The utilities industry is facing disruption of monumental scale and scope. On the demand side, electric vehicle (EV) adoption is accelerating, particularly in regions that have enacted laws to reduce greenhouse gas emissions. Current projections from the European network for transmission system operators show European EV sales growing by 30% annually between 2020 and 2030, by which time EVs could account for 9% of all European vehicles.
The move to EVs is accompanied by a shift toward electric heating, typically in the form of heat pumps, also designed to reduce greenhouse gas emissions. Estimates from the E3M Lab National Technical at University of Athens show that, between 2020 and 2030, the number of heat pumps in Europe could grow by as much as 18 percent per year, increasing from 1.6 million to 10 million devices.
Significant changes are taking place on the supply side, as well. Renewables are becoming more price-competitive; according to the International Energy Agency in the Stated Policies Scenario, by 2030, wind and solar could provide as much as 35% of the electric power generated in the European Union. Similarly, renewables accounted for 17% of US electric power generated in 2018, according to the U.S. Energy Information Administration. Corporates are also adopting behind-the-meter energy solutions such as rooftop solar, accelerating decentralization.
There has been a revolution in battery storage, with explosive maturation and growth of cheap battery storage creating a projected US $620 billion global investment opportunity, excluding pumped hydro, by 2040, according to the forecast from research company BloombergNEF. Additionally, the increasing decoupling of the timing of generation and utilization of energy will potentially change how we generate, deliver and use energy.
The Connected Future
These converging trends lead to the emergence of a new power model that is more decarbonized, decentralized and customer-oriented. This model will be based upon multidirectional flows of energy and information, made possible by widespread digitization.
We see three distinct customer plays taking shape, which can be addressed in parallel or separately as companies seek to tap into connected energy value pools:
The Energy Provider. This play focuses both on selling and on democratizing energy. The provider concentrates on kilowatt-hour (kWh) sales through a retail business model, driving toward automation, robotics and operational efficiency. Companies taking this path create an energy model in which many parties supply and/or consume energy from each other, with energy providers using platforms to connect producers and consumers and in the process, they make clean energy from traceable sources the new normal.
The Connected Energy Service Integrator. In this play, the company serves as installer, integrator, maintainer, and/or operator for rooftop solar, storage, heating electrification, and smart home devices such as thermostats. Energy providers can develop service capabilities for these distributed energy resources (DERs) or deliver them via an online marketplace. This model emphasizes an end-to-end range of products and services, with success contingent upon developing an integrated offering that is greater than the sum of its parts.
The EV Service Provider. Here, the company serves as an integrator for charge point services such as physical maintenance and operation, as well as information and mobility services. The company also seeks to aggregate and provide flexibility services to support EV owners, including smart charging and vehicle-to-grid.
As energy providers continue to develop their commodity businesses and expand their connected energy service and flexibility offerings, they can combine these areas to create integrated offerings, thereby improving customer satisfaction, increasing loyalty, and reducing churn and price sensitivity.
The Competitive Advantages of Energy Providers
Energy providers are well-positioned to gain market share as these emerging opportunities unfold. They have unrivaled expertise in energy management and trading, as well as decades of experience working with regulators. Above all, they have large existing customer bases, with long-established relationships and physical proximity to energy consumers.
Energy providers can bundle energy, DER, EV services and flexibility into attractive value propositions for end consumers. If energy providers do not create such bundles, other entities are likely to do so. Indeed, according to research from Accenture, when asked why they would consider purchasing energy, energy-efficient products or related services from a provider other than their current energy provider, 41% of consumers cited the ability to “bundle products and services to receive a discount.”
New Competitors Emerge
While energy providers enjoy some inherent advantages, however, the opportunities in connected energy are attracting new market entrants. For example, oil and gas companies are looking for new growth strategies, with electricity emerging as a key component. Some global oil and gas companies are actively working to transform themselves from “oil and gas majors” to “energy majors,” investing in renewables and power management-related services, and aggressively acquiring startups.
Similarly, car manufacturers are looking past selling EVs and are seeking to combine EVs with smart, data-driven energy solutions. Some are even creating new companies to allow customers to produce and sell renewable energy — either with or without an EV — or to offer storage solutions that can be connected to energy management systems.
Other startups offer provocative value propositions ranging from flexibility services to peer-to-peer energy trading to connected home solutions and EV services, while digital giants take bold positions in areas such as smart homes and energy management services.
Capturing Value in Connected Energy
We believe that, to capture value in connected energy, energy providers need to develop new routes to market. We recommend starting with three areas of focus:
Evaluate new growth areas. Decide where to play, what to disrupt and how to win, evaluating earnings potential, time needed to achieve desired benefits, and the competitive landscape.
Earn the right to win. Providers need an open innovation mindset, combined with agility and flexibility. They also need to complement existing capabilities with external partners, new acquisitions, or minority-interest participation in startups.
Get to scale. The connected energy market requires a dynamic, disruptive approach to innovation. Maintaining momentum from proofs of concept and minimally viable products through full-scale launch calls for investment, commitment and acceptance of failure.
The connected energy market presents attractive opportunities for energy providers. There are value pools in home and business segments, transport, and digital connected services encompassing energy management, energy efficiency and flexibility. To succeed in connected energy, energy providers need to identify how and where to invest, but they also need to operate with one foot in the present and one foot in the future, working within the traditional system, while establishing a presence within the new and rapidly evolving power model.
