The utilities sector is changing at an incredible pace. An increasing population, climate change and the drive towards renewables are all contributing to the shifting landscape. In the water sector, drought and flooding are stretching resources, as well as the challenges of supplying services through an ageing, leaking infrastructure. Within energy, the global focus on ‘green first’ and low-carbon approaches is causing significant shifts in the market, opening up opportunities for new suppliers and retailers and causing established corporations to rethink their approach to maintaining or re-establishing market share.

At Mason Advisory we understand the need to think differently about how markets and processes operate and how the supply chain needs to adapt and flex to meet these new challenges and opportunities, as outlined below.

Challenges

Strategic drivers

Both the energy and water sectors are having to respond to tighter regulations, increases in customers, greater customer expectation, climate change and the constant need to invest and improve infrastructure. Plans have been in place for some time and the use of technology, innovation and partnerships has been a large part of this success. Within energy, the UK is decarbonizing more quickly than any other G20. For example, the National Grid provided service for the whole of August 2018 without coal, while 35% of the UK power mix comes from the nearly 10 000 wind turbines across the country. Within water, in addition to the (non-household) retail separation which is still bedding in, the 2020–2025 business plans (PR19) include GBP50 billion investment in infrastructure while the average national domestic water bill remains at GBP1 a day. Service interruptions are planned to reduce by 36% and leakage is targeted to be reduced by 16%, which equates to 461 million litres per day being saved.

What to stop and what to start

The disruptive changes across the sector are creating new opportunities to provide new products and services across new markets. The challenge companies are grappling with, is deciding what they want to be (retailer or wholesaler or service provider) and then planning how they get there. The sector is changing at pace, with many new players entering the market with a focus on the high revenue areas. 

New business models

The sector is in a pivotal phase, balancing ever-increasing demand for energy with challenging targets (e.g. the Paris Agreement) that governments must meet. In the UK the government has set an ambitious Net Zero goal for 2050. This has enormous implications for the energy system in the UK and will require new and dynamic business models to deliver the move to the electrification of mobility and the gradual move away from traditional domestic energy services.

Forward-thinking partnerships

Some companies see collaboration and partnership as being a crucial part of the response to challenges in supply and demand. They are establishing a ‘social contract’ and are working with the local community, local industry and businesses, housebuilders, local and central government, regulators, other utility companies and, importantly, their customers to collectively address demand management and sustainable water abstraction. They are providing smart meters, incentives, rewards, and leakage visits to help the customer reduce their bills and use less of their product.

Separation

On a more macro level, the split of retail and wholesale for business customers continues to be problematic. The bedding in period and technical integration challenges of data from wholesale and retail via the market operator continue to evolve. The birth of new retail companies has again introduced new challenges but also opportunities across the industry. However, the anticipated move to allow consumers to be able to choose their retailers seems to have been put on the back burner with little focus on when or if this will come to fruition.

Customer expectations

User experiences, customer journeys, and security, trust and privacy are paramount to helping drive adoption of energy efficiency and new models. The utility industry is working very closely with start-ups and disruptors to develop new and exciting approaches that will help consumers become part of the solution.