribution service provider based in Texas, uses data from smart meters to quickly detect any functional issues. Its SVP Strategic Planning, Don Clevenger, said in 2015: “We had about 150,000 outage events last year that we were able to correct before the customers phoned them in, so in theory before the customers were even aware.”
Data provides actionable insights for customers, too. In 2013, Baltimore Gas and Electric (BGE) rolled out a system that monitored energy consumption and created an incentive for customers to shift their energy use (and thereby save the grid from overload in peak hours). The system would email or SMS users when it detected a peak event, offering ways to reduce their energy consumption at busy and more expensive periods. It would later follow up with a message notifying the customer of how much money they had saved as a result. BGE later extended the system to over a million customers.
The shift to focusing on customer relationships is becoming more tangible in Australia. In its latest annual report, energy provider AGL says: “Our new business definition is to ‘harness insights to enrich the customer’s energy experience.’ In this way, everything we do is centred on the customer and the interaction they have with AGL around their energy use.”
The gathering and monitoring of data in real time provides value to utility network businesses in managing their assets and serving operational benefits.
Prior to smart meters, energy readings had to be taken in person. With the introduction of digital smart readers, this can be accessed remotely, which provides numerous other operational benefits. Oncor claims to have saved 18 million truck miles and six million gallons of fuel a year by not having to send out engineers to do the work that smart meters can now do, for example diagnosing whether a power outage is caused by a fault within the home or in the external equipment – a situation that generates 32,000 phone calls a year for Oncor alone.
Launched in March 2016, British Gas’ monitoring system Boiler IQ can notify the gas company of problems with a customer’s boiler. In trials, British Gas claims that it detected problems 19-24 hours before customers did. Not only does this assist with customer service, because the company can actively contact them to let them know that an issue has been detected, but the data provides diagnostic information before an engineer even sets out to fix the boiler – meaning that parts can be ordered and ready in advance, making return visits less likely.
new business models
With customers producing more of their own energy, consumption of purchased supplies is dropping. Since the retail element of energy supply became deregulated, so too has competition increased. So where should utility companies look for new revenue?
A number of forces argue that over the next few years, data will become a core competency of energy companies. This will give rise to a brand new range of services.
Playing a dominant role in the future energy value chain, new value will be unearthed from the data underlying customer energy usage patterns and transactions. Advertisers, media companies and appliance manufacturers would be willing to pay for this information, opening up a new source of revenue for traditional providers.
Developments in technology and data are also giving rise to a more complex energy ecosystem, one that is increasingly attracting the attention of outside players. It forms part of the wider bid to command the ‘connected home’ – the unification of home devices and the internet of things. Managing real-time information around your energy use may form just one component of a larger platform that gives consumers control over a ‘smart’ portfolio of every aspect of the home, from internet usage, to device performance monitoring, home security and so on.
Google, Apple, Samsung and other technology, entertainment and communications companies are all getting on board with such smart home platforms. For example, in 2014 Google paid US$3.2 billion to acquire its smart home subsidiary Nest.
Telecommunications giant Telstra has stated that energy plays into its wider Connected Home strategy and in February announced the setting up of a project team to explore energy related initiatives in the home. Executive Cynthia Whelan said on her blog: “As a company with a large portfolio of physical infrastructure across Australia, we see some real opportunities to use technology to become more efficient at managing our energy use. […] Energy related devices, such as smart meters, smart light bulbs and connected white goods, are helping drive compound annual growth for Connected Home devices of more than 25%.”
This is a pivotal moment for traditional energy providers. There are great opportunities to not only improve but reshape operational capabilities and customer experience. However, there are also some seriously heavyweight contenders entering the arena.
New streams of value must be sought from the data that’s created and collected through energy transactions. Data tools can support business decisions and drive new models. But perhaps the most urgent aspect to address is to enable a true understanding of the customer in order to put them at the centre of the organisation. The energy and utilities industries may have been a little slower off the mark in this respect but it’s crucial that they pursue that customer relationship now, or face being disconnected.