• Megatrends have major implications as to how electricity is generated and distributed
• Profound implications for the strategies and future role of companies all along the power utility value chain is imminent
• Countries and companies need to make the right moves to ensure they are a successful part of energy transformation
• Countries and companies need to ask themselves if they have a clear vision of likely new market models and the new business models that will deliver future success
A new report from PwC (http://www.pwc.com) and Strategy & warns that the Power Sector is transforming fast and companies that don’t stay ahead of change are in danger. New market models and new business models will become established as a result of energy transformation and could quickly eclipse current company and country strategies.
The report, The Road Ahead: gaining momentum from energy transformation, finds global megatrends such as technological breakthroughs, rapid urbanisation and resource shifts are creating new opportunities and challenges in customer behaviour, new forms of competition, different generation models and changes in regulation.
Among the issues:
§ Existing generation assets could be left stranded as local energy systems and self-generation by customers eat away at the traditional centralised grid and large-scale generation model.
§ Sector transformation could shrink the role of some power utility companies to providers of back-up power.
§ Developing countries may ‘leapfrog’ conventional centralised system models in favour of local energy systems.
§ Existing grid and network systems may be unable to rapidly evolve to meet the needs of decentralised assets delaying the adoption of advanced technologies.
“The disruption taking hold in the power sector is just the start of a transformation in the energy industry. It’s not a question of whether new market models will be taken shape, as this is already happening around Africa and the world, but also which new business models will be pursued in the sector and what countries and regulators will do to increase access to reliable electricity supply and what existing power utilities will do to keep up with the change and alter their course.”
The report identifies a number of market models that could emerge such as:
• (Green) Command and control – markets in which governments own and operate the energy sector and mandate the adoption of (renewable) or other forms of electricity generation.
• Ultra-distributed generation – markets in which generators have invested in distributed (renewable) generation, with investment decisions based on policy incentives and/or economic business cases.
• Local energy systems – markets in which there is significant fragmentation of existing transmission and distribution grids and local communities demand greater control over their energy supply, or markets in which a local approach is adopted for serving remote communities.
• Regional supergrid – markets which are pan-national and designed to transmit renewable energy over long distances, requiring large-scale (renewable) generation, interconnectors, large-scale storage and significant levels of transmission capacity.
Angeli Hoekstra further said:
“We don’t believe there will be a single winning market or business model. We see a range of market and business models that build on existing models or fill new service or product needs. Incumbent companies may not be as nimble or focused as some new entrants. But they have a number of potential advantages with regards to existing assets, relationships, pricing and partnering. New companies will mainly play in providing additional generation capacity, building self-sustainable local energy systems without grid connections or behind the meter solutions.”
Alongside the evolution of current asset-based business models, the report also identifies eight new and emerging business model strategies and what capabilities companies should be building now to stay competitive in the future or to enter a new market.
• Product innovator model – we anticipate that many product innovators will seek to be active players in “behind the meter” products to customers, such as smart thermostats, energy efficiency solutions and the management of roof-top solar.
• Partner of partners model – a ‘partner of partners’ utility will be a company that offers not only standard power products and associated services, but also a range of other energy-related services, for example the management of net metering.
• Virtual utility model – aggregating the generation from various distributed systems and acting as the intermediary between, and with, energy markets.
In Africa, according to Hoekstra, governments, businesses, regulators, incumbent and new utilities, donors, investors and customers need to work together to increase access and supply of reliable electricity and embrace new market and business models to achieve this.
PricewaterhouseCoopers LLP (PwC)