Engineering possibilities versus practical implementation: Utility portfolios and business models

Europe’s utilities are re-evaluating their business models due to the energy transition. Members of POWER-GEN Europe’s Advisory Board consider how a reliance on fossil fuels is no longer politically desirable, forcing utilities to transform their portfolios to adapt to radical change.

Roundtable participants:

• David Porter, Senior Advisor to the Global Energy team, Navigant
• Simon Hobday, Energy Partner, Osborne Clarke
• Jacob Klimstra, Energy and Engine Consultant, Jacob Klimstra Consultancy
• Ulla Pettersson, Managing Consultant and Founder, E for Energy Management

1. What have been the most pressing challenges driving change in the way that utilities operate and the business models they follow?

Ulla Pettersson: Over the last 10 years utilities have struggled to understand the role of renewables in the generation market, and how investment would affect business models and merit order. Today all utilities have adapted, but a future challenge will be understanding consumer behaviour in relation to the smart grid.

David Porter (right): Utilities have often found themselves being driven by political requirements. But their focus on what the politicians want may have distracted some of them from what their customers want. Customers want reliability and the lowest possible prices but politicians have caused some utilities to become disconnected from that, resulting in a strain in the relationship with customers.

The challenge is to achieve sufficient stability in energy politics to enable companies to plan their future. This will involve greater energy efficiency, customers producing some of their own power and, most probably, new players in the business. It is a big challenge for utilities that are used to traditional ways of working. New business models will develop to take advantage of new opportunities – for example, adapting to the ‘Energy Cloud’ where there will be not only micro-grids, but a two-way flow of power across networks. It’s not just a threat to utilities; it is also very exciting.

Jacob Klimstra: Utilities have to learn how to cooperate with their customers and expand their offerings to include services, not just energy.

2. Which utilities have been the most successful in transforming their portfolios and what aspects of the local market have ensured their success?

Ulla Pettersson (right): When Sweden began to build wind farms on a bigger scale there were a lot of problems organising permits. The government appointed four coordinators, one for each part of the country, to ensure that all the different authorities were working together. Without them the development process would’ve been much slower.

Lots of components must come together first before progress can happen. In the UK there are examples where it’s difficult to get all the necessary permissions; for example permission to use land, to run cables over land, and to actually commence generating wind power. This is also seen in China where there are lots of wind farms that are not online because they don’t have a grid connection.

3. Is business model innovation more of a defensive play given the challenges utilities face in Europe’s energy transition, or are there tangible opportunities emerging and if so, how can utilities best harness them?

Simon Hobday (right): I don’t think business model innovation is a defensive play. I think we’re going to see some challenging, innovative business models that will radically alter the industry landscape.

Jacob Klimstra (right): Business model innovation is the only option.

David Porter: Utilities and other energy businesses can only firmly reconnect with customers if the politics is stable. Innovation will emerge as newcomers force the pace; existing companies may either pull out or reshape their business. I don’t think a company should ever underestimate the importance of a large, happy customer base, but established utilities have lost a lot of confidence and trust, and they haven’t been as vigorous as they could’ve been in thinking how to strengthen and develop their relationship with customers.

http://www.renewableenergyworld.com/rea/news/article/2015/04/engineering-possibilities-versus-practical-implementation-utility-portfolios-and-business-models