The Disruption And Global Transformation Of The Energy Industry

Power generation is no longer a straightforward business.
This post was published on the now-closed HuffPost Contributor platform. Contributors control their own work and posted freely to our site. If you need to flag this entry as abusive, send us an email.
<p><em>The world’s energy utilities are being shocked and rocked by the most radical transformations in their history.</em></p>

The world’s energy utilities are being shocked and rocked by the most radical transformations in their history.

A. Fornwald

Co-Authored by Andreas Fornwald, CEO Grünwald Technologies & Sloan MBA

The first hit was the computer mainframe industry in the 1980s, then the conventional camera business of the 1990s was transmogrified followed by the telecommunication industry in the 2000s: and now it is the turn of the electric power utilities to take their place on the anvil of technological and societal change. These behemoths are forced to radically reshape themselves or face extinction.

Utility companies for power generation and power transmission have more than 100 years of history and millions, sometimes up to 50 million, customers. Now they are arguably experiencing the biggest challenge to their existence ever. Many will not survive.

The energy industry is rapidly changing: power generation is no longer a straightforward business, complexity is becoming overwhelming, and many top executives can not cope with this new situation. Radical transformations are progressing or will come. The Smart Grid wave is still ongoing. The Internet of Things (IoT) is rapidly developing, sophisticated Demand & Response software is coming, and Predictive Energy Consumption Logarithms, which should be in place by the end of 2017 will shape the Power Generation and Power Distribution industry as much as the robotization revolutionized the car industry.

Some experts and pundits predict the end of the power generation and power distribution giants and the fragmentation of the industry. We believe that this will not happen; the future of power generation and distribution will be shaped by global service providers that will bundle the utility business and provide significant add-on value to customers. These new energy companies will become the Google and Facebook of an utterly transformed utility business.

“Some experts and pundits predict the end of the power generation and power distribution giants and the fragmentation of the industry.”

Currently, many utilities are struggling. This phenomenon is very visible in Germany where the two big players – E.ON and RWE ― instead of focusing on customer service, divided their assets and created huge liabilities for taxpayers.

The challenges facing energy utilities include:

1. Electrical consumption per capita is falling for the first time in history. More efficient electrical energy usage, improved devices with less energy consumption are impacting industrial and residential consumption.

2. The energy supply is diversified, and the increasing efficiency of renewables is driving many independent power producers to feed electricity into the grid. More and diverse power of various quality, with different environmental impacts, is produced. No power source is comparable to another, and every power source has to be treated in a very special and proprietary way.

3. The grid cannot match demand and is far more difficult to control as it has many of bidirectional players.

4. Grid operators are split between efficiency, low costs and accepting various inputs from very diverse players, ranging from nuclear power plants to solar panels.

5. Various technologies are fiercely competing for power generation and power transmission.

6. IoT and ERP are playing a large part in operations. However, the integration of new internet technologies is not the biggest challenge; the biggest challenge is how to make employees use them properly and efficiently.

7. The share of renewable energy is growing and will soon reach 30-40% of total energy production. These intermittent sources have their own industry-specific challenges.

8. The diversity of renewable energy is increasing, and almost every source has different technical characteristics and uses new technologies which have to be quickly understood by utility staffs.

9. Utility company’s customers have become pro-active, and many of them have the ability to produce their own electrical power and feed it to the grid. Consumers become “prosumers” and the electrical grid becomes bi-directional, like a social media network.

10. Internationalization strategies which were once done by acquisitions rather than by cooperation with local partners, now need to be adapted to change strategies for cooperation with various local and global organizations. Utilities have to work closer with Independent Power Producers (IPP), with communities as well as with NGO’s, governments, local and global suppliers, etc. This complexity overreach echoes the United Nations.

11. State ownership will challenge the internationalization of the industry, and some stakeholders will probably question investments abroad because they are risky. The need for internationalization has to be better advocated and convincingly argued to resonate with policy-makers in order to move forward.

12. The utility industry workforce is very attached to their home bases and not mobile. It is extremely difficult to bring them around and to help them think and act globally.

13. The diversification of regulatory risk is another challenge. As politics becomes more populist, less rational, a less utility-friendly approach may be taken by governments and authorities. The new breed of global utility managers will have to cope with fresh demands from local and national governments and to learn to react to “meddling” politicians.

14. The handling of decentralized assets will change and utilities will need to share assets with other companies to develop joint projects with different players. With decentralized energy, the scale changes as does workforce qualifications and the revenues structure. Moreover, setting up small energy generating units is more labor intensive than building and operating big plants.

15. The management of data and big data will pay a crucial role for future utilities. Data will be by far the utilities’ greatest asset. Data and information regarding customer behavior and assets will be vital in order to streamline operations, and will be critical in defining the competitive advantage of each utility.

16. Monitoring new entrants and their business models in order to develop defense strategies or/and strategies to prevent the effects of disruptive innovations. The future utility market will abound in disruptive innovations.

17. Utilities will be crucially faced with the continuous improvement of its algorithms, business models and dealing with rapid change.

18. Defining and shaping a more customer-centric approach and experimenting with new approaches to developing a customer base will be a defining factor for competing utilities.

19. Interaction with other utilities will also define day to day business. More non-utility companies will enter the market and provide various service alliances between telecommunication companies, software companies and utilities.

20. Reversing classic utility inertia in deploying new technologies and new assets based on bottom-up approaches, while focusing on today’s unpredictable and unstable regulatory environment.

An example: the German market with its 590 billion euros sales revenue, is the biggest in Europe. The Big 4 ― RWE, E.ON, Waterfall and EnBW ― amount for 74% of the market. However, their share is sharply declining, some 1.5 million corporations and individuals produce energy; this number is growing fast.

“For utilities to survive, adapt and prosper, they must attract dynamic and modern-thinking managers and executives from various industries related to power generation, transmission and distribution.”

All the challenges above and the extraordinary complexity of today’s utilities market are forcing companies to leave old patterns behind and to entirely rebuild their operations. Utility companies need to reinvent themselves and travel down the path of diversification and efficiency in today’s tumultuous globalized market.

For utilities to survive, adapt and prosper, they must attract dynamic and modern-thinking managers and executives from various industries related to power generation, transmission and distribution. Post-heroic leadership in a complex, fast-changing and agile environment is crucial. Defining their role in the internet based, highly inter-dependent world is a matter of survival for utilities.

To manage these momentous challenges, transformations, threats and opportunities, utilities need managers who are able to work simultaneously with large, sophisticated organizations but also able to communicate with small departments with a start-up culture. Future utility managers should also be able to bind the innovative and entrepreneurial culture of Silicon Valley with the hierarchical structures of a large corporation. Managers need to possess bold and creative ideas as they bring a diverse corporate culture to their employees without leaving anybody behind ― to successfully navigate the radically changing energy market.

Go To Homepage

Before You Go

Popular in the Community