Change is here, and utilities recognize that.
They aren’t waiting to see how other service providers might address the evolving energy market, and they aren’t slowing down in the wake of the United States’ withdrawal from the Paris Agreement. Rather, proactive utilities are shaping their own fates and setting themselves up to be leaders in a decarbonized and efficient energy future.
And it’s a good thing they are. The fact is, energy is going the way of other service industries like entertainment and travel: more personalized, more customer-centric, more automated and more accessible.
Luckily, utilities are well positioned to support such an approach. They have long-established relationships with energy consumers, and they own the infrastructure and have the capital needed to make the business-model changes required to serve today’s climate-conscious, efficiency-minded, cost-savvy customers. Perhaps above all else, they have a window of opportunity that hasn’t been afforded to other industries making a similar transition.
Every other industry that has gone through change of this magnitude -- with the traditional telecommunications model being a popular example -- has come out worse on the other side because they lacked protection. Utilities have this protection in the form of a unique regulatory construct that shields them from serious competition during times of change.
But just having that window isn’t enough. Utilities must proactively adapt because that window won’t stay open forever. Those that adapt will maintain their ownership of the customer and evolve their business to thrive for decades to come. Those that don’t will be judged harshly for their unwillingness to act and will ultimately fail.
So what do utilities need to do within this window of protection to succeed in the new energy market?
Based on our work with some of the largest and most innovative utilities in the world, as well as countless conversations with other industry pioneers, here is Tendril’s take on the three initial steps utilities should take today.
Step 1: Seize opportunities that work for today and tomorrow
If utilities focus on reinforcing today’s regulatory protections through minimum bills, fixed-bill charges and barriers to grid edge innovation, they’ll remain safe for as long as the current landscape holds. But they won’t be determining their own destiny. Rather, utilities can show the regulators how they want the energy market to work -- and collaborate with emerging competition -- by seizing opportunities that achieve today’s business objectives while also developing tools and capabilities needed to thrive in tomorrow’s energy ecosystem.
It’s likely that within existing budgets, there’s room for innovation that can work right away and scale to future demands. The benefit of such an approach to product and service development is that there’s little to no risk: Utilities reap benefits now while also leaving the door open to even more value down the road.
Take, for example, demand-side management programs. They already have their own funding mechanism, and when viewed as a broader strategic asset rather than a compliance-driven initiative, they can drive the innovation needed to adapt to new competition and consumers’ evolving demands. DSM programs allow utilities to tap into their customer data, offer new products that take demand management to the next level, and stake their claim within the smart home.
Customer operations is another opportunity for innovation within an existing budget. Here, utilities can invest in digitized tools, analytics capabilities, and new engagement approaches. Possibilities include mobile apps, smart home energy management software, and analytics-driven marketing tactics. Effective enhancements to customer engagement and targeted marketing will drive down call volumes and other costs, providing immediate benefits.
Additionally, proactively seeking out non-wires alternatives (NWAs) will provide an inroad to advanced demand management techniques. Smart inverters, storage systems, optimization software and other grid edge innovations are quickly becoming mainstream. If utilities invest in these innovations now, they’ll shape the next round of regulations instead of finding themselves scrambling to catch up to new standards.
Step 2: Take advantage of existing data and other assets
Because of their troves of data, strong infrastructures and access to capital, utilities are perfectly positioned to manage the increasing complexity of the grid, whether or not regulations dictate that they do so right away. The problem, as the head of GE Power recently pointed out, is that utilities aren’t putting the data to use: He said the energy industry has more unused data at its disposal than any other industry. Utilities can address this disconnect, however, and use their data to prosper by adopting a platform strategy.
Rather than purchasing one-off digital tools (think standalone marketplace solutions), utilities should invest in scalable data analytics functionality with the goal of becoming incredibly smart about how to marry customers with products, and then leverage those products to positively impact the grid.
Ultimately, the utility’s goal should be to establish a data analytics platform that becomes the engine behind everything they do. It collects and analyzes all the data at the utility's disposal, as well as some that utilities don’t currently have access to, and turns that information into actionable insights. And when the same engine powers all business functions, they can integrate seamlessly, providing a unified, desirable and highly functional customer experience.
To get to this ultimate end state, which sounds easy on paper but isn’t necessarily in practice, we recommend investing quickly and affordably in customer analytics before beginning to organize every bit of data in the building. Taking this step will deliver near immediate and meaningful results while establishing a path to the broader platform approach.
Step 3: Build partnerships
As the energy market continues to evolve, utilities must think and act differently. This type of culture change is daunting. It’s hard to change from within and finding the right partner can help do just that, plus it insulates the utility from difficult build vs. buy choices.
Utilities often consider either building a new technology, product or service themselves, or purchasing it outright from someone else -- both of which have their pros and cons. Building a solution in-house gives a utility full developmental control and internalizes the new capability, but it requires recruiting expert talent that’s already in high demand.
Buying a solution from a vendor is fast and minimizes development risks, but prevents utilities from fully internalizing the new capability. And both options can be expensive propositions that don’t end up delivering optimal results.
The alternative, and better, approach is to partner with the right company, one that will ensure rapid adaptation with reduced risk and will work with the utility side-by-side to customize solutions and share learnings. The right partner will engage with the utility, not just for the utility, learning its business and tailoring its efforts to the utility’s needs. This approach has been proven to be successful by some of the largest, most innovative companies in the world. Remember when Apple incorporated voice recognition into its mobile devices? Instead of building it in-house, Apple partnered with a company called Siri, and after great success with its voice-control technology, Apple acquired the company.
Utilities today have an opportunity to pioneer new business practices that shape regulations and industry practices. It’s a daunting task, but we see that leading utilities think big and start smart -- taking targeted, no-regrets steps to prepare to thrive in a fast-changing energy marketplace while also meeting today’s business needs.
By focusing on system optimization, data analytics platforms and powerful partnerships, they’ll find themselves further out on the cutting edge of energy, prepared to scale to anything the future demands.
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Adrian Tuck is the CEO of Tendril.