Market developments behind the meter are driving transformation across the region.
For the second year, Capgemini’s World Energy Markets Observatory (WEMO) offered specific insights into the North American energy and utilities market. The data shows that new entrants and changing consumer demand is driving transformation within the utilities market.
New entrants cannot be ignored
The Internet of Things (IoT) is creating new competitors from unexpected places. Tech giants Google, Apple, Facebook, Amazon and Microsoft have all entered the smart home market. More than 30 million Americans have installed some kind of smart home system connecting devices, systems and home appliances via the Internet to take charge of their energy consumption. Yet while they offer benefits to the consumers, the devices put a layer between the customers and their utilities.
New revenue streams emerging
U.S. retail electricity sales fell by 80 billion kWh in 2017, the largest drop since the recession in 2009. Sustained improvements in energy efficiency and the availability of cheaper energy sources are driving a reduction in consumer spending. Revenue decreases across all four of the industry’s primary business segments were driven primarily by cost control, new electricity rates and focus on customer base growth.
According to an IDC study, the emerging business models of EV services and infrastructure and microgrid-as-a-service rank first and second in terms of potential for revenue growth. However, energy-as-a-service and comfort-as-a-service will likely be the top margin contributors to revenue. New technologies are changing expectations for residential and utility-scale energy storage. When tied to renewable power generation such as wind or solar, battery at scale could impact the revenue of existing utilities between $60-100 billion by 2025.
Costs keep falling in the energy storage market while revenue streams continue to evolve. Monetization of customer-generated power and excess battery capacity are vital to utility companies .
Grid transformation is becoming an imperative. Although distributed generation of energy currently represents only about 1% of the total, it is expected that over the next decade distributed generation will account for a much greater market share. There are going to be more energy sources and the grid needs to be ready to handle them.
Customers expecting more
Millennials are increasing their influence on the consumer side and have different expectations than their older counterparts. This demographic expects to interact with companies through their smartphones or other digital devices. At the same time, there are more options in the market to tempt customers to try alternative energy sources.
This new “prosumer” (someone who simultaneously is a consumer and takes part in the production of the good) is looking at other potential options, and utilities need to respond to these expectations. Several companies are already actively exploring ways to retain customers based on value creation and creating loyalty by keeping up with these evolving standards. Almost four out of 10 utilities believe that within the next three to four years new products and services such as energy-as-a-service model will represent 5-9% of their total revenue.
Climate change is driving clean energy
The health of our planet continues to influence policy at various levels of government in North America. While the U.S. federal policies are uncertain, many states and provinces have working environmental targets to achieve. In addition, companies such as Google and Apple have been vocal in their support of clean power, declaring that action on climate control is a sound business move. Utilities need to be part of the solution, too.
The increased investment in clean energy, energy efficiency and clean transportation will continue for the foreseeable future. It will change consumption trends towards less carbon-intensive fuels and more energy efficiency. Utilities need to be part of the emission control plan and move towards cleaner energy sources. The U.S. may have pulled out of the Paris Accord, but climate change will remain a focus for the rest of the world and clean power has momentum with the market.
2017 was a year of significant transformation and accelerated disruption, with utilities reacting more aggressively to technological advances. While uncertainty remains, companies must address two seemingly contradictory requirements: the need to innovate and the need to economize. It is a combination of smart mobility and digital edge that will help utilities stay relevant in today’s connected energy economy.
For more details you can download the full report here.