Utilities are the backbone of modern life. Whether it is turning on lights when you flip a switch or getting water when you turn a tap, utilities provide the gateway to health, education, entertainment and security.
But, in 2020, utilities are facing several headwinds – from cyber terrorism to aging infrastructure. On the positive side, as they embrace digital transformation there will also be some new opportunities to be found.
Here are my top three predictions for utilities this year:
- High-voltage problem
One of the most critical operating challenges facing utilities is the aging of their infrastructure. This historical legacy is exacerbated by the trend of shifting operating budgets away from capital to operating expenses. For every dollar spend that shifts from capital to operating expenses, utilities sacrifice earnings that would have been generated by investing that dollar into infrastructure.
As a result, utilities will accelerate their investments in their low-voltage distribution networks. This investment will be characterized by two main themes; one is technology investments that allow them to harden and monitor real-time performance. Two is investments in process monitoring technologies that allow them to understand how they are performing the maintenance of those assets. Leading utilities will leverage both strategies to ensure that the balance of operating vs fixed capital investments aligns to their strategic and operating goals.
Another reason for upgrading infrastructure is the tsunami of new electric vehicles coming into use. Utilities will have to take a hard look across their organization to seamlessly integrate and manage electric vehicle resources and customers. With that in mind, grid and customer planning transformation initiatives will become critical.
- Dynamic innovation
Water utilities are taking center stage in a world of accelerating climate change, where the management and distribution of water has never been more critical. With increasing criticality comes increased focus and expectations from stakeholders.
Gas utilities are also under the spotlight. As the traction of advanced asset management practices enter the market at scale, a hard look as to how gas utilities will adopt these practices becomes an increasing topic of discussion. Topics such as how will they leverage new, but proven, IoT/5G technologies to ensure that their assets are managed more efficiently, safer? And with a crystal-clear understanding of unplanned emission risks?
Historically, electric utilities have taken center stage due to the high level of disruption in this sector. Now, we will see gas and water utilities join them on center stage - after years of watching from the gallery.
- The price is right – for the customer
Rate design and customer experience will collide in 2020, radically changing the way rates are designed by utilities. Traditionally they were predicated on cost recovery tied to mandated programs, which are not very customer centric. Almost no one knew how behavior impacted their bill. Going forward, pricing strategies will be designed so that they are understandable and clearly tied to how behavior impacts their monthly bills. This goes hand-in-hand with getting prices right for small-scale generation projects (distributed energy programs).
In support of this trend, utilities will afford themselves the opportunity to align rate design reform with a clear understanding of how rates are communicated and managed through their customer care processes.
These are my top three predictions of the trends that will electrify utilities in 2020. But there are many other currents threatening to upend the status quo. From cultural change to addressing cybersecurity, and transforming to a performance-based market model, utilities will see some winds of change. I will discuss these, and more, in my next articles.
In the meantime, see how Software AG can help you transform and compete in this challenging environment.