IDC Energy Insights’ outlook is presented through the lens of its 2017 worldwide top 10 predictions
By Roberta Bigliani, IDC Energy Insights
It is a long-established tradition that, once a year, IDC Energy Insights analysts globally produce their vision of what utilities should prepare for, focusing specifically on technology-related initiatives. For each prediction, we provide detailed guidance for IT and line-of-business decision-makers and influencers. Here’s a look at what we prepared for 2017 (also refer to Figure 1).
|FIGURE 1: IDC FutureScape: Worldwide Utilities 2017 Top 10 Predictions|
No. 1: Competition. “By 2020, non-utility companies and digital disrupters will seize 20 percent of the energy retail market, tripling the profitability gap between thrivers and survivors.”
Over the past few years, the utility value chain has been disrupted with new technologies and emerging digital disruptors. As customers become more demanding, traditional energy retailers risk losing to new energy market entrants if they do not step up in the customer experience domain. In addition, it won’t be the low-margin, pure-energy commodity play that these new entrants are after, but the more promising energy-related services market. These new revenue streams are also the ones traditional energy retailers are chasing to help “save” them from poor financial performances. New entrants will have an easier time selling these services, steadily expanding the profitability gap between thrivers and survivors. Meanwhile, traditional energy retailers will need to invest in digital technologies, like customer analytics and cognitive systems, to create an effortless customer experience.
No. 2: Business models. “By 2020, 50 percent of competitive-market energy providers will drive their revenues by transforming into “convenient lifestyle” providers.”
Utilities are betting that consumers will progressively seek more advanced energy-related products and services to reduce their consumption and carbon footprint, generate their own power, spend less, and possibly earn something. Whether it is through new business models, such as home comfort services and leasing of PV systems, or value-added services supporting the core business, like e-mobility charging services, distributed generation management and demand aggregation, most utilities will eventually become “convenient lifestyle” providers for the new energy consumer.
No. 3: Power markets. “By 2020, 2.5 GW of electricity will be generated by 20 percent of Fortune G500 (global) companies, which will wholesale their distributed energy resource (DER) excess power through utility-independent subsidiaries.”
As microgrids and DERs become standard in campuses and office buildings, it will become commonplace for facility owners to put any excess energy on the wholesale market. Commercial and industrial companies will form independent subsidiaries to aggregate and control their own DERs. In the U.S., Apple Corp. formed Apple Energy as a wholly owned subsidiary, which will guarantee Apple facilities have their needed power, and then take excess power to the wholesale energy market, bypassing the net-metering process. The technology now exists. The trend will follow the regulatory environment for wholesale markets and the push for renewable and distributed assets.
No. 4: Workforce digital augmentation. “By 2019, 70 percent of the mobile utility workforce will not be equipped with augmented reality and wearables, missing out on optimizing operations, improving safety and easing the skills gap.”
The past 24 months were leap years for digital technologies like wearables and augmented reality, with the likes of the Apple Watch and Pokàƒ©mon GO. Despite wearables and augmented reality becoming mainstream, these technologies will still remain “Sci-Fi-esque” for most utilities for the next few years. Nonetheless, a handful of utility “digital transformers” are actively piloting-and in a few cases deploying-augmented reality capabilities and wearables technologies, especially to enhance their field force workers’ capabilities. The most appealing uses cases include asset inspection and maintenance, remote monitoring of tasks, as well as health and safety.
No. 5: Asset digitization. “By 2020, 25 percent of utilities will integrate asset performance management investments with sensor data and cognitive capabilities, boosting asset efficiency and reducing maintenance costs.”
Sensors collect data to monitor asset performance, decrease maintenance cost and downtime, and increase reliability and availability of assets. Of course, asset digitalization is more than just about reliability and maintenance-it is an opportunity to analyze historical and real-time data using cognitive capabilities to achieve better business outcomes, and it is a mechanism, for instance, to move fleets of generating assets toward operational excellence. Through digital technology and cloud-enabled computing, utilities can manage an asset’s maintenance cycle while performing predictive analytics. Digitalization of traditional fossil fuel generation is a necessary strategy to compete with flexible clean, and affordable generation, which is expanding at a rapid pace.
