By James Mclelland, Global Industry Marketing Director, Utilities and Energy, SAP
The utilities industry is in the midst of rapid change. The surge in demand for advanced technology, smart cities, and electric mobility is converging with the growing demand for renewable energy sources and sustainability.
The utilities industry shoulders much of the responsibility of this immense transition, and the actions they take now will have a profound impact on society for generations to come.
Whether companies are responsible for electricity, gas, water, or waste utilities, they must strive to develop intelligent solutions and energy efficiency in their own operations, while also ensuring safe and secure infrastructure for the environment today and into the future.
It’s a heavy load to carry, so utility firms must be up to the challenge.
The Biggest Challenges Facing the Utilities Industry
The obstacles and opportunities facing utilities companies were discussed in a recent SAP webinar on the utilities industry. Some of the key drivers of change in the industry include:
- Escalating financial impact of shut downs and severe weather events. The cost of preparing for disruptions and extreme weather events is constantly on the rise. Utility companies must be agile and resilient enough to ensure transmission and distribution lines run properly to prevent or shorten outages on the grid, in gas pipelines, or in water or waste systems.
- Balancing supply and demand. Significant shifts from human-controlled power generation (such as hydro, oil, coal, or gas, for example) to weather-controlled power generation (solar and wind, for example) create more variables in forecasting supply and demand models. Energy providers must balance supply and demand with the global mandate to reduce carbon emissions and the growing demand for renewable energy sources.
- Increasing complexity. The move from centralized to decentralized energy generation is rapidly expanding. As more renewable energy sources are tied to the grid, having hundreds or thousands of power generation points and types makes the power grid more complex to operate. This is leading to declining revenue, increasing transmission and distribution system investments, and increased risk regarding grid reliability and cyber-security.
- Emerging customer preferences are influencing stakeholder priorities, decisions, and strategies. When customers have a choice of which type of power they want to receive, a growing number of consumers focus on greenhouse gas (GHG) reduction and choose not to receive power generated from fossil fuels.
- Digital adoption and rapid technological change are forcing utility providers to rethink how they work, the services they provide, and their current business models.
Consumers are Becoming ‘Prosumers’
The utilities sector is also experiencing the emergence of digital energy ‘prosumers’ – businesses or people who are both consumers and producers.
They generate their own energy and feed it back to the grid, which increases affordability but also creates operational complexity.
During the event, Miguel Gaspar Silva, global head of utilities IBU for SAP, said prosumers are playing a role in the significant changes currently affecting the utilities industry.
“This paradigm shift really is taking us from pretty much a consumer-centric model to a prosumer-centric model. Consumers will start having a completely different type of engagement with energy, with the commodities that they get from utilities, and obviously also throughout the entire world. This has many implications to the industry. Utilities will eventually not be so much in control anymore as they used to be in the past.”
As the industry transforms, so will utilities business models. Rather than strictly being utility providers, some companies will evolve to play more of a coordination role between multiple power generation providers and energy consumers.
“Utilities need to evolve. They need to become much more agile. They need to become much more lean in the way that they approach the business processes that they take care of, and also be able to capture business opportunities with that agility,” said Gaspar Silva. “Technology is playing a role. New technologies are fundamental for utilities to address these new business models.”
Mateu Munar, senior director, SAP, explained that utility companies are already evolving and moving away from strictly offering production and delivery models. “Utilities are starting to operate in the non-commodities space, offering services related to solar panels, electric vehicles, home insurance, maintenance services and all types of products that have nothing to do with the traditional offerings from utilities.”
Reimagine New Ways to Operate
Leading utilities companies are designing new ways of operating to support customers, communities, society, the environment, and their stakeholders.
This requires utilities to rethink their operations and develop intelligent solutions with the following considerations:
- New business models are required for non-commodity-based products and services to replace traditional cost-to-serve models.
- Investments in electricity supply and clean energies have surpassed investments in oil and gas, and that gap is expected to continue widening in the coming years.
- A growing number of industry players are expected to derive revenue from services and energy data collected with the increased use of smart meters and connected assets, so utilities companies must be vigilant about data privacy and cyber security.
- Energy utilities need to ensure grid stability in the face of supply and demand peaks caused by factors like microgeneration and digital mobility, while continuing to meet new regulatory and reporting requirements.
Strategic Priorities for Utilities Companies
Utilities companies must be resilient and agile while improving current processes and innovating to move forward. Here are some strategic priorities that utilities should consider as they continue their digital transformation:
Explore new revenue streams:
Energy utilities should move away from relying strictly on large-scale power generation, and consider new sources of generation with reduced marginal costs of renewable energy sources.
Traditional utilities should contemplate new business models, markets, installation services and other service offerings, as well as energy-related products such as smart thermostats, electric vehicle (EV) chargers, and solar panels, for example.
Build customer relationships:
With prosumers becoming more aware and involved in energy issues, utilities should capitalize on the opportunity for broader customer interactions by engaging with consumers directly through digital means and personalized marketing, and responding quickly to customer needs.
Drive operational improvements:
Minimize waste and reduce costs through demand management and the digital operation of assets. Use data analytics to improve visibility throughout supply chains and increase self-service capabilities and the use of artificial intelligence (AI) to decrease service costs.
Regulatory compliance and security:
Align end-to-end business processes and reporting with regulatory priorities, privacy regulations, and local regulators. Streamline communications with regulators and maintain stringent data privacy practices to prevent cyber threats.
Innovation is key for utilities companies
Innovating will help utility companies maintain stability during the industry’s seismic shift. To become more agile and efficient, utilities need to explore diverse delivery methods and business models and use advanced technology to bring their operations into the next phase.
How the utilities industry evolves and meets its challenges over the next decade will have profound effects on future generations.
Watch the full SAP Industries Live Webinar.