[BETA] Fortnightly

The power industry certainly Has been called worse things.

For months, study after study has reported dire findings that energy companies are the Rodney Dangerfields of Wall Street, that their Web sites often are nothing more than online brochures, and that energy technology is stuck in neutral. But the outlook took a turn in January when PricewaterhouseCoopers published findings that the energy industry is the second-most innovative of 26 sectors. The report, "Innovation and Growth: A Global Perspective," is based on a 1999 survey of the boards of directors at 800 organizations worldwide.

"Innovation is important because it's really the lifeblood of a corporation," according to Gerald M. Keenan, the partner at PwC who leads the energy strategy practice in the United States. "It's where growth comes from, and companies that don't grow, die."

The firm's research reveals a strong correlation between revenue from new products and services, and overall revenue growth. That's good news for energy, considering that the typical energy firm generated 50 percent of its revenues from new products and services last year, easily outpacing the all-industry average of 38 percent. The power industry was generating just 20 percent of revenues from new products two years earlier, when the last PwC innovation study was conducted.

So what's behind the industry's recent trailblazing? Keenan points to deregulation and the emergence of e-commerce as the main drivers. These and other "disruptive" forces, he says, "require energy companies to find opportunities to create new wealth or watch others loot their markets."

Says Keenan, "The adage that you either innovate or die is an important one. Even though energy companies and utilities rank high in innovation in terms of the percentage of new products and things like that, the reality is that they start from a very low base. So it shows great progress, but there's nothing to be complacent about."

Based on the track record of comparable businesses, Keenan predicts that most innovation in energy will focus on product delivery, financial arrangements, and bundled energy services rather than new products. Bundled services might include maintenance of facilities management.

"You can't escape the fact that all of this is based on an Internet platform," he adds. Keenan notes that the Web's real-time nature makes its potential especially powerful for electric firms. "One of the greatest values to be gotten through using the Internet comes in lowering the cost of supply and lowering the cost of delivering service."

In fact, he says, "Over the next five years, you're going to see a revolution in the way distribution operations work, and also changes in the way utility supply and demand is managed and delivered.

 

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