Load growth is slow, energy prices are soaring, inflation is rising, and grid reliability and resiliency is becoming an ever-present concern—North America’s population is under pressure and would welcome an easing on their wallets from the utility industry. Meanwhile, most utilities’ bold aspirations to reduce their carbon footprint to net zero over the next few decades are being met with capital, labor, and materials challenges that make achieving this goal uncertain. For public utilities, these challenges are only further amplified by earnings pressure amid a volatile energy market. And the grid is only getting more complex to operate as distributed energy resources introduce an influx of new information and variables into the system. Key questions to be asked With these issues in mind, solutions need to be sought. The North American utility industry is massively fragmented—over 3,000 electric utilities and many more gas and water ones—across three primary ownership models that are either investor- or municipal-owned utilities or cooperatives.1 This raises questions: Why hasn’t the industry consolidated more to take advantage of scale and best practices to deliver a better product at a lower price with higher customer satisfaction? At this stage, it is very difficult to prove that they can provide this. Many proposed M&A strategies run into well- meaning, state-based utility commissioners, city managers, or cooperative shareholders who may wish to protect local communities and potentially disallow the typical M&A deal synergies—such as reducing corporate overhead costs and operational expenses that could risk service levels or other actions, leading to lay-offs, higher customer rates, or reduced service levels. When trying to compare utility performance, discussions often quickly get lost in the nuanced differences of each utility— such as whether it is urban, suburban, or rural and overhead or underground; weather and vegetation
variations; historical capital-spend levels per customer; or age of assets.
What if there were a way to build a utility that could demonstrably prove that it could provide a better product and service at lower rates? Digital disrupting business models across industries are increasing rapidly. This began with entirely new sectors being created (such as search or social media); some of the companies in those sectors are now among the world’s most valuable. Then disruption moved to mostly “asset-light” industries: those where the product or service was primarily based on information or data such as banking, media, or insurance. The disruption then traveled to industries where physical products were involved, for example, e-commerce. Now the disruption is increasingly blurring the lines between physical and digital such as Tesla and Peloton Interactive—where the combined digitally- infused physical product is fundamentally superior to alternatives. Despite this, the utility industry barely takes advantage of digital. What if monopoly-based sectors could use digital to disrupt the monopoly structure? As digital has not yet fully infiltrated the utility industries, what would happen if the regulated utility networks of electric, gas, and water businesses could use digital to deliver electrons and gas or water molecules in an alternative fashion? At present, there is little evidence that the industry is pursuing such innovation at the same scale and pace seen in other industries, so why not flip the question on its head and ask: If digital could enable a utility to provide a fundamentally better product and services at lower rates, what could that do to the utility industry’s underlying structure? In this article, we explore answers to these questions, expose the significant opportunities that the space presents, look at what is needed to build a digital utility platform, and identify six key factor for success.
1 United States Electricity Industry Primer , Office of Electricity Delivery and Energy Reliability, US Department of Energy, July 2015.
Accelerating the journey to net zero
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