Amid epic disruption of the utilities industry, the core tenets of yesterday’s power model no longer apply. As a new power model takes shape, energy providers need to identify how and where they will invest to thrive.
We believe that opportunities for energy providers are emerging rapidly in what we call “connected energy,” across home and business segments, transport, and digital connected services. Services within the connected energy space include distributed energy resources (DER), those related to electric vehicles (EVs), energy management, energy efficiency and flexible generation, including storage. Connected energy is at the nexus of all these services.
Disrupting demand, and supply
On the demand side, disruption is increasing faster than ever. EV adoption is accelerating, particularly in regions that have enacted ambitious laws to reduce greenhouse gas (GHG) emissions. Current projections show sales of EVs growing by 30% between 2020 and 2030, when EVs could account for 9% of the European fleet.[1] At the same time, there is a shift toward electric heating (such as heat pumps) and district heating to reduce GHG emissions. Between 2020 and 2030, the number of heat pumps in Europe could grow 18% a year, increasing from 1.6 million to 10 million devices.[2] In addition, as consumers take on more active roles as both producers and consumers of energy, companies are looking for cost-effective ways to reduce emissions and emphasise sustainability in how they make decisions and in how their brand is perceived. Significant changes are underway on the supply side as well. Technological advances and decreasing costs are making renewables more competitive. By 2030, wind and solar could provide as much as 29% of the electric power generated in the EU.[3]
Meanwhile, global uptake of behind-the- meter energy solutions such as rooftop solar by corporates is accelerating decentralisation.
As a result of these changes in supply and demand, by 2030 utilities will need 30% more flexible capacity to balance supply and demand, according to Accenture analysis.
Another major impact is the battery storage revolution, which is set to scale up. Explosive maturation and growth of cheap battery storage is potentially the biggest energy disruptor for the future, driving a projected US$620 billion investment opportunity for energy storage (excluding pumped hydro) by 2040.[4] Indeed, energy storage has the potential to dramatically change how we generate, deliver and use energy, by increasingly decoupling the timing of generation and utilisation of energy—unlocking a wealth of possibility for efficiency and arbitrage.
Connected energy services
Add up these pervasive trends and a new power model is emerging—one that will be more decarbonised, decentralised, and customer-oriented. Core to the new system will be multidirectional flows of energy and information enabled by widespread digitisation. However, the utilities industry will likely operate for many years, even decades, in a hybrid model with both the traditional system and the new power model (see Figure 1). As utilities plan to pivot to the new power model, there is a huge opportunity for connected energy services—finding ways to deliver distributed generation and EV products and related services, energy management, energy efficiency and flexibility as part of consumers’ new connected energy experience.
There is good reason to give consumers what they want. Our analysis suggests that much of future growth will likely be at the “downstream” end, in the form of new energy retail products and services. Currently, energy retail accounts for about 10% of the total industry value. We predict that number will rise to about 25% through the introduction of new revenue opportunities (see Figure 2).
We estimate that in Europe alone the market for connected energy products and services could represent a potential €52 billion to €73 billion in revenue in 2030 across three core value pools:
- Behind-the-meter offerings related to DER, focusing on helping customers achieve sustainable, manageable and efficient energy with rooftop solar, storage, electrified heating, energy-efficiency measures and energy management solutions.
- EV offerings, such as chargepoint infrastructure, charging services and data integration services to facilitate the eMobility ecosystem.
- Flexibility services to enable energy providers to leverage the interconnection of devices such as smart meters, smart thermostats, and residential and commercial energy management systems, and their data—creating value for actors across the new power model through modulation of energy supply and demand.
To tap into connected energy value pools, the following customer plays are taking shape (Figure 3):
- The “Energy Provider” customer play focuses on both selling and democratising energy. This play focuses on kWh sales through a retail business model. In doing so, it drives toward automation, robotics and operational efficiency. Through energy democratisation, this play can help support an energy model in which many parties supply and/or consume energy from each other. Energy providers can participate in this model by connecting producers and consumers via a platform.
