This episode in our podcast features the first of a five-part series on trends that are transforming the Energy and Utilities industry. To kick off the series, Vito Labate welcomes Philippe Vié and Perry Stoneman to discuss how utilities will move away from traditional procurement business models to create partner ecosystems.
Hello, and welcome to our podcast series on the transformation of energy and utilities companies to better serve their customers in the digital age. My name is Vito Labate, and today we’re going to kick off a trends series with views from a range of energy and utilities thought leaders and business leaders.
In this episode, we’ll look at the first of five trends that are transforming the energy and utilities industry. The first trend examines how utilities will move away from traditional procurement business models to create partner ecosystems. So, to discuss this, I’m pleased to welcome back to the podcast Perry Stoneman and Philippe Vié. Both are top executives leading Capgemini’s global energy and utilities industry practice.
Thank you, Vito.
I’d like to first talk about the changing competitive landscape and some of the new market entrants that are driving the shift from traditional business models to those partner ecosystems. Perry, we’re starting to see a number of nontraditional players like Google, Apple, Facebook, Amazon, and Microsoft. They’re all emerging as potential competitors in the energy space. What are they bringing to the market that, say, traditional players aren’t currently offering to those customers?
Well, Vito, they’re bringing a variety of things. First of all, we have to understand that the number one customer that they’re serving is themselves, so the energy is generally used for self-consumption at data centers, warehouses, fleets, etc. So that’s one dimension. If they choose to produce their own energy and use it themselves, it’s very difficult to compete with that. In other areas, they’ve got very deep pockets, so they can make investments and choices in renewable energy, green energy projects if they want to. But probably most important is their implementations tend to be green field, so the data centers, the warehouses, the facilities are generally not new. So if the utility, the incumbent utility does not have, say, green energy options for them, they will direct their investment dollars to produce solar energy, wind energy and implement storage to make those data centers, warehouses, etc., greener. Very difficult to compete with that kind of situation.
Great. And so, Philippe, perhaps to build on Perry’s point, how then would you say that the so-called traditional utilities, if we can call them that … How are they responding, and what do they need to do to remain competitive.
Vito, we should consider that equipment manufacturers are traditional big utility suppliers for turbines, plants, networks as well as multiples of products. The utilities procurement departments and equipment supplier competitions put them under an incredible pressure today. In a differentiation perspective, most of them, Schneider or GE notably, have shifted from products selling to services selling. They have also decided to sell directly the final customers being municipality or district or an industrial company, selling complete solutions like microgrids, building and operations. In a sense, equipment suppliers are now in competition and collaboration with their utilities clients.
Very good. Well, I think that makes sense. I guess, Perry, maybe I’ll come back to you. On this particular podcast that we’ve been doing here at Capgemini, you’ve talked about before about battery storage and how those changes will likely increase demand for the technology. Do you see capacity and supply being an issue?
Yeah, I think so. I think capacity, supply, and demand are going to run into a collision with each other. First of all, to build factories and make the capacity through the entire supply chain to increase battery production is a challenge. You don’t want to produce too much. You have to follow the market, and there’s a lot of uncertainty as to what type of demand is coming in the future. If we look at EV as one of the significant drivers of battery demand, 300 electric vehicles were sold in the US last year. A million were sold in China, and these numbers are going to increase, so worldwide, we’re going to see some significant increase in demand for batteries. And at some point, I believe the capacity and the supply will becoming challenged. So those utilities that establish partnerships with the battery suppliers are probably going to be at the front of the line to get what capacity is produced.
So utilities are going to be competing with the automotive industry. Batteries are everywhere. Cellphones, they’re going to start to be in every single device that you have. They’re in the laptop computers you use. They’re in your iPads, your smartphones, so battery demand is going to continue to grow, and the question will be will capacity and supply be adequate to meet that demand, and I think we’re facing a challenging maybe four to five years out.
