Utility business models

The traditional business model of utility companies is under threat, with a new approach needed to ensure future success.”
EY
‘s “Business Pulse: Exploring the dual perspectives of the top 10 risks and opportunities in 2013 and beyond.”

Whilst the OSS technologies remain more or less the same, the business imperatives for an OSS are quite different between CSPs and utilities.

The above-mentioned report provides the following four key themes that OSS providers should have in mind when building a solution for their utility customers:

  • Tightening regulation weighing heavily on utilities looking to court consumers
    The consumer is at the heart of the complex relationship between utilities, regulators and policy-makers. With electricity prices expected to increase, it is those utilities that make the most of smart technology to shape how they interact with consumers that are likely to capitalize on the opportunities available to shift public perception of the industry
  • Economic volatility: the new normal
    Utilities have large capital investment needs and long term planning horizons and so uncertainties associated with energy and climate policy, regulatory developments and commodity markets all add exposure and cost to any investment plan. However, growth via the increasing energy demand in rapid growth markets presents opportunities for both local and overseas P&U companies
  • Business model evolution: striving for innovation
    As the utilities sector transforms, so too must its traditional business model of supplying, metering and billing; towards one that is capable of adapting to constantly changing stakeholder requirements. While the nature of this transformation varies among markets, there is a clear shift from a focus purely on selling energy to consumers, to selling energy efficiency or home services
  • Operational challenges: large scale and high risk
    Securing investment and delivering large capital projects will be a key challenge for all utilities as the infrastructure investment needs of these companies are unprecedented. Completing these projects safely, on time and on budget will see companies compete in a fierce battle for in-demand resources and skills. At the same time, P&U businesses must also ensure their approach to managing aging infrastructure – and related asset failure risk – is adequate.

    Political intervention through energy policy changes is also a significant risk, given its potential impact on operations, even in markets previously considered stable and transparent. Since political intervention in utility operations is expected to continue as energy policy evolves it is increasingly important that utilities make the commitment not only to educate consumers about the impact of policy changes but also to build trust.
    When looking towards the operational opportunities, integrating distributed energy resources and improving the on- and off-shore wind supply chain offer real opportunities for utilities to mitigate the risks of these operational challenges.

As the report goes on to say, “Thriving in a volatile environment is not easy, but companies that do so share several characteristics. They are more outward looking and focused on the market, they respond smartly – and quickly – to change, they understand what drives cost and value, and they engage closely with stakeholders. While utilities face the prospect of value erosion in some areas, a robust forward view recognizes that these risks, as well as opportunities, are essential to future success.”

At it’s most fundamental, OSS vendors must consider that the communications network their tools would manage is only a means to an end rather than core business. For CSPs the network is their means of deriving an income. For utilities, the comms network is only used to support their means of deriving an income (eg the comms network supports the operation of the electricity network that delivers revenues). The customer’s OSS business case will similarly spawn from different business imperatives.

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