WET News

I N A S S O C I A T I O N W I T H wwtonline.co.uk | MAY 2019 WET NEWS 15 TRENDS DRIVING BUSINESS TRANSITION Trends driving transi on across u li es Compe ve pressures Climate change Changing consumer expecta ons/habits Digitalisa on of energy Changing policy & regulatory framework Internet of Things Sustainability considera ons Change in government Big Data Augmented/virtual reality Smart meters Step change in sustainability Electric vehicles Changes in workforce M&A ac vity Convergence of services next fi ve years. On average, the impact of industry trends is expected to be 23 per cent higher by 2024, according to the survey. Both energy and water companies are grappling with environmental, security and aff ordability requirements at a me when the poli cal landscape remains uncertain and the long-term impact on business is unclear. In the energy sector, the UK's controversial nuclear power strategy is fraught with obstacles. Following a series of blows to the government's commitment to a new genera on of reactors, Hinkley Point C remains the only project currently under construc on. Unsurprisingly, this has raised concerns about how the UK's long-term baseload will be provided. For the water sector, the future is no less challenging. In March, Environment Agency chief execu ve Sir James Bevan delivered a rallying speech at the annual Waterwise conference in which he warned chronic water shortages could plunge England into the "jaws of death". Adding to the complexity of industry trends impac ng u li es, organisa onal stability is a signifi cant challenge faced by both energy and water companies. "In the energy market, conven onal business models are increasingly being challenged by agile businesses adept at naviga ng the new energy landscape," Ted Hopcro , energy and u li es expert at PA Consul ng, says. "For water companies, the background threat of re- na onalisa on, aligned with what looks to be a tough price control, is causing companies to review their business fundamentals." According to Hopcro , both water and energy companies are seeing regulators tackling the cost of capital with a renewed vigour. There is a clear determina on not to repeat the post-fi nancial crash scenario where perpetual low interest rates provided great opportuni es for asset businesses. U li es are facing immense cost pressures at a me when customers are also expec ng an increasingly personalised service. Toby Siddall, managing director and UKI u li es lead at Accenture, says energy suppliers in par cular are tackling a complicated environment. Suppliers must respond to the price cap, while also mee ng obliga ons from the smart meter rollout, and commitments to faster switching in a marketplace awash with new entrants. "While compe on is intense, the marketplace is simultaneously addressing supplier failures and safeguarding the interests of customers impacted," Siddall says. "It is a complicated environment in which to transform your service and customer rela onship, as well as equip your business for a future that benefi ts both customers and shareholders. But this is what needs to happen, and fast." THE THREE DS For energy supplier Centrica, there are three major trends that are transforming the way the company does business and the way it serves customers: decarbonisa on, decentralisa on and digitalisa on. Alongside the shi towards renewables and fl exible energy sources, there is a simultaneous movement away from power being produced in large centralised power sta ons. "This is a hugely posi ve development but one that is crea ng fresh challenges for energy networks," Sam Salisbury, labs director at Centrica Innova ons, says. The impact of these market changes has been amplifi ed by the emergence of new technologies that are fundamentally altering the tradi onal energy landscape. "The arrival of electric vehicles – coupled with advances in connec vity, ba ery storage, solar and other renewables that allow homes and businesses to produce and store their own energy – is crea ng new opportuni es for us to engage with customers," Salisbury says. This major change in the way businesses engage with customers is also being facilitated through increased collabora on between diff erent u li es, par cularly between energy and water. Louise Manfredi, managing director at mul -u lity operator Leep U li es, has closely monitored the success of the data sharing trial between United U li es (UU) and Electricity North West (ENW). The pilot proved that data sharing can remove the onus currently on the customer to register for addi onal support with mul ple companies. It also showed that data sharing helps companies go further to help vulnerable customers. "The sector is moving towards the industry-wide exchange of data and Priority Services registers for the benefi t of customers," Manfredi says. "It is encouraging to see that the [UU and ENW] trial has been extended as part of the industry-wide 'One Priority Services Register by 2020' ini a ve. With a con nued push to inform consumers about the benefi ts of the data sharing process as an industry, we will be able to boost consent rates and deliver a na onal data share for Priority Services across the water and energy sector by 2020." WATER OUTLOOK The water sector has historically trailed the energy market in terms of progress, Manfredi admits. However, there is signifi cant ongoing work to reduce this gap. Manfredi believes the standardisa on, pushed by Water UK, to streamline adop ons – as well as the Sewers Adop on v8, which lays out the process for adop ng sustainable drainage systems (SuDS) – are signifi cant drivers for transi on across the sector. Addi onally, the launch of the New Appointments and Varia on (Nav) scheme heralds an encouraging step-change for water u li es. "Leep has seen posi ve changes as a result of Ofwat's work in the Nav market, resul ng in insets becoming a more commercially viable proposi on," she explains. Leep has witnessed growth in both the independent distribu on network operator (IDNO) and water markets in recent years, with it REACTIONARIES, REFORMERS AND REVOLUTIONARIES U li es are displaying some interes ng divergence in response to compe ve pressures. According to Laura Sandys, CEO of consultancy Challenging Ideas, businesses can be broadly defi ned as either 'reac onaries', 'reformers' or 'revolu onaries'. Sandys describes reac onaries as fi rms that have dug their heels in, maintaining a 'my way or the highway' a tude when it comes to the prospect of business transi on. "They will no doubt fi nd that their margins, their customer base and their ability to compete into the future will be diminished," she warns. Reformers are u li es that are working to change their business models from the tradi onal supplier model to a more modern approach to delivering customer benefi ts. "The challenge for these 'reformers' is that tradi on might s ll be in their DNA and that the 'revolu onaries' are moving too quick to enable these reformers the me to re-shape their business models," Sandys says. The signifi cant advantage that revolu onaries have is a new vision, without the restraint of incumbent thinking or systems, having designed their business models with a fresh approach based around technology. Sandys adds: "These companies have marke ng advantage, systems advantage, technology driven and while some smaller players might not survive, the leaders in this group will shape the energy company of the future."

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