A PoV on Energy and Utilities sector

The Energy and Utility sector is embracing digital transformation to respond to evolving customer expectations and changing regulatory needs whilst maintaining safe, reliable and affordable services. In the wake of COVID-19, many organisations have taken a resolute and spirited approach.

We believe that successful transformations, especially digital, are business-led and must embrace transforming people and operating models as well as technology. We complement digital technology, data and analytics capabilities with utility business operations knowledge.

What’s driving change in energy utilities?

With a very competitive market Energy companies are facing real challenges around new entrants, cost reduction, customer retention and improving customer services / proposition. The key market drivers are:

Greater Market Competition: Rapid growth of new independent energy retailers driving significant market churn. Many of the smaller suppliers are introducing loss leading tariffs to grow customer bases creating highly competitive market dynamics and challenging the Big 6 (The big six energy companies are SSE, EDF Energy, British Gas, npower , E.ON UK and ScottishPower).

External Intervention: Ongoing pressure on margins as a result of regulatory/government intervention in particular to abolish the Stand Variable Tariffs (SVTs) and encourage competition among majority of customers who have not been active in the market

Supply Model Innovation: Distributed Energy Models (generating, storing and selling energy locally) are now a reality and set-up costs are reducing rapidly (solar panels, storage etc) making this an emerging challenger to the traditional energy retailer

Connected Homes: Smart Metering is opening up adjacent revenue stream opportunities to engage consumers in other energy management solutions for the home.

Transformation Focus Areas

Big 6 Suppliers:

• Major focus on costs and operational efficiency e.g. process reengineering and service / workforce transformation
• Looking at new business models to enable / unlock the diversification of revenue streams e.g. Connected homes 
• Ongoing focus on Smart Metering delivery and incorporating into core BAU processes 
• Digitisation of legacy processes and activities across the value chain

Independents / New entrants: 

• Major focus on costs and operational efficiency e.g. process reengineering and service / workforce transformation
• Looking at new business models to enable / unlock the diversification of revenue streams e.g. Connected homes 
• Ongoing focus on Smart Metering delivery and incorporating into core BAU processes 
• Digitisation of legacy processes and activities across the value chain

What’s driving change in oil and gas?

Big 6 Suppliers:

• The oil and gas industry has been in turmoil since the last few years. The crude oil market has taken a downturn, resulting in declining oil prices and leading to deep CAPEX spending reductions.  Coupled with this the ‘green’ agenda is pressing hard against high carbon energy.
• Price drivers: There are variety of factors including, but not limited to: the Organisation of Petroleum Exporting Countries’ (OPEC) strategy to protect market share rather than balance the market; growing inventory levels of crude oil, sanction and lifting of sanctions on countries like Iran and refined products worldwide, this in part a function of oil shale in the US and elsewhere; and the expectations of lower world oil demand growth due to a worldwide economic downturn.
• Large segments of the value chain are struggling to refinance forthcoming debt maturities or raise new money: Supply chain collaboration can be a powerful tool to manage costs, improve efficiency and achieve a variety of strategic aims. Behaviours towards supply chain collaboration have changed in the tough operating environment since 2015 and evidence shows how operators and suppliers work together more effectively, to build a long-term future.
• Management teams are struggling to forecast accurately, undermining financial stakeholders’ confidence: Optimising collaboration across disciplines, and integrating processes, systems, and data, will enable organisations to have visibility across silos to incorporate the enterprise’s best thinking into decisions.
• Upstream challenges: Upstream oil and gas players need to pull a number of strategic levers that include more innovative risk-sharing contracts, restructuring internal costs, integrating complex service offerings, and a more coherent framework for reviewing their asset portfolio with the goal of divesting non-core businesses.
• Downstream challenges: Downstream companies are focusing on operational excellence, expanding and integrating midstream assets, and building differentiating capabilities that help them compete in a dynamic market environment.

What’s driving change in water utilities?

Utilities continue to face a significant change challenge:

• The Competition: The domestic competition, along with Regulatory pressure, is driving the need to separate Wholesale and Retail operations, transform the service, and become more innovative.  New players, unburdened by legacy technology or cultures are entering the market and driving down cost.
• Price Reviews: PR19: Once quoted as “the most important thing a Water company does, every 5 years”.  Doing this well should be a core capability, but with a Regulator continually evolving their needs and the submission being significant (a massive volume of paper) this is an immense undertaking for every Water company.
• Responding to specific Regulatory Needs: All Utility companies need to respond to specific occasional regulatory issues. This could be, for example, a specific incident, fines around customer service, or poor SIM (service incentive mechanism) performance.
• Transforming Customer Service Operations: A key regulatory measure for all water companies is cost-to-serve. All water companies are being driven to significantly improve their customer service and are looking to leading customer service organisations in other sectors as examples.  Golden processes (e.g. moving house, changing direct debit) need to become much slicker and water companies are under pressure to transform customer operations and make much better use of technology.
• Transforming Core Network Operations (Water and WasteWater):  All water companies have a need to drive greater efficiency and effectiveness into their core operations.  This covers Field Operations (field efficiency and use of technology), Proactive Maintenance (moving away from reactive), Asset Management (enabling effective control) and Central Operations (moving to a more centralised and standard operating model).
• Improving the Underlying Organisation Capability: Improving the organisation’s ability to deliver change; getting a more focused change portfolio; ensuring strong sponsorship and leadership of change; and driving benefits (when the focus has traditionally been on costs) are all challenges.

Regardless of the utility sector there are similar challenges and transformational opportunities across the value chain

Challenges:

Many digital programmes exist but not yet making tangible impacts to the bottom line of the core businesses.

Culture doesn’t always fully support performance – A relatively conservative, engineering-led culture that needs fundamental change – new organisation structures, ways of working and how things get done – all in what is often a unionised environment, that prefers fire-fighting to planning.

Change capability is often mixed – Plenty of people with a deep understanding of the organisation and able to fix things, but often very few people who can lead change effectively end-to-end.

Transformation drivers:

Operational Excellence – E2E journeys, removal of internal silos

Restructuring / Focusing on Core – divesting non core / low profit / high risk activities

Digitisation & Innovation – using technology to drive sustainable

At NeosAlpha, we work with you to anticipate the future, understand challenges from the unprecedented situations, inject innovation, and unlock new potential for digital technology and automation in energy and utilities markets to help you achieve exceptional results and to meet customers’ changing expectations.