Break Up the Utilities Silo – A New Ecosystem

In our previous posts we looked at transformation and how it is shaping the power sector as well as a few of the challenges that it poses. Today we will have a look at the new utility eco system and how to break up the utilities silo with adaptive new business models that can open new channels for value creation and profitability.

Energy retailers are facing a new utility ecosystem and the need for business model innovation is imperative. Business as usual is not going to be enough if utility companies want to stay in the game.   So how can they best organize for the future? Well, for starters, a paradigm shift is in order.

In order to face the challenges of the future, utilities need to expand their focus and look beyond the boundaries of their company. Collaboration is key and partnerships with start-ups and service companies will help to create ecosystems that can bridge the gap between the soon to be extinct “silo” business model and the innovative business models of tomorrow.

Utilities are under incredible pressure to compete and will need to shift from their traditional procurement business models towards more service-based ones.  This will require them to establish mutually beneficial partnerships that can open up new revenue streams by vertical integration across the value chain. They need to decide where in the ecosystem they want to focus and with which partners they want to build relationships. 

In contrast big tech firms and start-ups may find vertical integration easier as the are developing services in areas that traditionally utility companies were not focused on and therefore do not yet have business models in place that allow them to engage. Furthermore, industry regulations make it more complicated for utility companies to pivot easily and compete with their more agile competitors.

Competition from companies like Google, Amazon and Apple is disrupting the market as they begin to supply their own energy requirements and offer related service models to customers. Not only are they more agile competitors they have the financial ability to make investments in fast growing markets like green energy & storage.

Companies like Tesla have created microgrid technology that compliments distributed energy generation. These modular plug and play products are scalable systems that contain a storage battery, a power inverter and a cloud based control system.

In 2017 Enel partnered with Electro Power Systems (leaders in energy storage and micro-grids) to develop the first micro grid that is powered by both hydrogen and solar energy.  It can provide supply energy 24 hours a day and can be easily moved from one location to the other and can be connected to the grid.

In a previous post, we looked at a world where energy no longer flows in one direction from the utility provider to the customer.  A place where customers can generate, store and even sell their own energy. Welcome to the world of distributed energy and meet the new prosumers of the future.  

So, what does the increasing share of distributed energy mean for utilities? Well, first it means that the energy sector will have to embrace new market participants who are able to generate and sell their own energy. Second, it means that the sector will have to embrace service focused business models if they don't want to get squeezed out of the market all together.  

The idea of distributed power threatens utility companies as it basically opens the door to private companies and individuals making and selling their own electricity. Prosumers will become more mainstream as small-scale production and storage of energy becomes more affordable. Ironically, the drop of photovoltaics (PV) and storage prices will make it profitable for the energy providers who sell home generation and storage equipment in addition to just commodities.

Furthermore, by partnering with private sector partners, like tech companies, the energy sector gains access to new revenue streams and can position themselves to offer energy-as-a-service to the customer.  Partner models leverage each other’s expertise and will be driven by things like battery storage and electric vehicle (EV) infrastructure. By partnering with companies that manufacture EV infrastructure, utilities can implement device performance management and prosumer's digital wallet management programs. Client asset performance management and sales and delivery for new home products and services open additional new opportunities to scale. Capacity, supply and demand will collide so utility companies that do build partnerships with battery storage suppliers’ storage will have an edge. 

Through continuously adapting to new technology and market demands,  new services are created to satisfy consumer expectations. A great example of this is the “My Sun” service offered by the Italian EDF-owned utility Edison. The package offers retail customers the choice between a PV, a battery, or both. It includes financial and technical feasibility analysis, installation, technical support, and even negotiates bureaucratic procedures on behalf of the customer if needed.

The customers desire for personalized service and improved engagement and support presents a myriad of opportunities in the energy marketplace. Enrollment programs, personalized marketing, sales and contract automation and client equipment health communications and management are just a few of the ways that utility companies can both better serve their customers and increase their profits. There is room to grow as long the sector is willing to reinvent their business models and expand the scope.

This service economy trend changes the traditional utility silo business model into a value generating systems of partnerships offering solutions. When working together, products and services compliment one another to encourage growth and added value. 

But what about the bottom line? How else can this be optimized? Let’s look at it from another perspective, that of the software providers. The rapidly changing business environment and the presence of digitally savy end customers makes everyday business even more complex for the sector. Legacy billing systems hinder the industry’s ability to deliver services that are in demand and stay one step ahead of the competition. Why go through the effort to transform your business model if you have a monolithic billing system that may be holding you back and hindering your transformation. Remember those systems legacy systems we looked at in an earlier post?

Utility billing infrastructure needs to be brought out of the dark ages in order to keep up with rapid transformation. Just as utility providers are looking for ways to incentivize customers to remain loyal by offering them a cost- effective and flexible product, billing software providers offer adaptive software products that integrate easily. After all, a utility is only as good as their toolbox.   

Paddington Utilities Consulting offers a full-blown portfolio of services for the utility sector:

• Strategic consulting 
• Functional assistance in utility processes
• IT development of enterprise software for utilities 
• Project management 

Feel free to contact us for a free consultation to see how our experts can assist you!