Strategy&PwC: 3D challenge faced by utilities industry

By Janet Brice
Global power strategies need to accelerate development to tackle triple challenge of decarbonisation, decentralisation and digitisation warn Strategy&Pw...

The global utility industry needs to speed up the pace at which it develops and executes strategy, according to a report from Strategy&PwC.

The consultancy company analysed the strategic actions of the Global Top 40 (GT40) listed utilities during a time in which they are faced with the three-dimensional challenge of: decarbonisation, decentralisation and digitisation.

The 54-page report explores the different ways GT40 are navigating the road ahead and forging a new industry. The GT40 represents a total market capitalisation of $1.1 trillion, with 55% made up of North American utilities, 34% European and 11% Asia-Pacific. 

This three-dimensional challenge is compelling companies to evolve faster than ever before according to the report. However, a survey revealed 90% of respondents believed they had five years to make changes for commercialisation and 45% within three years. “The market will move faster than these companies believe,” comment Strategy&PwC.  

Not only will the utility industry have to deal with the three-dimensional challenge but will also have to navigate their way round non-traditional competitors entering the market and externalities, such as interest rates, that influence their operations which are predicted to become “sharper”.

“Tomorrow’s strategies need to be intentional, aggressive, and consequential, even in the face of uncertainty. They need to recognise that imperfect knowledge about direction and outcome does not limit the ability to embrace the challenges that the sector’s future evolution will pose,” comment Strategy&PwC. 

“Successful market strategies are not the domain of only the largest utilities; plenty of smaller utilities are strategically well positioned. But the actions of these largest peers provide a glimpse into how the utilities sector may evolve and the levers available to ensure valuable and enduring market and financial outcomes.”

According to Strategy&PwC utilities are working hard to create winning strategies with a focus on five key areas:

  • Reducing exposure to conventional power generation, particularly coal
  • Redirecting investment into networks and renewables
  • Increasing activity in energy solutions and services
  • Developing dedicated innovation facilities
  • Restructuring and repositioning their businesses for market opportunities

“Some utilities are embracing even more radical change… They are targeting new value pools in areas as diverse as energy management, electric car charging, and home automation,” reveals the report.

Outlined in the paper, Global power strategies: The future of the utilities industry and the players that are driving market success, is a four-step blueprint for future success. This includes:

  1. Define business models

Utilities cannot look to their peers for a new business model; instead, they need to scan the competitive marketplace for successful models. A single business model is not likely to be sufficient for success. It is more likely that utilities will have to maintain multiple business models tailored to the needs of the markets they elect to compete in and how integration is valued in those markets. 

  1. Think commercially

Utilities will need to provide not just products or services, but a portfolio of offerings to customers. Product and service pricing, therefore, needs to be a core capability. Utilities must dramatically elevate their thinking about how to act commercially. A commercial mind-set is fundamental to demonstrating value and meeting customer expectations.

  1. Build agile capabilities

For utilities to develop great ideas into commercial products, they will have to think like the FAANGs (Facebook, Apple, Amazon, Netflix, and Google). They will need the capacity for continuous market sensing, constant innovation, a commercial mind-set, aggressive branding, and quick decision making. 

  1. Speed up the pace

Forget three-to five-year windows for commercialisation: Strategy development needs to emphasise near-term readiness and offerings over long-term preparation and piloting. Several players in the GT40 need to speed up the development and pursuit of their strategies or risk falling behind. 

Strategy&PwC predict there is likely to be a degree of separation between the most aggressive and innovative GT40 utilities and the rest of their peers. 

“The degree of separation will likely enable investors to value utilities differently on the basis of their strategies and market accomplishments. At present, the European GT40 utilities have a head start on their North American and AsiaPacific counterparts, primarily because of earlier policy shifts and restructuring.

“Over the next several years, the GT40 will likely advance their strategic initiatives to include more capabilities-based acquisitions; more partnering with OEMs, platform builders, and solutions providers; and more innovation in business model agility. 

“The GT40 utilities’ strategies offer deep insight into where the sector is heading. Although directional headings seem clear, the possibilities of unexpected policy changes, accelerated technology availability, and customer-driven market evolution will refine these strategies - sometimes as planned and sometimes quite unexpectedly,” concludes the report.

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