Are utilities ready to do what it takes to survive


Today’s utility faces more consumer choice than ever, and alongside renewable growth and technological advancements, staying on top of the cutting edge of tech can be difficult. This leads many utilities to “race to be second” when it comes to implementing new technological advancements and new business models.

However, if one were to look fifty years into the future, the utilities that can be expected to survive would be organisations that are proactive now in adopting innovative technology and business models and are taking risks today to ensure their longevity.

This article was originally published in Smart Energy International 1-2019.  You can read the full article via our digital magazine today.

Being cautious, or slow to adopt new digital trends, isn’t a trait that’s solely seen in the utility space. The road of commerce is littered with companies who were once giants of their time, but who failed to innovate in alignment with the fundamental changes in front of them.

Blockbuster Video, Polaroid, and Kodak are just a few recent examples of companies who doubled-down on efforts to get customers to use their legacy, analogue products, rather than investing in new technology and new business models.

A lack of innovation also makes large, legacy companies, vulnerable. Up until 2009, General Motors was focused predominantly on profiting from finance, and the business neglected to improve the quality of its product in the face of competitors or invest in the new types of automobiles consumers were seeking. When the recession hit in 2008, the old GM was forced to take a bail out by the US government and a new General Motors Company was formed in 2009.

Adaptation is the hallmark of survivability in any industry. The fact that 88% of Fortune 500 companies in 1955 were no longer on the list in 2014 speaks to the dangers “too big to fail” companies face when they take their ability to survive in a changing industry climate for granted.

Energy providers and utilities would do well to heed the warnings of the past and embrace change to ensure their survival.

Indeed, the long-established utility is under an existential threat.

However, true survivability demands more from these legacy utilities, including the need to assess their long-established business models, manage the risk inherent in their current company revenue streams, and fundamentally reinvent their business to ensure relevancy in a new technological business environment and more options for customers to choose from.

On the whole in the utility space, organisations have a habit of only evolving their offerings once the new technology, service or process has been tested and proven by another entity. Of course, there are exceptions and there are utility companies that are being proactive, working hard to adapt, if not to be a trailblazer themselves. However, absent innovation and adaptation, can put utilities behind the curve and force them in a constant state of catch-up in the market. An example of this could be found in the slow adoption and engagement of solar. Where once utilities viewed the solar market as competitive and chose not to engage or collaborate (and in some cases actively worked to slow down solar’s growth), utilities now have discovered how they can benefit from including renewable energy in their portfolio.

While hindsight is always 20/20, utilities are only now starting to consider partnering with electric vehicle charging companies, energy storage and solar manufacturers.

But, here again we only see small scale pilots taking shape, while businesses and even government organisations are moving towards widespread adoption of technological breakthroughs. Had utilities embraced these technologies earlier, they would be the ones inking deals with impactful business partners to implement these solutions across their portfolios of buildings and banking the additional revenues. However, it’s not too late for utilities to be more proactive in adopting new technological advancements.

Market forces pushing utility model modernisation

The rise of blockchain technology and its prospects for peer to peer (P2P) energy trading, is currently forcing utilities to reevaluate their perspectives. Consider this scenario. Homeowner A has a 3kW solar installation, but their neighbour has a larger 8kW array. Rather than buy energy from the grid that consists of power generated from both renewable and fossil fuel sources, and perhaps at a higher price, homeowner A opts to purchase excess power from homeowner B. Utilising blockchain
technology, these energy transactions are handled privately and exclude the utility altogether. Look no further than a recent successful pilot project in Brooklyn.

The market is already seeing this shift with companies like EnSync Energy Systems. The company is working with owners of multiunit dwellings to establish direct energy exchange between units, prioritising the use of solar or stored energy before pulling electricity from the grid. If utilities wait to insert themselves into processes like this, other companies will take advantage of the opportunity vacuum created by utility inaction. Regardless of state regulations that might seek to inhibit things like energy exchanges, some utilities could be reduced to simply managing the transmission wires.

Cryptocurrency mining is a new business model which utilities are skirting around cautiously. In the Cascade Mountains in Washington State, Bitcoin miners are flocking to the area, drawn in by cheap electricity. Cryptocurrency mining is the complex process in which computers solve a complicated math puzzle to win cryptocurrency. It uses an inordinate amount of electricity, and thanks to five hydroelectric dams that straddle the rivers in the Cascade Mountain region cryptocurrency miners are benefiting from power intended for the citizens of the area.

The challenge utilities face in Washington State is that crypto mining operations are siphoning off too much power from the local grid and overtaxing the residential electrical infrastructure with commercial-scale electricity demands. For some entrepreneur, this smells like a new revenue opportunity, but to most utilities, it feels like a problem that needs to be stopped so that things can go back to the way they were.

The future of energy utilities: the good or the bad

As we have watched utilities slowly adapt to the digitisation of the energy industry, it hasn’t always been in ways that are the most beneficial to the utility or the end customer.

Smart meter rollouts are one example.

The technology benefits were one-sided, allowing utilities to gain a higher density of energy data, without deploying personnel to read meters. There was very little, if any, benefit to the customer in the form of a smaller bill, or access to their own energy data for analysis.

Now distributed energy resources, energy storage, electric vehicles, cryptocurrency, and other burgeoning blockchain transactions are offering utilities new opportunities to innovate, build new revenue streams and remain relevant to their customers. But, it’s their choice to embrace these new possibilities for new business models and implement them broadly into their operations or remain on the sidelines waiting for someone else to take the risk and be first in the market.

A healthy economy constantly replaces stagnant, legacy companies with ones that tackle today’s challenges in fresh ways.

Customers want dynamism and innovation, not only in their tech gadgets, but in their energy purchases as well. Some utilities may think they are immune from such turnover, but they are not.

In today’s climate, it is no longer enough for utilities to simply provide reliable energy to the grid. They must do this, yes, and they must take the brave steps to break out of their comfort zones to implement new technology solutions, embrace collaboration with existing companies, and foster their own innovations in-house. Those that do will not only survive the next fifty years of change, they will thrive; some may even be trailblazers. If they don’t, customers will figure out ways to go around them. SEI

About the author

Udi Merhav is the CEO of energyOrbit. A seasoned technology executive and entrepreneur, Udi has spent 21 years designing and implementing e-commerce and information technology solutions for high growth sectors.