THE ENERGY INDUSTRY TIMES - JANUARY 2017 Final Word 16 Can’t see the forest for the trees Few will forget 2016. The world of pop music lost David Bowie and Prince (to name but two) and the outpouring of grief following the death of the sporting legend that was Muhammad Ali was felt around the globe. It was also the year of political shocks. The British public voted to leave the EU and to top it all, billionaire businessman Donald Trump won the US presidential election. It was indeed a year of endings, one that for many marked an unnerving departure from the world of business as usual. In the energy industry, the sun is setting on the days when all a power company did was build power stations, deliver electricity to your home and send the bill. One colleague once described the utility business as “a licence to print money”. Those days seem to be long gone, or are at least fast becoming a distant memory. Faced with exponential growth in renewables and the subsequent birth of new business models such as community energy schemes, energy companies worldwide will need to transform. Europe will be first, where utilities are struggling to turn a profit in the face of a changing energy landscape and slowing demand. Following a turbulent 2016, the pressure is on to accelerate that transformation in 2017. Assessing the potential big news for the coming year, Perry Stoneman, Global Head of Sectors & Utilities Global Sector Leader at Capgemini said: “I think we could see the failure of a large utility because of the changing market dynamics – something that was never foreseen, even just three or four years ago – which will have ripple effects across the entire industry.” While no one hopes this will happen, it would certainly be a message for change – one that board members and directors ignore at their peril. Until recent years, energy companies have either been simply complacent or perhaps too short-sighted to see the forest for the trees. Unseen competitors have been emerging from the woodwork to blindside traditional energy companies by utilising disruptive, innovative business models that take advantage of a market in transition. The legend of Robin Hood is well known. With the help of his band of ‘Merry Men’ of Sherwood Forest, the heroic outlaw robbed from the rich and gave to the poor. Based in Nottingham, England, and inspired by his ideals, in September 2015 Nottingham City Council launched Robin Hood Energy (RHE) in an effort to help alleviate energy poverty. As a not-for-profit electricity supplier, RHE says it is able to offer the best possible tariff for electricity at all times, with transparent pricing. Stoneman commented: “The fact they say they are not-for-profit builds trust.” Trust has been a big issue for the UK’s ‘Big Six’ energy companies. Stoneman added: “If you sign up for Robin Hood Energy, it’s probably because you want transparency, trust and a lower price. It will probably be very difficult for the Big Six or Big Eight in the UK to come in and take this customer back.” This move by local communities and individuals to literally take power back into their own hands is not limited to the UK. In November 2015 Sonnen, a German solar-energy-storage maker, created the SonnenCommunity, which allows peer-to-peer selling of electricity. Members pay Sonnen a monthly subscription charge (membership fee) to use a sonnenBatterie and solar PV to meet their own energy needs and feed into a ‘virtual energy pool’ that serves other members. This disruptive community, which bypasses the traditional utility, is thriving. “In one year, they offered up over 14.7 million kWh, more than half of which was purchased. That says this is a successful business model in my books and it creates a stickiness around people that buy into this technology. Not only do they feel good about being able use solar electricity, but also about being part of a community that allows them to monetize their excess capacity,” said Stoneman. A different model is also seeing success in New Zealand. Although not a community energy scheme, Flick Energy has a similar goal to RHE, except it is for profit. According to Stoneman, Flick Energy is putting forward “honest prices” by offering customers with smart meters access to the wholesale price of electricity direct from the spot market. This, it believes, will make the retail prices it offers cheaper than the average. Although slow to react, some utilities have been looking to defend their customer base by trying to move into the businesses that have disrupted them. Dutch utility Eneco has developed a smart home solution called Toon to create a daily customer interaction, which it hopes will result in increased customer satisfaction and therefore better customer retention. In April last year E.On, which has also been looking at how to take costs out of its operations, launched Aura for its German residential electricity customers. This is an “all-in-one” system comprised of solar, energy storage, energy management app and a tailored electricity tariff. The approach is similar to the telecoms industry. “Even if they lost that customer to their traditional business model, they haven’t lost that customer to their business,” noted Stoneman. French multi-national utility Engie, meanwhile, has taken a different approach by acquiring a company that has developed a disruptive business model. It has taken an 80 per cent stake in Green Charge Networks, which installs batteries and software to help industrial and commercial sites reduce their peak energy demand. While the traditional energy companies are taking steps into these new models, a Capgemini survey found that 80 per cent of the companies implementing these models are startups. Stoneman commented that this shows “the utility industry probably needs to move a heck of a lot quicker… and embrace technology breakthroughs and disruptive business models”. Even if the traditional energy companies are as yet undecided as to which way to go, there are things they should be doing anyway. They should maximise the use of analytics on existing operations as networks become smarter. Stan March, Senior Vice President of Corporate Communications at Landis+Gyr commented: “Utilities are exploring different options to respond to the demands placed on them. These options include implementing more built-in intelligence into their grids and introducing new network and grid distribution management capabilities, meter functionalities and data and analytics tools... The technology to collect, analyse and use data with unprecedented results is real. Advanced systems can now deliver remarkable control, with greater efficiency, better insights and a more conscious use of resources.” This was echoed by Stoneman, who added that the incumbents should also be exploiting digital channels to communicate with customers. “This can be a two-way type of weapon,” he said. “You can push offers and direct customers to new services. Whereas a call operation tends to be one-way, a digital conversation encourages people to explore and wander a bit more.” But Stoneman was certain of one thing. He stressed: “100 per cent of the incumbents need to introduce new services and new offerings. We just haven’t seen evidence of that happening yet. What they need to do is decide what they want to do – step out quickly and announce what their offering will be. “... They need to make these announcements in 2017 – pick the one you want to attack because it’s your biggest threat, and get out there and announce it. They know they have to do something and my advice to them is to do it fast.” Acknowledging the need and making changes can be a daunting challenge but fortune favours the brave. The route through the forest might not be clear but the threat is real. Lying asleep like a slumbering giant while the Robin Hoods of the energy forest creep up on you is not an option. Junior Isles Cartoon: jemsoar.com
Energy Industry Times January 2017
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