In Texas, community solar farms enable citizens to contribute to a greener environment. In Europe, if one owns solar panels but not a battery, E.ON Solarcloud offers the option of creating a credit balance for the winter. Some utilities even provide vehicle-to-grid services and home energy management systems to help consumers manage their electricity usage.
The emergence of these innovative offerings clearly underscore the findings of the 2018 CGI Client Global Insights in which 76% (compared to 45% in 2017) of the utilities executives we interviewed identify changing business models to address distributed energy resources as a top trend. To seize these new business opportunities, utilities are increasing investments in new products and services, making it the second largest IT spend driver and a top innovation investment (73%) over the next three years.
There’s no doubt that the pace at which renewables, energy storage and EVs are growing is far greater than anticipated, driven not just by technology enhancements and falling prices, but also by stronger political pressure to achieve climate change targets. Bloomberg NEF data indicates that worldwide, wind and solar can generate a whopping 1TW of electricity, with the second terawatt (expected in 2023) to cost 46% less. The UK National Grid projects up to 36 million electric vehicles (EVs) could be on UK roads by 2040, and already solar-plus-storage incentives helped Germany post the world’s third-largest residential energy storage volume in 2017.
New business models require collaboration across the ecosystem
As a business priority, the importance of collaborating across the boundaries of the organization has risen significantly (69% in 2018 vs. 49% in 2017). This increase is consistent with almost half of the utilities executives interviewed revealing that they are extending their digital strategies to include a wider ecosystem of partners.
Innovation in business models requires collaboration with partners that have complementary capabilities and assets. Fortum Charge & Drive, for instance, provides open APIs for operators to build their business services on top of its EV charging platform, facilitating a connected network of 1,400 affiliated smart chargers. E.ON partners with Google to use their data for solar generation and cost saving simulations, and with German battery manufacturer SOLARWATT for energy storage.
Providing integrated home energy services that deliver a seamless experience to the end consumer requires strong partnerships across an array of energy technologies, an end-to-end process approach, integrated systems and data exchanges.
Exploring open data platforms and creating platform-based businesses
Commercial businesses aren’t the only ones reinventing business models through partnerships. Regulated businesses such as grid and central market operators are looking to become independent data services providers, ensure non-discriminatory management of data energy and enable “innovation garages,” following an Apple store model.
High value data and data exchanges are starting to transform the way industry data is consumed and are crucial for utilities to stay relevant in the digital economy. For instance, Enedis has adopted the role of data operator in France; UK’s ElectraLink is launching the Energy Market Data Hub to provide users access to its data lake; and France’s RTE, together with CGI, has set up an API Exchange Platform to exchange information with ecosystem players.
Decentralization of the energy system and the need for flexibility services will further drive the proliferation of data platforms. For example, Tennet and DSOs in the Netherlands are working together to develop market platforms for trading demand side flexibility. Leveraging data network effects, whereby data from users helps to improve services, which in turn encourages them to contribute more data, will be key to the success of data platforms.
For some, these are opportunities to monetize data, for others, a way to improve market relevancy or even shape it toward grid-driven energy services.
Focus on larger consumers for faster growth and to address potential disruption
Flexibility services show a lot of promise for the industrial and commercial (I&C) segment. CGI UK’s latest research report, Embracing Flexibility: Transforming the Power System by 2030 finds that 100% of the aggregators and flexibility providers see providing I&C demand side flexibility as a current opportunity. Monetizing flexibility and energy are becoming key revenue streams for I&C clients and an opportunity for utilities to provide support and consulting services. The B2B model will enable IoT-based projects to deliver energy efficiency and savings with a shift to an "as-a-service" business model.
The emergence of local energy communities—from local governments to neighborhoods—is driven by the idea of owning and managing the generation, distribution and consumption of energy. In pursuit of the related economic benefits, including job creation, the set-up of these communities holds the potential for reconfiguring the energy value chain and creating new business opportunities for aggregators and grid operators.
Grounded in reality, beyond the hype
Despite the buzz around dramatic changes in the offing, the majority of our clients, across industries, see a minimal to moderate impact on their business models as a result of digital transformation. Utilities indicate that the highest impact comes more from internal pressures to innovate, rather than the need to address competition or even growth. They highlight, instead, the importance of collaborating with start-ups to respond to the high pressures from customers for innovative solutions.
One may argue that disruption is difficult for incumbents to see and is being downplayed, in part due to a “no fail allowed” DNA amongst utilities. However, getting the pace of change right and seeing beyond the hype is also fundamental to succeed.
Our clients tell us that digitalization and the energy transition will change the systems of production, ownership and value creation, which, in turn will reshape the energy value chain. What my conversations with clients have also revealed is that the answer lies in finding the optimal pace for investing in new technologies and innovation, while striking a balance between deploying digital technologies incrementally and transforming the core business.
About this author
As the Global Utilities Industry Lead, Ana Domingues is responsible for the portfolio strategy and growth of CGI’s global utilities business. In this role, Ana drives executive discussions and decision making on industry strategies at both the global and local levels, steers investments in growth ...