Traditional utilities cannot compete with the likes of Amazon and Google and therefore must differentiate themselves and build on the trusted relationship they have with consumers lights on.
That’s the opinion of Scottish Power boss Keith Anderson, who adds that utilities must use their capital to develop new business models.
“Scottish power is in a good position but we need to be clever and careful how we develop and use new technologies.”
Anderson was speaking at a UK energy conference and he said that the attitudes of consumers is changing, especially with the younger generation demanding action on climate change.
“This will drive the behaviour of politicians,” he said.
And he said that he expected consumers to be motivated to more readily change behaviour in the area of e-mobility than around decarbonisation of heat. “The big opportunity is around transport, as customer already have a love affair with their vehicles and utilities are responsible for powering them. Utilities need to demonstrate the value of green electricity as a commodity.”
Anderson was taking part in a panel discussion at the Aurora Spring Forum in Oxford. The question put to the panel was: will future utility business models will we see more specialization or integration?
The panel noted that the classic integrated utility had experienced poor performance relative to the stock market over the last 10 years due to regulatory pressure to unbundle and the emergence of new entrants into the supply space.
The result, they said, was that utilities have had to sharpen their focus either by exploiting the strengths arising from an integrated approach, such as synergies along the value chain and developing a range of products for customers or specialising and developing a clear risk profile and value proposition for customers.
However, since the panel were representing integrated utilities, we got a slightly skewed viewpoint with, for example, Anderson saying that an integrated approach was the best model, given the future importance of the distribution system, but more importantly, it was critical that utilities clearly understood consumers behaviour.
Cath Tanna from Energy Australia agreed that the most dramatic change for utilities was around the conversation they are having with customers and Added that larger commercial and industrial customers are looking for services in the area of demand response.
Tanna argued that decisions made by utilities were driven by their history, geography and customer expectations and that Energy Australia had remained integrated, against the advice of “expensive consultants”.
Iain Smedley, chairman for EME Power Utilities and Infrastructure at Barclays Investment Bank, took the view that both integrated and specialised models can work for utilities but that the market seems to prefer specialisation and investors find it easier to understand the focus of the “pure player”.
“They like the stability, the regular dividends and transparency and an old school regulated return.”
Smedley felt that many utilities lacked genuine conviction when it comes to customer engagement, compared to other industries. Perhaps supporting this view, Tanna said that it was hard to voice the unfettered customer viewpoint at utility board level.
On the subject of innovation, the panel were agreed that utilities offered a great platform for developing new products and services. Energy Australia actively works with start-ups and offers them access to markets through a start-up ‘Boot Camp’, said Tanna.
“An integrated utility has an advantage here both for internal and external innovation.”
Anderson said that Scottish Power offers a massive marketplace for innovation and progress, especially in the field of offshore wind. “There is also a large amount of digitalisation in the distribution system and this huge shift is not always recognised,” he added.
Smedley added that integrated utilities could facilitate offerings especially to commercial and industrial customer by merging facilities and in the area of energy efficiency.
Anderson cited examples of where information from smart meters can be packaged up and offered as a service and that there was a range of services possible around EVs, storage and rooftop solar. “Although we are not going to compete with devices like Amazon Echo or Google Home, they can integrate services with these devices. There are already some time-of-use tariffs out there and the future will see a blurring of the role of retailer and DSO.”
The opportunity to provide valued services to customer was out there for utilities, as “most customers do not want to manage their energy themselves,” noted Energy Australia’s Tanna.