The Future of the Energy Company: Challenging but Exciting
by Bob Shively, Enerdynamics President and Lead Facilitator
Energy companies are on the precipice of disruption in their traditional ways of doing business. In some regions such as California, Hawaii, New York, and Germany the transition is already underway. In others, energy companies are working diligently to prepare for what they know is coming. The disruption has potential to be a negative force eating away at an ever-shrinking slice of the industry or to be an opportunity to reformulate an expanding new business model.
Key aspects are shown in Enerdynamics’ latest infographic (click to download):
Key Trends Driving Disruption
On the left side of the graphic, we see four key trends driving disruption:
The cost of renewables has dropped significantly in the last decade, often making wind or solar the lowest cost source of electric supply. Utilities or generation companies locked into long-term investments or contracts for traditional sources of power may soon find themselves at a disadvantage in competitive markets. Meanwhile, opportunities for customers to utilize distributed resources is growing. This coupled with the dropping cost and increasing sophistication of sensors, control systems, and software is leading to development of grids with significant penetrations of distributed power optimized through collection and analysis of huge amounts of data. Lastly, the cost of storage is dropping rapidly too, thus forcing change on the way that operators balance supply and demand and the way that customers interact with the grid.
A wave of deregulation leading to wholesale competition, and in some regions retail competition, hit the industry in the mid-1990s. The trend then stabilized for a time with some regions depending on full competition, some on wholesale but not retail competition, and some sticking with the vertically integrated utility model. New technologies coupled with customer desires appears to be leading to a new push to allow high levels of competition in formerly regulated wholesale and retail markets. Eventually we are likely to transform to a fully transactive market where end-use consumers have the option of continually interacting with markets.
- Policy and Regulation
The relative stable regulatory framework that has underpinned utility business models will need to change in response to technology and market transformations. In the cases of early adopters of new business models, change is often driven by proactive regulators. In other cases, regulators will be reacting to technology and market changes they cannot control. Environmental policy can also be a key force, with many regions pushing energy companies to pursue large reductions in greenhouse gas emissions and other environmental impacts.
Customer desires around energy appear to be rapidly evolving. Many customers who once accepted energy as simply a commodity to be paid for once a month are now desiring choices, services, and the option to participate in markets directly. The future may see three types of customers – traditional customers who simply want to buy energy like they always have, active customers who are willing to actively adjust energy consumption in response to price signals, and prosumers who install distributed resources and want to provide services to the grid as well as buy services.
Impact of Key Trends and New Business Models
The four key trends will clearly have disruptive impacts on the business. In the future, the industry will increasingly become digitized, decentralized, decarbonized, and customized to specific customer desires.
The inevitable result will be that energy companies must identify new roles in a changed marketplace and develop new ways to make money beyond the traditional cost-of-service model. Enerdynamics has explored this business model transformation in a number of articles that can be found on our Energy Currents blog. As the former CEO of Edison International liked to say (quoting Charles Darwin):
“It is not the strongest of the species that survives, not the most intelligent that survives. It is the one that is the most adaptable to change.”
It is clear that change is coming to the energy industry; what isn’t clear yet is who will adapt well and who won’t.
Want to learn more or help educate your work group on the coming disruption? Bring Enerdynamics’ The Future of the Utility to your company. To learn more, visit our website, e-mail us firstname.lastname@example.org, or call as at (866) 765-5432 for details.