New technologies and EU regulation are poised to shake up the Irish energy utilities market according to a new international report by BearingPoint Institute in partnership with IDC Energy Insights.
“New EU regulations, new technologies and changing consumer expectations are dramatically changing the utilities landscape. This will pose opportunities and threats, with new entrants being able to exploit latest technologies such as big data to win market share,” commented Mark McAleer, head of utilities, BearingPoint Ireland.
“Ireland has a binding national overall target for renewable energy consumption of 16% in 2020. The Irish Government has decided that in order to achieve this target 40% of electricity consumed in 2020 will be generated using renewable energy sources. Under the National Smart Meter Programme, the roll-out of smart meters is the first step of a journey that will see significant change. Utilities will need to adopt new competencies around data analytics and customer engagement and work with third party players to successfully accomplish this journey.”
The study says that the deployment of newer networks, sensors and meters, coupled with increased communications bandwidth and availability, will result in ‘an explosion’ of energy, water and environment data, opening opportunities for new competitors as well as traditional utilities. In addition, the traditional value chain is likely to change with new roles emerging.
Mr McAleer said that companies that master the challenges posed by smart technologies and the eruption of data they generate are the ones most likely to succeed. He added that because of the importance of new technologies, IT companies such as the likes of Google could become significant players and threats to incumbent providers.
“The recent acquisition of ‘smart’ thermostat company Nest (at a cost of USD 3.2 billion for the three-year-old start-up with over 200 employees) revealed Google’s hand as a challenger.”
Mr McAleer added: “We are seeing a realignment of the market around three segments: energy efficiency and demand response, smart thermostats/connected objects and connected home. For utilities, the challenge is to keep control of the energy efficiency and demand response segments as well as to defend their positions on the smart thermostats and connected home segments. Utilities need to reflect on the increasing importance of having data analytics, software and customer behaviour understanding skills.”
The survey of 40 European utility firms, including qualitative interviews from a number of countries including Ireland, finds that while big data - the analysis of large volumes of data to generate business value - is currently a hot discussion topic across utility firms, its actual use is limited. Only 28% use big data to personalise tariff plans and 33% to propose personalised services.
“Cloud, mobile, big data/analytics and social technologies will transform how utilities engage with customers, the speed at which they deliver their products and services, how they innovate, their resilience and the reliability of their operations,” according to Roberta Bigliani, Associate Vice President Head - Europe, Middle East & Africa, IDC Energy Insights.
The report notes: “While existing utilities may currently ‘own’ a relatively captive market compared to other industries, challenges of consolidation, fragmentation and innovation mean that not every organisation can win. Data ownership is becoming a significant source of competitive advantage; traditional providers risk being replaced by their historic clients, such as municipalities and industrial customers, by having a third party capturing the management of data”.
The report (“Utilities x.0; energy companies prepare for a reboot”) states that a major challenge for energy utilities across Europe including Ireland will be continuing uncertainty. “Recent events in Ukraine have highlighted how difficult it can be to predict and manage supply. Meanwhile, government decisions – such as the phasing out of nuclear power in Switzerland and Germany and decisions taken after Fukushima in 2011 – and continued efforts to impose pan-European regulation, such as offering ‘green’ subsidies, have significant bearing on the overall market”.
Emmanuel Autier, of BearingPoint France and co-author of the study, added: “The competitive and business landscapes of traditional utilities will change in the coming years to such an extent that they will have to adapt and develop new set of competencies or face the risk to be marginalised and to lose the link with their customer and all the related value. It is not too late for them to evolve, but new players are entering the market and the need for change is crucial.”
The micro-grids operator, the energy data aggregator and the demand response manager
The BearingPoint Institute paper predicts that three new market positions will emerge: the micro-grids operator, the energy data aggregator and the demand response manager. Out of this fast changing market landscape comes opportunities. These new entrants have the potential to profoundly disrupt incumbents, potentially making customers the ultimate winners. As one survey respondent puts it:
“The key market trends of technology advancements, decentralisation and regulation uncertainty are set to put the consumer at the heart of the business model.” Dr Walter Steinmann, Director, Swiss Federal Office of Energy.
Choosing the right course will depend on a company’s existing competencies. Based on the survey, the BearingPoint Smart Utilities Index evaluates those competencies along the following five dimensions:
- Big data competency – 55% of respondents expect big data to contribute at least 10% of revenues in 2025, offering a big opportunity for the leaders to establish market share
- Virtual energy production and flexible response to energy demands – 45% of those asked think virtual production will represent 5% or more of their total production
- Micro grids and nano grids – a quarter of participants have micro-grid and nano-grid management in place, but only German and Italian respondents currently derive significant revenues from it
- Horizontal and open organization – 43% of respondents claim to be engaging with universities and 28% with a network of developers as sources of innovation become valuable
- Customer engagement and confidence – the vast majority of surveyed companies (82%) claim to engage with their customers, with social media and customer forums being the most common method. It will be those who can establish customer confidence and build symbiotic relationships that prosper.
To read more about how utilities can build capabilities to address fast moving market dynamics, please download the BearingPoint Institute paper “Utilities x.0: energy companies prepare for a reboot”, which can be found at http://inst.be/004UX0
A video about the study featuring an interview with co-author Emmanuel Autier can be found here: http://inst.be/004UX0vid
About the research
The first edition of the BearingPoint Utilities Smart Index was devised from a study undertaken with IDC Energy Insights by 40 utilities firms from France, Germany, Italy and the United Kingdom in January 2014. This survey was complemented by qualitative interviews with utilities leaders from these four countries plus Ireland, Switzerland and the USA. The interviews from the USA were provided by West Monroe Partners, a US consultancy firm focusing on M&A, customer experience, operations excellence and advanced analytics across a number of industries. The result was the inaugural BearingPoint Utilities Smart Index, which evaluates utilities companies across five competencies.
About the BearingPoint Institute
Founded in 2009, the BearingPoint Institute is an incisive, authoritative voice on business-critical topics, which brings together the finest minds from both within and outside the BearingPoint organisation. We strive to:
- Advise business leaders to understand the evolution of the global economy at a deeper level
- Explore new thinking, going beyond straightforward “Thought Leadership”
- Propose new points of view about strategy and organisational change, and stimulate debate
This is achieved by offering practical, real-world advice from:
- A leadership team composed of senior BearingPoint Partners, representing geographical diversity and a wealth of capabilities
- An independent Advisory Board formed by recognised business leaders and academics
- Studies made by experts illustrated with real-life highlights
BearingPoint consultants understand that the world of business changes constantly and that the resulting complexities demand intelligent and adaptive solutions. Our clients, whether in commercial or financial industries or in government, experience real results when they work with us. We combine industry, operational and technology skills with relevant proprietary and other assets in order to tailor solutions for each client’s individual challenges. This adaptive approach is at the heart of our culture and has led to long-standing relationships with many of the world’s leading companies and organisations. Our global consulting network of 9,200 people serves clients in more than 70 countries and engages with them for measurable results and long-lasting success.