The future of the utilities sector

Utilities companies are facing some big challenges as customers seek to become more self-reliant through the installation of on-site generation solutions.

By Art Thompson, Southland Industries August 6, 2018

Utilities companies are facing some big challenges today from both infrastructure concerns and new expectations from more sophisticated customers. Grid quality is not a new issue but paying for necessary upgrades will only become increasingly difficult. As customers seek to become more self-reliant through the installation of on-site generation solution, utility revenues are decreasing. Strategies to reclaim these lost revenues through rate changes, such as moving peak demand time-of-use charges around to maximize revenues, are being met with both political and commercial resistance.

Another challenge facing utilities is that their customers are changing what their expectations are from their utility. An increased focus on power quality and reliability and a developing trend towards "resiliency" from utility users only increases the pressure to upgrade and strengthen the grid. The reality is that this expectation is leading to some new demand, but it’s a demand that many utilities can’t yet meet due to grid deficiencies.

In many ways, the utility sector is at a crossroads. As new technologies such as battery storage and analytics provide greater abilities for large-scale customers to manage and control their energy usage, utilities will need to move to a service-based business model and find ways to deliver greater value to their customers if they hope to slow the revenue downturns. This focus on providing services will require utilities to find ways to add more value at the heart of their customers’ businesses, behind the meter, by addressing specific operational issues related to their energy needs.

The good news for utilities and consumers is that there are many opportunities for a utility to provide unique value to their customers through additional services. By leveraging their long-standing relationships with clients, progressive utilities have already started to focus on some of these areas such as energy usage consulting, power quality and reliability services and partnerships with key emerging technology providers.

Moving from an energy-commodity to energy-services business model

The traditional utility business model has been focused on selling the most energy commodity possible. With the proliferation of renewables in most markets, utilities have employed the aforementioned strategies such as time-of-use peak demand to stem the tide of reduced revenues. The point at which these types of strategies will no longer achieve their goals has passed. Utilities will need to move to a more service-oriented approach to drive additional revenues. This will include embracing technologies that support a modern grid with smart meters, distributed generation capabilities, battery storage and advanced analytics. In addition, providing useful data to their clients in a format that is actionable and forward-looking will be a critical factor in a utility’s success in moving to this more client-centric approach.

Services provided by utilities which were previously delivered ad hoc to their larger customers and rarely included significant revenues are beginning to move to a fee-based offering that should fit pretty easily in either a regulated or unregulated business environment. Utilities will move to a model of partnering with service and technology providers in which they will receive fees to connect their clients with these partners to provide complex solutions to their client’s biggest energy-related challenges.

Some utilities are beginning to offer energy usage consulting services that leverage analytics platforms to help their clients understand how they use energy and the impact that usage has on the client’s business operations. Others are providing power quality and reliability services that are focused on understanding the cause and solutions that address service interruptions both in front of and behind the meter. Other potential offerings include helping customers navigate the ever-changing technological landscape to identify the best solutions to address energy usage.

The successful utilities over the next decade will continue to look for new and innovative ways to provide impactful services to their clients. The end result of this approach should lead to a more robust and flexible grid over time, which will benefit both utilities and their customers.

Art Thompson, energy sales director, Southland Industries. This article originally appeared on Southland’s blog, In the Big Room

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