The utility industry is facing the prospect of transformational change over the next decade with technology developments, changing customer behaviour and climate change shaping the future of the industry.
Customers are now more empowered to control their energy supply and manage their energy consumption efficiently. With deregulation in several jurisdictions, customers are able to exercise more choice over energy pricing structure and contracts. This has increased competition with churn rates in the electricity market at 20% in some states.
Challenges and trends facing the sector:
- Technology is driving change across the value chain. We see three key technology drivers that have the potential to transform the industry; solar photovoltaic technology, energy storage technology and demand management technology (smart meters and home automation).
- Customers are moving from consumers to prosumers (proactive consumers). Customers have more control over managing their energy consumption and matching their demand with peak and off peak tariffs. As self-generation and storage technology become more affordable customers can decide on their level of connectivity to the grid.
- The economics of the gas industry has fundamentally changed with LNG projects coming online to serve heavy demand in Asia. This is driving the increase in gas prices (relative to electricity prices) to local customers.
- We believe the centralised utility models of current electricity providers will need to adapt to a new market where generation is decentralised and distributed generation technologies will in time enable many consumers to disconnect from the grid. For some utilities this will be a “doom scenario”. Utilities that develop new strategies centred on customer requirements and adapt their business models accordingly will prosper.
- It is expected that new entrants will be more nimble and able to adapt to a customer centric/prosumer market. New entrants may come from other industries such as Telcos or ISPs.
- Policy makers and regulators will be faced with the challenge of reforming the market to adapt to the changes in technology, customer behaviour and utility company behaviour.