Utility Week

4. THE DISRUPTION: INNOVATION What's the deal? Innova on, innova on, innova on. Everywhere you look in the u li es sector, market par cipants old and new are professing their enthusiasm for innova on, embracing global technology trends and their interac on with environmental and social shi s like climate change and popula on growth. Supply chain partners have a cri cal role to play in delivering this innova on u li es seek. Many of them produce original technology solu ons, honed to solve specific problems, and they are o en more fleet of foot in responding to market forces than their regulated u lity counterparts. But is innova on from the supply chain being encouraged and exploited to the full by mainstream u li es providers? Anecdotal evidence, backed up by U lity Week Live's industry research, suggests not. Just a fi h (20 per cent) of supply chain respondents to U lity Week Live's disrup on survey said the supply chain arrangements of their major u lity clients allow them to bring forward ground-breaking new ideas. This compares poorly with the innova on partnerships the same companies strike with owners of private u lity infrastructure; 68 per cent of supply chain respondents said they have more produc ve innova on rela onships with such networks. Why it ma ers: U li es of all stripes desperately need to sustain or increase their levels of innova on. Primarily this need is driven by efficiency and the requirement to deliver more for less. But mul ple other drivers also exist, including existen al challenges like climate change, the changing nature of customer expecta ons, back office processes, technology delivery and asset maintenance func ons. Regulators have aligned behind these drivers, with new mechanisms and funds. Their aim is to ensure innova on benefits for companies are shared with consumers. And recently regulators have given considera on to the ways in which they might incen vise be er innova on partnerships between third par es and u li es. Ofgem is even considering ways to make network innova on funds directly accessible to supply chain partners. This would be a huge opportunity for players in the u li es supply chain. And it should also push u li es to review their procurement and supply chain management prac ces. Currently, just a third of suppliers say u li es take an "intelligent" approach to rela onship management. 3. THE DISRUPTION: ASSET-LIGHT NETWORKS What's the deal? The concept of "asset light" u lity infrastructure operators is arguably a logical extension of the considerable degree to which construc on and maintenance of u lity assets are already delegated to key contrac ng partners. The idea involves today's monopoly u li es taking a declining stake in asset ownership, instead building capability to operate their systems at a high level, managing data flows and overseeing new markets for balancing demand and supply. Meanwhile, current er one suppliers or new entrants could compete to provide system capacity and enabling infrastructure. According to our survey, it's a direc on of travel a significant minority of supply chain partners are keen to pursue. Over a third (37 per cent) said they believe their company could undertake the bulk of infrastructure management as a service to u lity companies within ten years. Why it ma ers: A shi to asset-light u lity networks would be a radical step. It would significantly shi the risk profile of today's monopoly networks, impac ng their value proposi on to investors. Nevertheless, it may be inevitable. Recent regulatory developments suggest Ofgem and Ofwat see benefits in decentralising asset ownership. Compe ve tendering for offshore transmission connec ons has already taken hold, and in water, direct procurement for customers is an opportunity for contractors to own, maintain and operate cri cal infrastructure as a service to water companies, which will retain responsibility for service quality and con nuity. I N A S S O C I A T I O N W I T H UTILITY WEEK | 20TH - 26TH APRIL 2018 | 9 I N A S S O C I A T I O N W I T H

• Cover