The time-honored discounted cash flow method for determining appropriate utility returns falls short when interest rates are low. Inadequate ROEs ultimately increase cost of capital and wipe away...
Navigating in the Age of Uncertainty
Business models are evolving to suit a shifting industry landscape.
will ensure they’re at the forefront in terms of understanding new technologies by partnering with other players, conducting well-structured pilots to learn, and moving aggressively when it makes sense. In most cases utilities need to have a clear owner in their organization who is responsible for developing and driving a technology roadmap for the company. The industry will need to seek ways to learn from technology deployments in other countries, such as China, that will be the leaders in terms of deployment scale.
This isn’t only critical to drive a company’s competitiveness; a failure to do this will put the U.S. utility industry at risk of falling behind other countries and will impact our competitiveness as a nation, as energy-related technologies are the foundation for the economy of the future, much like information technology has been over the last 20 years.
In order to do this, the industry will need a more certain and progressive regulatory and legislative framework. To date, that framework has been ill-suited to making long term technology bets.
The Bottom Line
The next 10 to 15 years will be very disruptive ones for the utility industry. Utilities will face concurrent forces of change, many of which will fundamentally alter the industry landscape. Failing to recognize this new reality today will limit the options a utility will have to shape its own future.
These disruptions will create significant opportunities for new revenue streams for utilities that are able and willing to react constructively to the forces of change. Leading utilities will be able to deliberately shift their business models to meet these challenges and capture significant value—either in existing businesses or by offering innovative products and services. As the cost effectiveness of emerging technologies continues to improve, the associated disruptive forces will intensify, increasing the gap between leaders and laggards. The time to recognize this new reality is now. The road ahead won’t be an easy one for traditional utilities because a significant level of effort and commitment will be needed to successfully compete and cope with these changes.
Utilities can’t accomplish this transition alone. The regulatory and legislative compact will need to evolve and create an environment that provides greater certainty and direction, and rewards companies for their ability to transform and embrace operational excellence and innovation. This journey won’t only impact individual companies’ competitiveness, but will shape the U.S. economy as a whole.
What is clear is that there’s no better time than now for utilities to begin planning for the journey ahead.
1. Source: Edison Electric Institute Index Group of Electric Utilities; Accenture Analyses
2. Clean Water Act , Section 316(b); Clean Air Act , Title 1; Clean Air Transportation Rule; Coal Combustion Residuals Disposal Regulations
3. Accenture estimates, EIA
4. Accenture estimates
5. Accenture estimates
6. Federal Reserve of St. Louis
7. U.S. Department of Labor, Bureau of Labor Statistics