Illuminating the road ahead for energy utilities

Over my years of consultancy work for the energy sector, I’ve seen a sweeping recalibration of global electricity and gas markets. Market forces have a much bigger role to play in energy supply and distribution, resulting in an increased diversity of market approaches. Utilities are less likely to focus their strategy merely on regulatory policy, capital investment and customer service, and are embracing new challenges and opportunities.

Analysing global power

Leveraging on our experience and sectoral expertise – and the global presence of parent company PwC – Strategy& conducted a study of the worldwide energy sector and the future of the utilities industry entitled Global Power Strategies. Overseen by myself and my colleagues Thomas Flaherty and Mark Coughlin, the study looks at the positioning of the world’s 40 listed largest global utilities (GT40) and the range of strategies they deploy, as well as their rationale and background. The analysis was complemented with a global survey of more than 100 utilities and through interviews with various CEOs from the GT40 companies.

Urgent trends

Global energy utilities are dealing with three increasingly urgent trends: decarbonisation, decentralisation and digitisation. Technology is shifting from analogue, centralised and standardised to digital, distributed and personalised. Customer needs are starting to outpace the change capacity of the sector. And newcomers – including global platforms like Google, Apple or Facebook – are muscling in on the market by building capabilities in energy procurement and trading.

To respond, utilities must evolve faster than before. We see 5 key strategic shifts:

1)   Reducing exposure to coal

2)   Investing renewables and networks

3)   Investing in energy solutions and services

4)   Developing distinct innovation capabilities AND

5)   Redesigning their business models 

An individual approach

A major advantage of the method adopted in our study is the ability not just to see how the sector at large is responding to the current environment, but also to follow the strategies of individual companies. Europe is leading the way as a result in regulatory necessity and a healthy forward-thinking approach to strategy. Examples include the E.ON-RWE deal and ?rsted’s decision to fully focus on renewable generation. These are clear choices that show where the global industry is likely to go in the coming years.

The boldest players are embracing radical change by reinventing themselves, adapting their business models and creating new solutions and services in new domains, such as smart home, smart transport and smart energy management. At the same time, leading companies are embedding innovation in the daily business, allying new ideas to drive down costs.

Interesting times

A key issue we identified is the importance of moving quickly in preparation for the coming upheaval. Our survey found that 90% of respondents believed they had five years or more to get ready. Yet more than 80% are not ready now and just under that will not be ready in 2020. We think things are more urgent than that. Several players in the industry must accelerate the execution of focused and differentiated strategies or risk falling behind. These are interesting times for global energy utilities: their success in the near and medium term may well be decided in the coming few years.

Learn more: Download the Global Power Strategies report and let me know your thoughts.