The road ahead - gaining momentum from energy transformation

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The global megatrends have led to disruption in the energy sector - key factors like the adoption of distributed low carbon generation, a change in customer attitudes, regulatory change, new companies entering the marketplace and large technological change as our homes and businesses become more and more connected. The key question is how will utilities companies respond to these challenges?

In this video, Karen Dawson, Director, PwC and Steve Mullins, Global Smart Grid Lead, PwC discuss the transformation and the effects of global megatrends on the energy industry.

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Transcript

Present:
Karen Dawson
Steve Mullins

KD: Hello, I’m Karen Dawson. I’m one of the subject matter experts on our Global Energy Transformation programme and I’m joined here today by Steve Mullins who leads our Global Smart Energy programme. What we’d like to talk to you about is transformation in the energy sector. Steve we hear an awful lot about mega trends, disruptors and transformation in general. How do you see those impacting each other within the energy sector?

SM: Well thank you Karen. I think we see the mega trends creating disruption in the sector and then the disruption itself leading to transformation and some of the key disruptive factors that we’re seeing are things like the adoption of more and more distributed low carbon generation onto the system. We’re also seeing a lot of changes to the way customers expect to be dealt with by their utilities, driven by their experience on the internet. They have different perceptions of how they should be dealt with, they have different perceptions as to what they should be paying for and how they should be paying for it.

KD: Interesting.

SM: We’re also seeing a lot of new companies coming into marketplace and some big names, for instance like Google and Amazon coming into the value chain and offering products and services around energy which are having an impact on the existing players in the market and lastly we’re seeing a large technological change. We all know our homes and our businesses are becoming more and more interconnected and in the future it’s expected that those technologies will be connected into grid in some way. And lastly on technology we’re seeing that the life cycle for technology change within utilities collapsing dramatically from perhaps decades of change around switch gear and transformers down to changes measured in terms of a couple of years with digital technologies.

KD: That’s right and we’re seeing the actual impact of those across a number of parts of the value chain already. The one I would add to that is that of regulatory change.

SM: Yeah that’s very important.

KD: And I think we’re seeing that as a disruptor particularly in the generation sector where we’ve had a number of utilities who’ve had to write off millions of £ of asset value over the past couple of years as they reassess the future viability of coal fired and gas fired generating plants and I think equally when you look at the generation portfolio in the UK, virtually all of the plant are dependent to some degree or other on regulatory incentives to cover fixed costs and make a sufficient return but I guess it changes as we look down the value chain.

SM: Yes it does I think Karen, when you get to a distribution and transmission companies for instance their main challenge right now is accommodating large amounts of distributed and low carbon generation and it’s largely a technical challenge for them right now and how do they connect all of this new sources of generation and still keep the lights on and deliver reliable power to us but as more and more distributed generation becomes connected, then the number of megawatts that they’re transmitting over their systems will decline and that could have a significant impact on their revenues. In fact just by way of an example, some analysts in the US are predicting as much as 75% of customer.

KD: That much. Wow

SM: consumption could be met through distribution generation in the future so obviously that level of magnitude would have a dramatic impact on the business models for distribution and transmission companies going forward.

KD: And of course what it does it means that distributors have to become fair more like retailers as they have to deal with a lot more customers than they currently do.

SM: Yes I mean they need to have ways of interact with their customers to help them manage the system.

KD: So our distributors are becoming retailers and our retailers are facing their own challenges as they see disruption from companies like Google and Amazon offering new products and services to customers that are more attuned to a digital way of thinking and they’re having to deal with customers that are looking to take control of their own demands through micro generation of solar panels and other new technologies as they come along.

SM: So how do you think the utilities need to respond to these challenges Karen?

KD: I think they have to really revisit their business models and work out along the different value chain what’s the right business model to succeed in the face of new customers, new competitors, new technology, challenging regulation and I think as has always been the case, the companies that are most agile, that think about it and make that move are the ones that are going to be successful. I mean this is a topic we could talk about for ages.

SM: Yes.

KD: But thank you very much for the contribution so far.

SM: And thank you.

KD: If you’d like to find out more about any of these issues, please feel free to contact Steve or I and thank you very much for listening.

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