Posted on
September 15, 2019
New Strategies for Utility Revenue Growth
As electricity revenue flattens, utility executives will need new ways to generate revenue and profits.
At a time of both opportunity and challenge for the utilities sector, leading executive teams are developing and executing long-term growth plans. The questions to ask are clear, as are the key ingredients: core utility growth, consolidation and growth beyond the core. Delivering against that growth plan will be the defining challenge of the decade to come.
Load growth isn’t coming back.
Many executive teams hold out hope that electric vehicles and electrification will bring back load growth. A recent study by the National Renewable Energy Laboratory suggests that even in the most aggressive electrification case, loads will grow at 1.2% annually through 2030. Short of major, unprecedented shifts in public policy on climate change, many utilities will face flat or negative load growth over the next decade.
Rate and competitive pressures are rising.
Slow load growth combined with inflation and the need to boost earnings creates upward pressure on rates. Rising rates are unpalatable to regulators and incent customers to look for alternatives driving customer churn rates upwards. A recent Bain study showed that the average utility attempting to maintain rate growth at less than inflation would need to reduce nominal operations and maintenance (O&M) costs by about 20% over the next three years to accommodate just 4% to 6% EPS growth.
Regulatory and stakeholder scrutiny is growing.
The political landscape is getting more complex, and infrastructure approval is more challenging than ever. Traditional “engineering first,” lowest-cost planning models are under scrutiny, and disapprovals are increasingly common.
Ancillary revenue strategy complements core growth
Utility companies faced with strong headwinds are adopting ancillary revenue strategies. Establishing a product market fit for new initiatives is critical to the success of any ancillary initiative. Sector expertise and the adoption of a customer digital experience, that consumers expect from leading high street brands, will deliver tangible benefits. These include additional recurring non-core revenue, higher acquisition rates and lower churn.
Are you ready to build an add-on revenue stream?
If you’re considering a new ancillary initiative you need to ask yourself the following questions: