The energy sector's perfect storm

It's hard to underestimate the revolution unfolding in the global energy markets as solar and natural gas start to shift electrical and gasoline utility grid models respectively.

As industry pundits have pointed out, there are many similarities to the seismic shifts telcos underwent at the end of the last century…and to quote George Santayana "Those who cannot remember the past are condemned to repeat it".

Just as telcos at the end of the last century were rapidly undermined by advances in digital technologies that eroded their previously unassailable captive markets, utilities used (until now) to minimal interaction with their customers are in many cases increasingly on the defensive. A perfect storm is starting to wash over the formerly staid utility sector.

Vertically integrated electrical power and grid models little changed since the 1930's are now being hit from all sides by greater competition, much greater customer voice through social networks, and most critically fundamental shifts in the nature of how power is generated, distributed and consumed. 
 
Quoting a July Citigroup note 'Energy 2020: The Revolution Will Not Be Televised'

"Tech and energy are intersecting. Google’s purchase of Nest and Apple’s Home Kit signals a new era for energy demand management. The potential for tech giants to monetize negawatts through technology-facilitated energy efficiency may signal the beginning of a confrontation between tech and energy companies with utilities standing in the middle". (my bold)

As Seth Kleinman says in the sixty four page note's embedded video 'it really is a fascinating time in the energy sector'.

The utilities are prime candidates for scale digital enterprise transformation in order to remain relevant in the upcoming confrontation between tech and energy companies. In an era when Tesla’s behavior is more like that of a vertically integrated energy company than a traditional automaker, with a business plan increasingly focused on energy production, and with natural gas a credible low cost alternative to diesel for heavy commercial vehicles, the lines are blurring around where energy comes from and who consumes it. Solar energy generation by connected solar arrays are now hitting financial scales that enable massive contributions to the grid instead of consumption.  

Nation states have "reached grid parity with residential electricity prices in Germany, Italy, Spain, Portugal, Australia and the US southwest. Japan will cross this year, Korea in 2018. It forecast that even Britain will achieve grid parity by 2020, a remarkable thought for this wet isle at 51 or 52 degrees latitude". quoting Ambrose Evans-Pritchard in the UK Daily Telegraph.

Individual households in places like California and Hawaii are increasingly moving to solar and feeding their excess into electricity grids that were never designed for multiple points of entry.

Telcos at the end of the last century typically had lousy reputations, with customers who had nowhere else to go. The MCI Friends and Family TV spot above is classic tone deaf broadcasted rhetoric from that era. Many utilities today, currently enjoying monopoly over their customers, have a similar attitude to their customers.

The telco business of course has changed beyond all recognition with cellular XG and broadband at the vanguard of the digital revolution. Some utilities have tinkered with lightweight social media network interactions with customers - often for bad publicity damage limitation reasons- through pr companies and digital media advertising firms. This is seen as an adjunct to low cost call center customer response mechanisms (where deciding whether to have Vivaldi or light jazz on the call waiting recording has been seen as the main customer strategic planning in the most extreme cases…)

These siloed approaches are of course a drop in the digital ocean, putting lipstick on the unchanged pig to mix my metaphors. The huge opportunity ahead for utilities is to transform themselves into more agile digital entities that can quickly adapt and change as the energy revolution evolves in order to serve their customers better. The threat is a rapid slide to irrelevance due to sheer bureaucratic inertia and stasis…

All the usual digital enterprise elements are in evidence for utilities to either seize the day or fall by the wayside: increased data flows and analytics, mobile and location aware technology, IT and OT convergence, internet of things and sensor technologies, advanced metering, asset performance management…and most importantly the orchestration of all these sectors into a cohesive whole that provides much greater interaction with humans both inside and outside the utility business entity. 

Creating a collaborative backbone to feed all these elements into is arguably the holy grail for the modern energy company, but these type of transformative scale projects require a focused, calendared roadmap, not tinkering and tuning of mismatched, stovepiped elements…the question for utilities executives is whether than can see the size of the storm coming their way…