Like so many sectors before them (telecom, mobility, hospitality…), utilities are facing mounting pressures on their traditional business model.
These driving forces are coming from all directions: shrinking margins due to increased supply from distributed energy resources (DERs) like solar, microgrids, batteries etc., fresh competition from new market entrants from Google to Drift, changing customer expectations… the list goes on.
In this disruptive maelstrom, utilities must innovate to drive growth as their traditional business model undergoes a seismic shift.
What does innovation in utilities actually look like?
Obviously, blaming external factors and throwing in the towel is not an option. But some utilities are starting to realise the need to consider more advanced solutions and first movers are already starting to diversify their offerings beyond power supply and distribution.
Now Trending: #Acquisitions
Several large utilities have already employed an inorganic, M&A-based strategy, identifying and acquiring companies that have an existing brand and market position in energy service management.
The past five years alone have seen several major acquisitions of energy management solutions by some of the world’s largest utility companies, summarised here by Verdantix research:
- Last month, Enel bought EnerNOC in a $250 million dollar deal to boost its commercial and industrial (C&I) energy management capabilities and target cross-selling opportunities across its new client base, according to the official press release
- Veolia acquired Enovity, a provider of both energy management and facilities management services
- ENGIE acquired Ecova, Green Charge Networks and C3 Resources
- Centrica bought Panoramic Power and ENER-G, and last month confirmed that it will continue to invest in home services and energy solutions
- Duke Energy bought Phoenix Energy Technologies
- E.ON acquired energy services firm Matrix
What conclusions can be drawn from this flurry of M&A activity? Utilities are seeing little to no growth potential from traditional energy supply and power generation into the near future. At the same time, they are beginning to realise the value of behind-the-meter energy management innovations in future-proofing themselves against the forces of disruption.
But instead of trying to build them internally, first mover utilities are snapping up ready-made companies and to expand and enhance their own energy management portfolios. Some utilities, such as Eniig, have their own energy services (ESCO) divisions where these data-driven technologies are essential to providing innovative, value-added services to help grow and retain their customer base.
The Seeding-the-Startup Approach
Startup competitions, accelerators or open innovation challenges are another way utilities have been trying to source innovation externally. Take the case of Free Electrons, a global startup accelerator program backed by utilities from Dublin to Dubai, namely AusNet Services, DEWA, EBS, EDP, innogy, Origin Energy, Singapore Power Group, and TEPCO. Collectively, these 8 utilities serve over 70 million customers in 40 countries, with an excess of $148 billion in sales.
Another example is the Rockstart Smart Energy Accelerator, which counts Czech utility CEZ and Engie among its investors and partners – both among the top 10 largest utilities in Europe.
These are just some of the innovation efforts we’ve seen from first mover utilities seeking to retain a competitive advantage in the face of disruption. The question now is – what is your utility doing to future-proof itself?
The Partnership Pathway
At DEXMA it’s one of our favourite sayings: “If you want to go fast, go alone. If you want to go far, go together.” The industry experts at PwC seem to agree:
Utilities crafting new business models and customer programs should both leverage industry best practices and seek effective stakeholder collaboration with experienced and agile technology partners.
How? By adopting a wide-net, open innovation approach. Startup accelerators and acquisitions are two ways to go about this, but both of these approaches can take a lot of time – from nurturing a startup to scale to absorbing an entirely new business unit.
A potentially faster and more cost-effective innovation pathway involves leveraging the existing market expertise of experienced market players, whether it means joining forces with other power utilities or partnering with key suppliers to innovate in parallel.
This partnership approach can be a first step in future-proofing: a new go-to-market model that positions the utility as an integral yet innovative part of the broader, rapidly transitioning energy ecosystem.
To hear a real utility about how this approach to innovation works in practice, check out the free webcast below: