The New Normal: How utilities can adapt

Why the energy sector needs strategic development

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The energy sector has, in recent years, gone through a time of uncertainty. A 2017 report by PricewaterhouseCoopers states that ‘the oil and gas industry has survived several particularly tough years with weak demand and low prices. It has been difficult to make strategic decisions and plan for the future,’ and only in 2017 is the industry beginning to show signs of recovery. Now in a Covid-19 world the turbulent dynamics facing management are forcing a rapid re-think towards added value initiatives for energy and utility companies.

In the context of these changeable markets, the structural challenges of the industry alongside new technological changes such as distributed energy generation, renewables and the impact of digital technologies, suggest a need for a strategic response.

While historically the energy sector has been rather resilient to global economic factors, in recent years the industry has seen a fair share of challenges that have impacted growth and costs across the entire value chain. The market valuation for the electric-power and natural-gas (EPNG) sector was down 15 percent at the end of March but has already begun to recover. Moreover, many utilities had relatively healthy balance sheets heading into the crisis. So while the number of M&A dropped in the first quarter of 2020 (global power industry deals dropped by 15.1 percent, from 906 in the first quarter of 2019 to 769 in the first quarter of 2020),1 activity could pick up quickly, reshaping the sector.

How to adapt: Reconsider the portfolio strategy

Utilities need to be aware of their new market environment and reconsider the strategic orientation of their portfolios. For some players, there will be opportunities to start financial partnerships, while others will take the chance to sell assets that no longer fit with their core strategies. With the possibility of more competition from new entrants, utilities need to be able to act nimbly.

Progressive energy companies are moving from commodity providers to added value energy and household services providers.

Providing an array of energy services, rather than just providing electricity, means something different for each utility. Utility companies in sunny states with regulations favorable to residential solar have considered selling and marketing solar panels themselves, or contracting with local providers. Some utilities hope the move will slow growth at new solar installers like SolarCity and Sunrun.

Utility companies have also turned to selling efficiency solutions. A utility company might recommend and sell LED lights to customers who could reduce their electricity use by using them. Small businesses with widely varied energy use patterns offer a much broader set of opportunities. A utility company might offer an energy efficient oven to a pizzeria or motion sensors to turn off lights to a company with a little-used warehouse.

The switch from passively providing electricity to offering a wide array of energy services represents a dramatic change for an industry that most consumers hardly notice—even if they depend on it. The average American energy customer spends only nine minutes engaging with their electricity provider each year, according to an Accenture report, and even then, typically only when a high bill comes or the power goes out. Many utility companies have already begun a process of increasing their interactions with consumers, providing in-depth reports of electricity use, emailing customers to warn them of a spike in their bill or telling them how their energy use compares to that of their neighbors. That represents just the first step in a process of strengthening the relationship.

Digital engagement with value added offers for customers will deliver sustainable long term annuity revenue streams for energy companies. Ancillary's Utility+ Marketplace is a ready made solution that rapidly delivers significant returns.

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