Changes in the energy sector: opportunity or threat?

The way we are generating and consuming energy is undergoing drastic change, forcing suppliers to change their services. Those who do not change with the times run the risk of losing their reason to exist. Fortunately, digitalization and developments such as the Internet of Things provide a whole new range of opportunities, even generating new business models.

For a long time, the world was clear-cut for energy suppliers. They were the ones who generated the energy, while their customers were solely consumers. The service they provided – supplying energy to households and organizations – was more or less non-differentiating. Competition was limited, because customers were bound to a limited number of suppliers based on their region.

From central to local

That time is quickly coming to an end. The energy market is changing rapidly right now. Consumers are getting more and more options to generate their energy locally. Solar panels, for instance. Currently, the excess electricity is flowing back into the energy grid, but there are an increasing number of ways to store that excess energy in batteries. Slowly but surely, we are moving towards a market in which consumers trade excess energy amongst themselves in various types of micro-grids. As a result, the traditional separation between energy suppliers and energy consumers will be a complete thing of the past.

Digitalization and IoT

At the same time, we see the advance of digitalization and the Internet of Things. The most obvious example of that in the energy sector, obviously, is the smart meter. Energy suppliers are sitting on a huge mountain of data. It offers a potential gold mine, providing all sorts of details about their customers: their lifestyles, their habits, their energy needs during the day. That information presents important opportunities. In this smart grid, what is the role of the traditional energy supplier? If they do not change and adapt their services to these developments, they will effectively lock themselves out of the game. That digital gold mine should not be underestimated: Accenture has estimated the value which organizations are generating with their digital initiatives between now and 2025 at 1.3 billion dollars. Fortunately, the combination of the smart grid and the Internet of Things provides a number of opportunities for energy suppliers:

1. Improved alignment of delivery to individual energy needs

Using data from smart meters, energy suppliers can align their services more effectively to the needs of individual households and their desire to save money by foregoing convenience. Consequently, they will not need to be constantly prepared for maximum peak load, which simply requires more infrastructure. Peak demand arises e.g. when electric cars are being charged.

2. From supplier to trusted advisor

The smart meter provides options for carefully shifting services to more of an advisory role. To that end, it is necessary for the energy companies to chart the user, the organization and the household behind the smart meter. They need to have a clear understanding of the consumers’ individual situations and needs, so they can respond appropriately.

So what would that advice look like in practice? Think of an energy supplier who warns an ice cream parlor well in advance if an outage could effect their stock. Or an energy supplier who advises a client proactively about the ideal moment to charge their electric car at the cheapest possible rate.

3. Preventive maintenance of assets

The energy market is incredibly asset-intensive, and grid maintenance is a major cost factor. The Internet of Things makes preventive maintenance of the grid possible. Connected assets can detect wear and tear and identify impending malfunctions. This advance warning makes it possible to schedule preventive maintenance effectively, averting malfunctions before they take place. The field technicians also benefit from the Internet of Things. For instance, they could be provided with augmented reality technology which can lead them step by step through repair or maintenance procedures. Voice-controlled technology currently exists that allows them to simply tell what they have just done.

Not without digital transformation

These opportunities will not just happen by themselves. They require organizations to make a digital transformation – a transformation that makes optimal use of available data and technology. A few important cornerstones that can make the difference:

1. Digital core with a single source of truth

When data becomes leading in services, then those data sources must be pure and not contradictory. That requires a single source of truth. Data islands and various different Excel sheets with chunks of data limit the integrity of that data. That makes customer-focused services quite difficult, if not impossible. Distilling insights from the data pool requires a powerful digital core, which provides options for real-time reporting and data analytics.

2. Customer-focused, data-hungry mindset

The energy sector will slowly place the customer at the center of services. The customer becomes more than just a smart meter in this setup; consumers are now flesh-and-blood people with preferences, habits and needs. When you respond to those individual needs, you can make a difference compared to the competition. That does require companies to be data-hungry, since data gives information about that individual customer. Energy companies need to look for that data, and acknowledge its value.

3. Strong integration between IT and OT

In the energy sector, there has always been a strict separation between OT (operational technology) and IT (information technology). However, IT processes have more and more influence on service implementation in a digital transformation. That can only happen when those two worlds are effectively integrated. For many organizations, these are still two separate worlds. Data from smart meters often end up in isolated silos which are separate from the core business. It’s a waste, as that data contains all kinds of valuable insights about the customer base. The road from insight to action can only be taken when that data silo is eliminated and the data is incorporated into daily operations.

4. Learning from other sectors

Other sectors are already in a more advanced stage in their digital transformation. In retail, for instance, technology and data are very important cornerstones and a customer-focused approach is more the standard than the exception. The energy sector can learn from some good examples in that market. The introduction of customer loyalty programs is a good example. Although this is standard practice in retail, it is still highly unusual in the energy sector. Will you become the new Airbnb or Kodak of the energy market? Take the step while you still have a choice.

Digital transformation in the Utility sector

Learn how SAP S/4HANA can help your utilities company as you compete in the new digital reality. Find out how it provides a proven framework to adopt industry best practices while attaining operational excellence – specifically across core customer engagement, asset management, and financial processes.