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Value Creation in the Digital Energy Network
By Henry Bailey, Global VP, Utilities IBU, SAP
Henry Bailey, Global VP, Utilities IBU, SAP
The demand for electricity in the next decades, according to some estimates, will nearly double as the world population approaches 10 billion people, the middle class adopts new electronic devices in emerging economies, urbanization accelerates at an incredible pace and transportation goes electric.
Modern Civilizations need electricity, but do they need Utility companies? Deregulation, de-carbonization, and decentralization are destroying the century-old hierarchy of centralized power generation, transmission, distribution, and retail. A 2014 survey with top Utility CEOs identified the following top 3 decision Imperatives:
• New business models
• IT for growth and innovation
• Digital disruption and security
The consequences for the utilities industry are dramatic. Proven business models collapse. New market entrants such as Google and Tesla disrupt the value chain. Mass “prosumers” collect solar energy on their roofs and store it in their basement or in electric vehicles for later consumption. Communities and companies go “off the grid” with private wind parks or solar farms.
"The nature of the Digital Energy Network forces participants to synchronize and collaborate to deliver stable, affordable, clean, and reliable electrical energy"
Inspire and shape a digital world that reinvents power generation, distribution, and retail
Currently the Utilities industry is facing the changing paradigms. Leading utilities are re-evaluating their physical assets and customer relationships. For example:
• A large German Utility makes competitors’ customers happy by providing call center operations, because customer excellence is more profitable than selling electricity and fluctuating renewable make storing and trading electricity a new, real-time business model.
• A leading utility in North America analyzes and predicts in less than one second why a customer is calling, increasing customer satisfaction and cutting cost.
• An innovative utility in the Netherlands saves $20M a year in asset maintenance because they locate and monitor their assets in real-time, not in hours or weeks.
The Future: The Utilities Industry transitions into an open Digital Energy Network
The Digital Energy Network is the digital nerve system that powers the next generation Digital Economy. It is the connection of independent but highly collaborative digital business networks, which may be individual, market, or industry-specific, as well as industry overarching, or global. The Digital Energy Network will combine all aspects along the energy value chain in real-time: demand and supply balancing, power storage, grid stability, consumer collaboration, and the likes.
The Digital Economy
Five technology trends are shaping the digital economy focused on outcomes hyper-connectivity with consumers, supercomputing; cloud computing, a smarter world and cyber-security. Leading Utilities prepare to use these technologies.
To find new answers to these questions:
• Where are profitable business models based on new technologies and trends like solar energy, smart home devices, and flexibility services and data science?
• How to capitalize on the demand for reliable and sustainable power in a hyper-connected world?
• Which trends and technologies from adjacent industries are influencing the Utilities market (for example, consumer electronics and smart home devices)?
Leaders are Emerging Quickly from Nowhere
The Utilities industry boundaries are already blurred. Large players like Google, Samsung, or Tesla, and millions of private consumers engage in sustainable and smart energy generation and management. Start-ups promise sustainable and reliable power supply at reasonable costs.
Early Adopters are Winning
Research shows that companies who embrace the digital world and execute on their digital strategy are growing shareholder and stakeholder value faster than their peers. The nature of the Digital Energy Network forces participants to synchronize and collaborate to deliver stable, affordable, clean, and reliable electrical energy. Key questions include:
• What business segments allow market leadership and competitive differentiation?
• Which tasks are better allocated to a partner in the network?
• How to develop and sustain the ability to adapt continuously to changing market conditions?
New Business Models
The incumbent utilities companies and new players are re-imagining business models, business processes, and job descriptions enabled by the transformation drivers. Consumers will see amazing new business models of being an efficient, cooperative, collaborative consumer or even an active prosumer in a renewable Energy Market. Smart power storage will become a $50B market by 2020 and The Digital Energy Network will play a key role for reserve capacity instead of more costly generation.
De-centralization, de-regulation, de-carbonization and digitization destroy established business models without a clear road ahead. We see four types of emerging business models:
• Renewable generation at near-zero marginal cost
• Smart and efficient distribution
• Demand/supply balancing services
• Omni-Channel retail to digital “prosumers”
Changing business models and digital technology drive business process efficiency and innovation that inspire new business approaches and accelerate breakthrough technology in power generation and wholesale, storage and flexibility services, transmission, and distribution.
The fundamental transformation from a power generation and distribution hierarchy to a Digital Energy Network profoundly changes what people do, how they learn, interact, engage, and grow. Many tasks will get automated, but people will become an even greater asset in shaping the customer experience as their roles change.
Platform for Innovation
Leaders are investing in digital capabilities that are congruent with their strategy. The Digital Energy Network will provide all participants the right platform to drive efficiency, accelerate energy innovation and develop new business models. The Digital Business Framework is based on the 5 key pillars of a digital platform strategy:
• Customer experience across all channels
• Supplier collaboration across all spend categories (product, services, travel and expenses)
• Workforce engagement including employee and contractors
• Core business processes (finance, supply chain, asset and work management and meter to cash)
• Asset Data and the Internet of Things to drive real-time insights and new business model value creation.
ROI drives this significant phase of the transition to digital. It’s not about any one of the five pillars, but rather how they all interconnect to ‘There are 3 Keys for Utilities’ to win in the digital community to achieve business outcomes.
• Be a leader in re-inventing and digitizing the business
• Cooperate to achieve economies of scale
• Digitize the engagement with customers.
CIOs must understand today that every business is a digital business.