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U tilities are in the midst of a major change that has been on the horizon for years. That is the view of Capgemini's vice president in the utilities team, Alain Bollack. The smart energy revolution is almost upon us, with the mass rollout of smart meters now very much underway. "The move to a mass rollout of smart meters signifies a key industry milestone," Bollack says, obviously enthused by the challenge this represents but also at the fact that a new era for utilities is here. "We feel smart has been around in the industry for a long while and we're finally going to win it." Winning the smart war, with the rollout of the new meters, and starting to manage the influx of data that comes with them is a significant achievement for the energy sector, but there are broader challenges that companies are currently facing. The first challenge, that covers the entire utility sector, is that of competition. "We have seen a huge increase in competition over the last 12 months, with 14 new entrants in the energy supply arena. That growth in the number of competitors is massive and competition is fierce." In the water sector, competition – at least in the non-household sector – is imminent, with the market opening in April 2017. It is also increasingly likely that the government will look to introduce competition into the domestic water retail sector, especially on the back of the Ofwat review in September. Bollack states that increased competition brings with it different challenges. "Margins are reducing which is changing the situation utilities find themselves in." However, he adds that "smart and competition are the here and now" and that the utilities need also to be turning their attention to the future challenges. There are also significant changes to the traditional supplier relationship. "Moving forward, we see evidence of the growth of alternatives to traditional centralised energy production. Investments in renewables and residential energy storage are happening. The threat of new supplier-customer relationships being created is not on a ten-year horizon, it is starting now." There is a shi' starting to take place to a more variable, decentralised energy ecosystem, where some customers will move partially or completely off grid and produce electricity, feeding this back into the grid. To respond to this, utilities will require innovation and quick thinking to survive and thrive. "This change is coming faster than expected," warns Bollack. This is not a doomsday scenario for utilities but one, he states, that should be embraced as they still have the key capabilities to succeed. There are also important moves into adjacent sectors. "Moving further into the smart world, with connected home innovations such as Hive by British Gas, we're seeing customers become more aware of their utilities and more ways for customers to engage with them." This is the crux of the challenge, according to Bollack. Increasing customer engagement, with current customer relationship management systems, could further increase the cost to serve. This is especially because there are more platforms through which customers will engage with their energy or water company. "Currently utilities do not have all the solutions to reduce the cost to serve which is why digital transformation is so critical." Utilities will need to adapt their operating models and drive down their cost to serve. "Cost to serve will need to be addressed and utilities are increasingly looking to encourage customers to use online to self-service rather than use traditional customer service channels." By changing how their business is run and how they interact and communicate with their customers, utility companies have the opportunity to slash operational expenditure and provide a better service at the same time. "That's what we, as consumers, want" says Bollack. But this is an area where utilities will need to make quicker progress. "If you look at the current financial equation facing utilities, while margins are continually being squeezed, cost to serve is too high. Especially for a market where engagement between customers and their utility company is very low." Digital transformation is on everyone's lips within the utilities industry and it's something Capgemini is helping it with. "We're working across the utility sector on how to transform businesses to become truly digital and we are directly addressing the challenges of designing and implementing new operating models and the technology required to support these." "This includes the significant challenges involved in transforming businesses and their capability to be more digital so that they can move from a traditional back office, billing solution to a digital operating model which is much more agile and responsive to the ever changing market." Utilities must work hard to address the fundamental market challenges of increasing competition and changes to the traditional customer-supplier relationship. They must also make the most of the opportunity provided by the smart rollout and in adjacent smart home markets. They must rise to these complex challenges while managing costs and keeping customers happy. Coordinating all of this change is essential for the success of the sector over the next decade. t h e c a p g e m i n i i n t e r v i e w : the time to change is finally here