Predictions 2022: Energy and Utilities

2021 was a year that yielded some seismic shifts in the energy and utilities market with ongoing CovID restrictions continuing to impact business operations and the rise in wholesaler prices, which forced smaller disruptors out of business. Organisations accelerated their shift to “Hybrid Working”, investing in digital tooling, infrastructure and virtual delivery models though recognising longer term new ways of working would require key change in order to be fully sustainable. Customers in the energy market were also left frustrated as they were forced to move to larger suppliers as a consequence and accept the additional fees.

Will 2022 be the year to reverse the damage done by 2021 – or will we continue to see more turmoil in the months ahead? Below are the top five trends that I believe will shape the market in the year ahead and will be of key importance to utilities providers.

Energy poverty: more challenging times ahead

It’s been quite a turbulent year for the energy industry, with a fundamental shift in the number of operators within the utilities sector. Customers have been forced to move to other providers due to a consolidation in the market, and we expect this to persist in 2022 as wholesaler prices continue to rise.

The real challenge will be for customers, who will continue to struggle with affordability, debt and the overall burden of utility bills. Equally, regulators will have the difficult task of trying to incentivise new entrants to come back into this market once the dust does settle as, clearly, the current business model doesn’t work.

With COVID-19 still a very present factor, causing a prolonged need to work from home alongside the aftershock of sustained levels of lockdown, we can expect to see further levels of customer poverty. And the utility market is going to have to adapt to that, making affordability a top priority.

Customer Experience and vulnerabilities

With the consolidation of the utilities market forcing smaller disruptors such as Orbit and Neon Energy out of business, there aren’t as many providers available to compete with incumbent operators. The big question is to what extent this will have a consequential impact on the customer experience now that there is a lower level of market competitiveness. In recent years, the smaller competitors provided greater customer choice and a differentiated quality of service, forcing the incumbent operators to invest more heavily into customer experience in order to compete.

Will the industry be able to balance getting back on course both in regulatory and business terms, with a healthy and multi-supplier market that can compete, drive value for customers, and also survive? Meanwhile as the cost of living and consequential impact on energy prices increases the burden of utility charges poverty, utility companies will need to find better ways to identify, support and prioritise the most vulnerable in society.

A drive for greater efficiencies

The challenge for many operators in 2022 will be major efficiency drives because of the slower pace in capital investment over the past year. We will see a major focus for these providers internally on CapEx and OpEx for the remainder of their regulatory periods on driving a scale of efficiencies over-and-above what was in their original business plan. This is because the original plans were baked in with efficiencies that are now on shaky ground due to the lack of capital delivery in their constructional infrastructure. The window to deliver performance gains and address the gap is shortening and the pace of change still lagging through adapting to new ways of working, a major shift in speed of execution and bottom-line outcomes is required to address strong P&L headwinds for a number of utility organisations.

Digitalisation: A push towards intelligent operations

There is no doubt that COVID-19 has been a watershed moment in relation to utilities recognising the ability to operate their businesses. Typically seen as laggards compared to industries like retail and financial services, the utilities sector suddenly finds itself forced into a new hybrid form of working thanks to COVID-19. This “new normal” will change the strategies around the workforce and the infrastructure of how utilities operate in a way that’s not necessarily local.

As a result, operators will begin to realise the opportunities a far more connected world brings, and begin to think about how they can change their previous strategies to become more digital. The sector needs to invest in intelligent operations, leveraging technologies such as artificial intelligence (AI), next generation edge based devices and Industry 4.0 platforms in order to become more agile and provide better support across all facets, from the field-force to customers and the extended supply chain, to drive how they run their businesses more intelligently, remotely and sustainably. There are real gains to be had across all fronts.

Sustainability will continue to intensify

COP26 might have brought it to the fore in 2021, but it’s only now that sustainability has entered the mainstream conversation, certainly at a business level. One thing 2022 will provide as a result is a real level of momentum for sustainability. There’s already a customer and regulatory expectation for progress in this space, which we’re seeing through more tangible commitments, whether that’s a fundamental shift to electric vehicles, carbon accounting, or working from home.

In 2022, we’ll see the volume dial turned up from two to eight, with some real investment objectives behind that. The year ahead could certainly see a breakthrough and some real changes in this area in terms of performance drivers.

Conclusion

Utility providers face a real uphill battle in 2022 to reclaim their footing and start building on the green initiatives that customers and regulators are demanding of them, while keeping the profit margins at a safe level to avoid the damages of 2021. Rather than looking at the short-term strategy to maintain profit margins, providers should use the pandemic as an opportunity to re-think traditional strategies and invest in next generation digital capabilities and new hybrid working systems to better prepare themselves for the future.

For more information download the Capgemini Research Institute report here,

Paul Haggerty

Vice President and Head of UK E&U Sector, Capgemini UK

Paul is Head of our E&U sector for Capgemini in the UK and leads the sector across all business service lines including Consulting, Applications, Infrastructure, BPO and Engineering Services. Paul was originally a mechanical engineer in the Oil and Gas industry and has over 20 years consulting experience, leading major transformation programmes in the