No. 6: Distributed energy resource management systems (DERMS). “By 2019, utilities will need to learn how to integrate externally originated asset, market, and grids data, and 30 percent will invest in Distributed energy resource management systems.”
While utilities adapt to the rise of DERs and an abundance of new intermittent supply being introduced to the grid, new technology and processes will be needed to support power systems. In addition to ensuring reliability and efficiency, utilities will invest in DERMS to create a new distribution system model that will provide electric consumers more choices. The pace of rooftop solar, the option to sell power back to the grid, and customers’ voluntary involvement in demand response (DR) programs makes technology upgrades to the distribution system a priority for many utilities.
No. 7: Customer experience (CX). “Failing to deliver superior customer experiences, only one in five utilities will raise customer satisfaction scores by 10 percent or reach positive net promoter score (NPS) by 2018.”
Faced with the rigidity of their legacy customer operations systems, utilities are starting to actively invest to improve their clients’ customer experience. Most have streamlined their contract-to-cash processes by opening low-touch self-service channels. Many are deploying omni-channel management tools to deliver consistent content across touchpoints. Some are adopting applications to automate campaigns and engagement initiatives, while deploying digital commerce platforms to effectively cross-sell new products. While selective investment into CX management systems is ongoing, in the short term, only a fraction of utilities will be able to design a digital omni-experience for their customers that is truly effortless and experience-centric.
No. 8: Cybersecurity. “By 2018, 60 percent of utilities’ strategic and operational security technology will be managed at the board level and orchestrated by government agencies.”
Cybersecurity is becoming a board-level issue, pushing utilities to get involved in setting and directing a cybersecurity strategy, especially regarding critical infrastructures. Several companies have already formed special board-led subgroups focused on cybersecurity preparedness and compliance to local government mandates. At the same time governments or international agencies are more involved with utilities to address issues.
No 9: Internet of Things (IoT). “By 2018, misaligned regulatory frameworks and poorly considered commercial models will cause 50 percent of smart metering IoT initiatives to fail to deliver value beyond the pilot stage.”
The promise of IoT for utilities is enormous, and there are myriad use cases, such as smart metering. This fact is not lost on utilities and IoT is firmly on their agenda. Most of them, however, are only just beginning to put together IoT pilots, and only a few examples where pilots have successfully scaled out across the organization exist. Utilities are challenged by the requirement to manage, access, store and process data on this scale; they are challenged by the constraints of the regulatory models they are operating in and the need to build new commercial models. In addition, IT environments in place are built around requirements fundamentally related to existing regulatory frameworks. Getting fundamentals in place is one part of the requirements, but so is recognizing the shift in regulatory frameworks and commercial models that will be required for success.
No. 10: Cloud. “By 2019, to support their digital transformation agenda, 25 percent of the top 100 utilities will cut IT costs by at least 30 percent by migrating IT infrastructure into public cloud.”
Utilities’ business transformation is accelerating and IT organizations have worked hard over the years to learn how to cope with change. But the current rate of acceleration and the order-of-magnitude is putting chief information officers in front of unprecedented challenges. With traditional approaches, utilities’ IT organizations are still too slow, and business organizations need speed and flexibility. For this reason, large IT infrastructure transformation initiatives that leverage cloud will bloom in utilities globally. Even if the traditional capex/opex model adopted to define rates in some monopolistic utility markets could slow appetite for cloud, utilities operating in competitive markets are moving ahead. In Europe for instance, almost 50 percent of utilities view cloud as either transformational or strategic for their business. To support innovation and digital transformation, IT will increasingly operate with a leaner model, based on service delivery and more predictable expenditure.
These are the 2017 top 10 predictions prepared for worldwide utilities. Of course each company operates in a different segment of the value chain-in different market context and under different regulatory environment frameworks. This means that for each company these predictions apply with slightly different relevance, urgency or resource requirements. Nevertheless, IDC Energy Insights summarizes the following guidance for utilities executives who want to champion business transformation rather than surrender to it:
“- Leverage digital to create new revenue streams and modify how the company operates.
“- Use the power of data to create a cognitive enterprise.
“- Blend digital and physical to innovate your operating model and customer experience.
“- Create an open innovation culture and expand the use of incubators and DX innovation teams.
Roberta Bigliani is associate vice president at IDC Energy Insights.