The winter of 2013-14 offered up a perfect storm of natural gas price spikes and threats to electric reliability. Expect more of the same.
Taking Digital to Scale
Eight key ‘plays’ to alter how work is managed and performed.
These may not seem like the best of times for electric utilities. Market conditions are difficult. The centralized grid model is challenged by distributed generation. Weather events have put pressure on reliability. Regulators continue to squeeze allowed returns, even while investor expectations have fallen - both for growth in earnings and for return on investment.
An equally daunting challenge will come in meeting customer expectations. Customers today are accustomed to the sorts of high-quality digital experiences they've seen through their interactions with providers in other industries. By contrast, they have little trust in their utility companies. And at the same time, powerful, low-cost technologies such as mobile and the cloud, and growth in new energy technologies, make market entry easier for new competitors.
Utility executives are finding, however, that while digital poses a challenge, it also presents a massive opportunity. Adoption of digital capabilities - mobility, analytics, cloud, social media, e-commerce and connected devices - can improve performance across the entire utility value chain. It can bolster operating performance and open opportunities for growth of new services and new business models.
A Steep Hill to Climb
New technologies such as distributed generation are growing much more rapidly than expected. A prime example is solar, which, along with storage, will continue to be the big disrupter. And while it still only accounts for 0.3 percent of US generation, the addressable market is every rooftop in the country. Solar is now at grid parity in 10 states, and likely reaching 14 by the end of this year. Our analysis shows that the entire country could be at grid parity by 2030, especially as solar prices continue to drop.
Our research shows also that 85 percent of utility executives expect increased competition from new entrants in the areas of beyond-the-meter solutions, distributed generation and data services.
These and other factors are making utility investors wary. In Europe, the top 20 utilities have lost 50 percent, or half a trillion euros, of market value since 2008. In the US, investors have reduced their earnings growth expectations in all but a few utility stocks. Their skepticism is based on a lack of a compelling story about growth, and significant threats from market forces, including regulation.
On one hand, the utility value chain is already becoming more digital. Examples include intelligent devices on the grid, an advanced communications network, and digital customer channels. But these capabilities have not been adopted at scale, nor have they been used to fundamentally alter how work is managed and performed.
As a result, utilities still face numerous obstacles as they seek to improve operational efficiency and increase profitable growth.
For example, many utilities lack the data and analytical capabilities needed to evaluate capital investments based on real-time conditions, rather than static planning assumptions. Typically, utility planners use annual 'peak load' snapshots