The electrical transformer – the device that transfers energy among circuits – has been essential to power transmission and distribution for well over 100 years. But today the energy and utilities industry must deal with transformers of a different sort.
Over the past 10 years, new technologies and market forces have accelerated the rate of change to a disorienting degree. Going forward, the pace will only increase, and the business implications will only expand.
With these realities in mind, here are five trends that will transform the energy and utilities industry in 2019. Smart companies will keep these issues front and center as they create and implement their strategic plans.
1: Utilities will move away from traditional procurement business models to create partner ecosystems.
Competition in the energy and utilities industry is coming from new sources. Nontraditional heavy-hitters – such as Google, Apple, Facebook, Amazon, and Microsoft – are disrupting markets with as-a-Service business models. Likewise, traditional equipment manufacturers are reinventing their business models, becoming providers of services instead of creators of capital assets.
Utilities must respond with cooperative models. They need to replace traditional procurement agreements with supplier partnerships. Those that don’t will face a capabilities gap.
The partner imperative will be further driven by climbing demand for battery storage, which will likely outpace supply and lead to price volatility. Utilities won’t be able to dictate to suppliers of rechargeable energy when they need capacity and what they’re willing to pay for it. Instead, they’ll need to form strategic partnerships to access the storage capacity they need.
2: Batteries will become central to grid modernization and distributed energy resource management systems (DERMS).
Market-changing breakthroughs in battery technology may still be a few years off. But in 2019, the battery will become integral to utility design and engineering.
This development will drive demand that outstrips supply. In response, new battery manufacturers will enter the market, raising battery technology to a prominent position in the renewables sector. To secure supply, traditional energy companies will partner with storage companies in committing to capacity and purchase agreements.
3: Industry players will draw battle lines for who will own and operate the electric vehicle (EV) charging infrastructure.
Startups have been investing heavily in EV-charging infrastructure. Utilities are also interested in owning this infrastructure, because they can monetize many more channels within their existing network than a private company can. They can also avoid losing customers to competitors.
If utilities can’t capture this market in the next year, they’ll be forced to partner with the companies that do – or risk being pushed out of the market altogether. And utilities can’t afford to miss this opportunity. Within two decades, EVs will represent up to 10% of utility load – and up to 50% of electricity consumption for residential customers recharging at home.
Location will also become an important factor. As autonomous vehicles come to market, individual car ownership will likely give way to ride services. “Flocks” of autonomous vehicles will “nest” in different locations depending on user demographics. For example, lower-income users might participate in ride-sharing programs. More affluent users might prefer not to share a vehicle with other passengers. Utilities and their competitors will vie to serve the most profitable vehicle-flock locations.
4: Intelligent automation will become essential to managing the complexity of distributed energy resources (DERs) and EV infrastructures.
Many utilities are pursuing digital-transformation initiatives. This reflects the growing complexity of their business and their infrastructures. For instance, more internet of things (IoT) devices at the network’s edge means greater intelligence but also greater management challenge.
One solution is to think of these increasingly intelligent networks as neural networks. Artificial intelligence (AI), such as machine learning, can enable automated, real-time management of such networks.
This intelligent automation will also be necessary for managing EV-charging infrastructures, microgrids, and residential customers opting for alternative energy sources. For all these reasons, 2019 will be the year utilities wake up to the need for intelligent automation.
5: Market dynamics will force energy and utility companies to adapt business operations and models to an unprecedented degree.
Three additional factors will make 2019 a year of enormous change for energy and utility companies:
New market entrants
As deregulation continues, startups and other innovators will disrupt the marketplace. Technology firms in particular have deep pockets and will likely be powerful influencers.
China’s influence will grow as it capitalizes on the resources it already controls – from rare-earth materials to energy-supply technologies. This will make China an active participate in mergers and acquisitions that affect industry players around the world.
Energy and utility companies will need to sharpen their focus on climate obligations. These obligations will be imposed by both local regulations and public opinion. Sustainability will have to become part of the brand – not just in marketing, but also in core operations. That will force market participants to choose their investments wisely.
Want to learn more about the market forces transforming the energy and utility industry? Check out the 20th edition of Capgemini’s World Energy Markets Observatory (WEMO), the industry’s most comprehensive yearly report.
Meet the authors:
Global Head of Energy and Utilities
European Head of Energy and Utilities