Navigant Research Blog

Innovation Aplenty at the European Utility Week

— October 10, 2017

From October 3 to 5, the European energy industry converged on Amsterdam for European Utility Week, an event I have attended off and on since 2009. In a conservative, slow-moving industry, previous events have felt a little like the utility technology equivalent of Groundhog Day. This year’s event was far from it.

The 2017 exhibition is an excellent barometer for the current speed of industry change. And how things have changed. In 2009, the event was known as Metering, Billing/CRM Europe. This far from catchy title was somewhat misleading because metering and other electrical hardware companies ruled the exhibition floor, with a handful of billing vendors and nary a mention of CRM. Virtually all the exhibitors had many decades’ experience in the utilities industry.

Back to the Future

Fast forward to 2017. The exhibition is now 4 or 5 times larger and the focus has shifted from hardware to software. The hardware vendors of old have expanded their focus to offer a suite of products from the traditional metering business to communications, data, and analytics platforms into services. There is now a profusion of software vendors that would have looked out of place at the event of 2009. This reinforces the message that the energy transition is not just about a shift to smarter, cleaner generation, but a shift toward software that will manage future networks and enable new business models.

However, the most marked difference between this exhibition and those of previous years was the existence of many small booths for startups and several EU-funded Horizon 2020 demonstration projects. Nine years ago, startups in the energy industry were few and far between. Innovation was typically led by a utility that would develop solutions with a long-term partner that would, in turn, create products around these innovations and bring them to market. But how things have changed. Innovation does not have to occur with a utility’s blessing. The shift to software means entry costs are significantly lower, and startups are developing products that can just as easily compete directly with a utility as be adopted by them.

Disruption at the Edge

If this exhibition-as-bellwether idea runs true, utilities should raise their competitive threat levels a notch or two. Disruption at the edge is a key indicator of future disruption at the core, yet most companies fail to closely monitor startups chipping away at non-core parts of their business. The industry has entered the most disruptive decade in its century-long existence. Many utilities are planning for a more distributed, competitive future. Those that don’t run a real risk of becoming irrelevant in the not too distant future.

 

Utilities Must Take a Pragmatic Approach to the Energy Transformation

— July 27, 2017

Few will dispute the fact that the industry is undergoing significant change. The shift to clean and distributed energy sources and the adoption of EVs will force significant changes to the way distribution companies run their businesses. However, much of what is written on business transformation can be high level. If everything that is written on the subject is to be believed, then there are huge utility transformation projects occurring across the world. While there is certainly a lot of activity, projects are typically targeted at specific areas rather than businesswide.

Transform Business Models via Planning

As discussed in Navigant Research’s Distribution Utility Transformation Strategies report, which highlights some of the leading examples of business model transformation within distribution networks, transformation does not happen overnight. Rather, it is a decade-long process that requires careful planning and a staged approach. There are many different drivers for transformation, including increasing competition, business process efficiency improvements, a renewed focus on customer experience, new product and service development, and the incorporation of distributed energy resources (DER). These drivers will affect utilities in different ways; the most striking difference is between competitive and monopoly markets.

Create a Vision for the Future

One key takeaway is that as with any large-scale project, utilities must set out a vision for their future businesses and a roadmap detailing how to achieve this goal. Companies cannot do everything all at once, so they must place their bets wisely and invest in projects that deliver the biggest returns. In addition, organizations cannot underestimate the contribution a strong stakeholder engagement program can make to a project’s success.

Develop an Actionable Roadmap

As a result, each utility’s transformation will be different and will happen at different times—and at different rates. Digital Utility Transformation Best Practices builds on some of the recommendations provided in Navigant Consulting’s “Energy Cloud Playbook” to offer best practices for creating an actionable roadmap for transformation. Most utilities will not be able to avoid the inevitable forever. Therefore, they must plan now for their future businesses. The right strategy will help utilities navigate political uncertainty; manage market-specific regulatory policies; access project finance from skeptical and conservative shareholders; and confront legacy issues such as corporate culture, a lack of skills, and outdated technologies.

The latest reports published in Navigant Research’s Digital Utility Strategies Research Service provide specific details on different utilities’ transformation projects. They discuss and compare initiatives in California, New York, the United Kingdom, Italy, and Australia while also providing some practical advice to organizations embarking on their own transformation projects.

 

Multi-Family Market: An Opportunity for Smart Home Devices?

— May 12, 2017

Smart home devices are catching on in homes around the world. Nest has claimed installations of its Learning Thermostat in 190 countries, Google announced the availability of its Home in the United Kingdom, Amazon expanded Echo’s US sales to the United Kingdom and Germany, LIFX connected bulbs are selling in more than 80 countries, and Smappee is selling in 85 countries. However, most sales are occurring among consumers in single-family homes. The multi-family market is largely untapped, leaving opportunities for vendors to gain traction and market share.