- The “Connected Energy Service Integrator” customer play focuses on serving as installer, integrator, maintainer, and/or operator for rooftop solar, storage, heating electrification, and smart home devices such as thermostats. Energy providers can develop service capabilities for these DERs in-house or provide them via an online marketplace. This model emphasises an end-to-end range of products and services, and success tends to be contingent on developing an integrated offering suite that is “greater than the sum of the parts.”
- The “EV Service Provider” customer play focuses on serving as integrator for chargepoint services (for example, physical maintenance and operation), information services and mobility services. It also aims to serve as aggregator and provider of flexibility services for EVs (including smart charging and vehicle-to-grid).
As energy providers continue to develop their commodity business and expand their connected energy service and flexibility offerings, they can bundle across these areas to create integrated offerings. In doing so, they can target improved customer satisfaction, increased loyalty, reduced churn and increased price tolerance.
European energy providers are well- positioned to capitalise and seize market share as these emerging opportunities grow and mature. For one thing, they have unrivalled expertise in energy management and trading, as well as decades of experience working with regulators. They also potentially boast the most powerful competitive advantage in the field: a large existing customer base with long-established relationships and physical proximity to energy consumers.
Energy providers can bundle energy, DER, EV services and flexibility into holistic value propositions for end consumers, many of whom find such bundles attractive. If energy providers do not create such bundles, another entity likely will. Case in point: when asked why they would consider purchasing energy, energy-efficient products and/or related services from a provider other than their current energy provider, 41% of consumers cited the ability to “bundle products and services to receive a discount.”[5]
New market entrants
The value pools are significant. The opportunities are compelling. As a new ecosystem develops, existing utilities and new entrants are investing in connected energy solutions for future growth (Figure 4).
In a world where oil is declining, the oil and gas industry is looking for new growth strategies, with electricity emerging as a key component. Already, some global oil and gas companies are actively working to transform from “oil majors” to “energy majors.” They are leveraging mergers and acquisitions to accelerate transformation by investing in renewables and energy management-related services and by aggressively acquiring startups.
For car manufacturers, the focus is no longer solely selling EVs. Major players are now looking to combine EVs with smart, data-driven energy solutions. Some are even creating new companies to allow people to produce and sell renewable energy, either with or without an EV, as well as offering storage solutions that could be connected to energy management systems.
Meanwhile, we see the rise of a new generation of startup companies with provocative value propositions that span flexibility services, peer-to-peer (P2P) energy trading, connected home solutions, and EV services. And digital giants are taking bold positions in such areas as smart homes and energy management services. Energy companies need to accelerate investment in connected energy.
Accelerate or get left behind
To capture value in connected energy, energy providers need to grow new routes to market. As companies work to find and scale growth, Accenture recommends starting with three areas of focus:
- Evaluate new growth areas. Decide where to play, what to disrupt and how to win considering EBIT potential, time to benefits and competitive landscape.
- Evaluate new growth areas. Decide where to play, what to disrupt and how to win considering EBIT potential, time to benefits and competitive landscape.
- Get to scale. The current market requires a dynamic, disruptive approach to innovation. Maintaining momentum from proofs of concept and minimally viable products through full-scale launch requires investment, commitment and acceptance of failure. Above all, energy providers must accelerate investment in the connected energy future—or risk being left behind.
* Accenture white paper, Capturing Value in Connected Energy, and presentation to Eurelectric Power Summit, Florence, 20-21 May 2019.
Sources:
[1] TYNDP 2018 – Market Data, ENTSO-E, October 2017, http://tyndp.entsoe.eu. [2] EU28: Reference Scenario (REF2016) – Summary Report, E3M Lab National Technical, University of Athens, 20 July 2016, https://ec.europa.eu. [3] EU28: Reference Scenario (REF2016) – Summary Report, E3M Lab National Technical, University of Athens, 20 July 2016, https://ec.europa.eu. [4] Energy storage is a $620 billion investment opportunity to 2040, BloombergNEF blog, 6 November 2018, https:// about.bnef.com/blog. [5] The new energy consumer: thriving in the energy ecosystem, Accenture, 2016.