I think based on your answer, we’re already seeing evidence of this in the market. I guess it leads me to the next question, which is, we’ve also talked about the future business model for energy and utility companies being one that is based on partnership with suppliers rather than the tradition procurement model we’ve seen so many times in the past. So my question is what do utility companies need to do to avoid being forced into a traditional procurement kind of relationship. Philippe, I’ll start with you. Maybe you have a thought there.
Yes, Vito. Utilities have to consider their new battlefields. Most of the utilities have already integrated in their own competition when markets are deregulated, meaning in the generation, trading, retail, and services value chain parts with interesting value proposals from other non-utilities players we already mentioned and innovation capabilities of these players that will take advantage to partner and leverage external innovation than trying to be dictating the market holds should it be even possible, and this is a speed race where it’s better to have more than one engine. So the more you can embark the power of your partners, in a better position you will be.
Okay. So, we’ve established the importance of the partner ecosystem, and you’ve even been able to describe what’s driving the shift to this model. Perry, to what extent do you feel that utilities already have these strategic partnerships in place? And is it just about expanding the ecosystem, or is there a lot of other work still to be done?
Well, I think there’s a lot of work to be done. I’d say most utilities don’t have mature or well-established partner ecosystems in place. There are exceptions to the rule, and there’s a couple things utilities in general are starting to move towards that moves them from the procurement model to the partner model. So we do know a couple utilities have come out and publicly named six strategic partners, five strategic partners, and I’m not going to name the specific utilities, but it has happened where they’ve made a technology partner, industry partner selection for different domains of their business, and they publicly announced it. So it has happened in some cases.
But other things utilities are doing is establishing framework agreements with a variety of suppliers. So they reduce the procurement list to a small number of trusted suppliers for different things, and they’re making these framework agreements both for the industry suppliers and tech companies and other suppliers to the industry. So that’s a move towards a partner model, if you will. But there’s some other utilities that have established … An example is business services outsourcing agreements where the agreement is not meant to simply take costs out, but the service provider is also compelled to help them grow their business. So the incentives in the business model is frankly a joint go-to-market. So not only are you a supplier to the industry, but you’re also a go-to-market channel for the industry. So I think there’s things starting to happen that are very encouraging, and I do suspect it’s going to accelerate over the coming years.
Yeah, that makes sense. And Philippe, maybe you have thoughts on this too. In fact, maybe you can offer an example of a utility company that has already built a well-functioning partner ecosystem.
Sure, Vito. I will take three examples of companies with which we are working closely. Let’s consider Enel in Italy, Eneco in the Netherlands, and in addition, Enedis in France. First of all, all these companies have understand earlier than their peers as a power of ecosystems. Then, they have been very proactive in the collaboration space. For some of them, in Enel and Eneco, for example, are choosing less than five domains of importance, innovation and collaboration, than chasing, scouting the most relevant partners proactively. Enedis has a different approach, Enedis organizes innovation contests to discover new possible external values and select related startup partners that will help them to bring the most value to their customers.
Very good. Well, as we draw the podcast to a close, it’s always fitting to end with some recommendations for utilities and their business leaders as they establish and build their partner ecosystems going forward. Philippe, maybe we could start with you with any recommendations you would have, please.
Yes, Vito. A few recommendations. Don’t be shy. Think out of the box. Be really proactive in creating and leading … very important … leading innovation ecosystems that can bring added value to your customers. Bring services rather than commodities to your beloved and well-known customers.
Very good. And Perry, anything you might add?
Well, it’s difficult to follow that. It was well said. I couldn’t agree with Filipe more. I guess the thing I would do and add is, maybe they need to pick their priorities, whether they’re getting into EV charging or in front of the meter battery implementation or getting involved in residential and commercial solar implementations, whatever the net new is, start those new initiatives with a partner and ecosystem in mind. Don’t use your traditional approaches on any new business model.
Very good. Well, Perry, Philippe, thank you, as always, for a very interesting discussion.
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