Utilities have been hit hard by the invasion of newcomers – often more adept at sensing the pulse of what’s to come – threatening their established markets. But despite the hype surrounding them, it’s not always easy for these non-traditional players to find sufficient investment or gain access to the infrastructure protectively guarded by those who built it. This kind of impasse is not helping anyone and increasingly, both parties are realizing they need each other.
Learning from each other
Until recently, Utilities owned the market and could invest in costly infrastructures to service their customers, safe in the knowledge that they would reap the profits. But times have changed putting consumers in the driver’s seat and opening the door to new entrants who “are engaging utility customers directly and claiming revenues that utilities otherwise could have retained,” explains KPMG.
Potential avenues to fight back have included buying newcomers outright and developing similar offerings to steal their thunder but both options present many challenges.
Buying the competition
A startup’s biggest asset is their adaptability and ability to generate new ideas. Customers often embrace these innovators because they’re “willing to take a risk with new technology,” says Travis Sheridan, something larger companies have a hard time doing because it takes “too much time and money to execute.”
But startups are also about a mindset, one that’s based on free thinking and “reinventing the wheel” so when a corporation buys a startup, there’s a high risk of stifling that creativity. As TechCrunch’s Danny Crichton explains, “one of the toughest jobs of an entrepreneur early on is maintaining focus on evolving a product rather than turning into a services business that offers specific features for certain customers.”
Drift for example, is a Seattle startup planning to use “a combination of machine learning, predictive analytics, energy management, and high-frequency trading tools to predict the amount of energy a customer will need,” explains Jermaine Wright.
By applying better analytics tools to forecast consumption, they believe they can reduce the cost of energy for customers by an average 10 to 20%, something traditional utility providers have had a hard time doing because of “investment in legacy infrastructure.”
Would Drift be able to do this within the confines of an existing Utility?
Developing in house
Developing new services and products along the lines of those offered by tech startups presents advantages and disadvantages for Utilities. On the positive side, it allows for total control over the process and tailoring of solutions that fit within the parameters of existing structures and current customer expectations.
However, what is being sacrificed here again is potential creativity and innovation. Unless a utility provider has developed an entrepreneurial culture capable of thinking outside the box on the inside, it risks missing the opportunity to attract current and new customers who are now accustomed to getting exactly what they want.
The best of both worlds
“To revolutionize old industries, small and big companies alike must get past competitive angst and embrace their strengths and weaknesses,” argue McKinsey & Company Chandra Gnanasambandam and Michael Uhl.
They think the future will belong to those who can see collaborations as a conduit to new types of partnership models. Corporations “bring assets, the ability to rapidly test and scale, and a deep understanding of the regulatory landscape. Startups inject new technical expertise, and venture capitalists offer funding and access to new talent.”
Dutch energy provider Eneco got the message. In 2015, it created a partnership with French company Capgemini, a global provider of technology and digital transformation services. When the alliance was announced, Eneco explained it “wanted to be disruptive and to move to a more sustainable and digitized business model to ensure future competitive advantage.” Ultimately, the partnership allowed Eneco “to evaluate its innovation agenda and ambitions, and match them to the level set by start-ups in the same sector.”
Collaborations have the potential to bring together the best that each group has to offer, helping “small players punch above their weight” and “larger organisations operate in markets where speed and agility is key,” says Impact4All’s Neil Williams.
Speed dating for the corporate world
One way Utilities and startups can get to know each other is through accelerators. The word “accelerator” is often associated with tech startups looking for financial support and guidance as they try to bring their product to market. But increasingly, they’re being seen as a bridge between corporations and innovators. In fact, the Business Incubators and Accelerators: The National Picture report published in 2017, highlights the “rise of corporate accelerators” as one its top trends.
The report found that more than half of all accelerators in the UK are being funded by corporations who want to:
- Shake up their culture to instil a more entrepreneurial mindset among their staff
- Be able to solve business problems faster and with less risk
- Create innovative brands that not only catch the eye of customers, but also future business partners and employees
- Develop new markets by accessing capabilities or channelsmore in line with today’s consumer expectations
The benefits go both ways since startups have the opportunity to access infrastructure and markets they couldn’t have dreamt of reaching otherwise.
IDEALondon exemplifies this spirit of partnership. Run by Cisco, UCL Engineering and EDF Energy, this post-accelerator aims to foster innovation and provide support to promising tech startups. EDF Energy sees this programme as a way to bring together their technical expertise, customer insights and “people to grow and support start-ups committed to making energy better for the UK.”
The British utility wants to accelerate innovation and pave the way to a sustainable, low-carbon society by tapping the best talent to develop the technologies and business models of the future.
The utility sector has only begun to transform
We’ve heard a lot about the disruption caused by tech startups in the Utility sector but Capgemini predicts the next upheaval will come from the rise of renewable energy technology companies, also called rentechs. The impact of rentechs is expected to be similar to that of fintechs on traditional financial institutions.
With many new players entering the energy sector and setting up their own production facilities or providing services to facilitate the storage and flow of energy, there’s no doubt it will impact existing Utilities.
There are more and more examples from around the world of communities setting up solar or wind energy production and storage capabilities. These prosumers can exchange surpluses between themselves or sell them to the grid.
In Japan, DiO, a Tokyo startup, is helping communities set up their own rooftop solar systems in part to get people involved and demystify the complexity of renewable energy. In the US, Green Mountain Power is doing the same for customers in Vermont.
Rural Spark is an organization providing nimble energy solutions for rural India and Africa and offering people the opportunity to generate power they can then sell in their communities thus fostering entrepreneurship. In Australia, Enova Energy is the first community-owned renewable energy retailer.
“Such initiatives pose an obvious threat to traditional providers since they represent a decline in revenue or sales,” explains Capgemini’s Vice President Perry Stoneman. But they also present opportunities.
These communities’ interest in renewable energy doesn’t automatically mean they have the know-how or desire to manage the facilities on their own, he says. “This represents an opportunity for traditional energy suppliers to create new business models” by stepping in to offer the support needed to set-up the system and maintain it just like DiO and Green Mountain Power are doing.
Utilities and home services – Partnering for added value and profit
Home services is another type of partnership that’s proven beneficial for Utilities. These subscription-based programmes provide help with unexpected breakdowns in the home whether plumbing, electric or gas related.
Partnering to offer solutions for breakdowns in the home can help Utilities transform customer engagement. In the USA, HomeServe analysis found that gas customers enrolled in home services programmes were 77% more satisfied, 45% more likely to rate their Utility favourably and 45% more likely to feel that their Utility is looking out for their wellbeing.
HomeServe’s Engagement Opportunity survey found that 64% see their Utility company as a suitable provider of home assistance services programmes.
A partnership between Veolia, with 38% of the water market in France, and HomeServe generated 1 million home assistance members and an 89% renewal rate. In the USA, HomeServe took on FirstEnergy’s brand, yielding a 91% retention rate and customer satisfaction consistently over 97% in a partnership which focused on ‘putting the customer first’ and continuous improvement.
Partnerships necessitate thinking outside the box and rejecting or reinventing traditional business models. “Innovation is inherently risky and unpredictable,” explain McKinsey & Company Chandra Gnanasambandam and Michael Uhl. “Yesterday’s model of innovation is no longer adequate — instead, the entire ecosystem must work together.”
The Millennial generation, as more reluctant DIY-ers, present an opportunity as an audience for home services.
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With a complex, heavily regulated environment and aggressive green agenda, the outlook for Utilities in Australia presents challenges but also great opportunities for those wishing to extend their relevance in customers’ homes.