by Brianna Crandall — December 9, 2015—The traditionally strong-performing electric utility industry is undergoing tectonic shifts as European Union directives open up markets to new competition and promote the use of distributed renewable energy sources, according to new analysis from global growth partnership company Frost & Sullivan. Subsequently, many energy utilities are rapidly changing strategies to source out viable revenue streams, hunting further along the value chain for opportunities to develop novel business models and ensure survival.
The analysis, New and Future Business Models for Energy Utilities, finds that the conventional utility business model of a pure play, centralized power producer providing electricity will soon become extinct. This is altering the course of the energy utility markets, especially in Europe, North America, Japan and Australia.
According to Frost & Sullivan Energy and Power Systems Consulting Director Thomas Houareau:
The energy utility revenue model will gradually switch from electricity production and distribution to customer-centric solutions that include an array of services including energy management. Most utilities leading the change in business model innovation are now positioning themselves as ‘energy partners’ rather than electricity providers.
Utilities will have to overcome several obstacles in order to tide over changing market conditions, points out the report. Inefficient and old legacy infrastructure is increasing operating costs. Stricter environmental regulations create an additional cost challenge for utilities looking to stay in the business.
Frost & Sullivan advises that utilities must strike a balance between legacy and new models, managing existing assets from the centralized power model while designing advanced products and services to cater to the new energy world. As a survival strategy, utilities need to build flexible operational systems that can adapt to varying power demand and supply dynamics across the grid.
Houareau added:
Moreover, the ability to integrate smart products and solutions within existing portfolios will help power utilities draw closer to the customer and deliver wider choices to the mass market. Utilities should therefore invest considerably in information and communication technologies in order to capture opportunities in the smart energy world and support the transition to pioneering business models.
New and Future Business Models for Energy Utilities, available for purchase from Frost & Sullivan, is part of the firm’s Energy and Power Growth Partnership Service program. All studies included in subscriptions provide detailed market opportunities and industry trends evaluated following extensive interviews with market participants.
