Finding new revenue streams in utilities requires creativity

From offering energy as a commodity to delivering value-added services

As a result of stagnant demand due to the success of energy efficiency initiatives and rapidly rising volumes of renewable energies, as well as increasing costs and intensifying competition from new market players and growing consumer empowerment, value is moving toward the downstream segments of the value chain. This includes activities and services that are closer to the end consumer and those that address climate change, such as energy efficiency, aggregation, demand response and flexibility services, vehicle and building electrification, micro and distributed generation, and distribution energy management.

To align with this shifting focus, utilities are steering investments toward green energy products, decentralized solutions and the creation of new business models that elevate them from the position of just selling and distributing a commodity to marketing new value-added energy services.

Customer obsession is key to succeed

As utilities become truly customer-centric, they will evolve to become digital lifestyle providers, catering to consumers’ needs for convenience. After all, today’s consumers often evaluate their satisfaction on the convenience and ease of the entire customer experience. EDP’s smart home services, for example, offers customers an integrated solution that leverages automation across appliances, roof-top solar panel energy production, electric vehicles and storage. This allows customers to seamlessly and completely control how they consume and produce energy.

However, energy efficiency, decarbonization and electrification services are still nascent, and do not yet cover retail losses of revenue and margin. To bridge this gap, some utilities are looking to capitalize on one of their key assets—their customers. For instance, by following a model of services aggregation, in which they cross-sell services that may not be directly energy-related.

New roles provide new opportunities

Some utilities are also looking to accelerate growth by offering market services around their existing core capabilities of asset management and network supervision. A growing number of organisations are starting to recognize that the ownership and management of assets is not contributing to their market differentiation and are now looking to others to do so on their behalf. This is increasingly true for small and medium businesses and new digital-born market entrants that are keen to have lean and agile organizations. These “nimble” organisations are seeking to externalize functions wherever possible to focus on their customers’ needs and develop new businesses.

The need for new market designs and roles is also opening up new revenue prospects. Utilities that want to shape their own destiny are taking steps to influence regulators on their changing roles. One such area of opportunity is the emerging need for market players to have better access to energy system data, given the increasing importance of data to create new services and facilitate interactions between market players. Several transmission system operators (TSOs) as well as distribution system operators (DSOs) in Europe are opening up their data. Enedis in France is a good case in point. In 2015, in addition to its traditional business of managing the public electricity distribution network in France, it embraced the role of a data operator for the market.

In the future, as new models emerge, more external data sources and diverse new market players will need to be integrated, real-time price/demand signals will need to be exchanged and flexibility exploitation will advance to the next level. To seize these transformative opportunities and stay relevant in a rapidly evolving ecosystem, utilities will need to rethink their vision of the industry, who their customers are and what additional value they can offer them.

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