Possibilities Abound

There are a number of reasons for this untapped market. First, ownership of devices in multi-family dwellings can get complicated. Should landlords or consumers install and own the hardware? Landlords and building managers have little incentive to purchase such devices because they do not enjoy the benefits of energy savings or remote access, though they do have the option of charging higher rent for the added luxury. For occupants, it may not make sense to own these devices if the property is a rental, especially since renters in the United Kingdom are moving 8 times more than homeowners and since surveys show that 56% of US tenants plan to move within the next year. When devices are installed in multi-family units, some are not used to their full potential. For example, smart thermostats often cannot participate in demand response programs due to the complexities of directly controlling load in multi-family dwellings, where each unit often does not have its own central HVAC system. In fact, many pilot programs that utilize smart thermostats are unavailable to renters or apartment dwellers. On top of this, it can be far more expensive for utilities to implement demand-side management programs in multi-family dwellings than in commercial or single-family residential buildings.

Despite the complexities associated with this market, renters are interested in smart home devices. According to a recent study conducted by Wink, 36% of renters would pay more in rent to have smart home products or amenities in their homes. Given that 37% of Americans are renters, this means the multi-family dwelling market has a lot of potential.

Some companies are beginning to tap into the opportunities available in this market. IOTAS is a company approaching the market with a business model focused on selling landlords and building managers hardware packages that are installed across from apartment complexes. The solution includes tenant accounts that store personal device preferences and follow tenants between apartments as they relocate. This reduces issues surrounding device ownership and creates an opportunity for landlords to charge more in rent for the devices as well as a monthly fee for ongoing services—like monitoring and controlling. While these types of solutions are just emerging, the trend shows hope for Internet of Things and smart home solutions in the multi-family sector.

 

Not Interested When Telcos Acquire Tech Companies? You Should Be

— April 12, 2017

A recent post on my LinkedIn news feed demonstrates how an emerging trend in the technology industry will affect the pace of utilities’ digital transformation. Crucially, it had little to do with utilities: it was the acquisition of data startup Statiq by Telefonica. Statiq’s specialty is the analysis of geo-locational and other consumer data to assist with online marketing. Telefonica has 300 million customers worldwide and is rapidly building up its advertising business.

On first reading, it seems to have very little impact on the industry: “telco giant buys advertising data business” doesn’t sound like the kind of headline that will grab the attention of many utility CEOs. However, “a network operator—as part of its digitization strategy—has acquired a data and analytics business to help it develop products and services beyond its core supply-based business model” sounds a lot closer to home.

Historically, the growth curve of analytics companies would follow a similar path: each company starts with a great idea to tackle a gap in the market, gains initial funding, grows a significant client base, then gets acquired by a tech giant. IBM, SAP, and Oracle have all made analytics-focused acquisitions over the past decade, and the trend shows little sign of abating. But one tech company buying another tech company should have little impact on end users. The technology remains commercially available and, one would hope, being part of a larger organization means that there will be sufficient development resources to improve the product.

Utilities Are Steadily Becoming Tech Companies

However, there has been a significant shift in the types of companies investing in technology startups. Rather than tech giants swallowing up successful startups, utilities are getting in on the act. As we’ve said many times before, utilities are becoming technology companies. My colleague Alexandre Metz has analyzed different utilities’ digitization strategies, and both equity investments in and outright acquisitions of technology companies by utilities are becoming commonplace.

There will be significant implications for the industry should this trend continue: there are finite resources in terms of the number of successful startups, robust technologies, and excellent staff—particularly in the field of data and analytics. As a result, some technology-focused utilities will emerge with significant competitive strength. They will either sell these technologies to other utilities or, if it is to their advantage, keep the technologies for themselves. Does anyone expect Telefonica to share the market insights its Statiq acquisition will bring with its competitors?

Risks Abound When Utilities’ Digitization Strategies Involve Mergers and Acquisitions

So why refer to a telco-based acquisition at all? Telefonica brings into focus the fact that utilities are not the only companies undergoing a digital transformation. The competition for limited investment opportunities is heating up, and it will not be restricted to the utility industry. Utilities will have to compete against tech vendors and other industries to acquire at least some technology companies.

The main challenge for utilities is that they are not used to rapid change, and acquisitions have largely been restricted to other utility companies. There are significant risks involved in technology company acquisitions, to which most utilities have no previous exposure. Thus, technology acquisition will not be for every utility. However, those utilities that want to acquire technology companies must recognize the risks involved, understand how the target acquisition supports their corporate strategy, and ensure they have the requisite skills to succeed. Utilities must choose trusted advisors who understand their overall corporate strategy; have deep knowledge of target markets, companies, and technologies; can help identify important targets; have experience in technology-specific due diligence; and can support the successful integration of the acquisitions within their corporate structure.

 

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