The new energy economy: What it means for Utilities

Innovation is changing entire industries one by one – and judging by recent comments, it’s clear some utilities are starting to realize the energy sector is now firmly in the crosshairs.

As one of the world’s largest and most fundamental industries, energy faces a monumental change, bigger than any industry before it.

But the utilities that play it right could be the biggest winners.

AirBnB is often cited as an example of industry change – and yes, it HAS had a big impact on the hotel trade. But the end product is still what it always was: a place to stay. AirBnB has just provided a different option, and many people still choose to book the traditional way.

Likewise, Uber is credited with changing the landscape for urban transportation. But it’s still just about moving people around. Many people still take the bus, train or drive. And for those who prefer to hail and ride, well, Uber has just offered a different way to do it.

But the energy industry is VERY different.

Yes, it’s still all about powering homes, industry and transport but the actual product the customer wants is changing. Radically.

It’s no longer about ‘getting the lights on’ it’s about HOW we get the lights on. It’s about the planet – and the clever utilities are taking note.

Earlier this year, UK firm Centrica’s group head of environment James Rushen said: “We want to continue to play a meaningful role in tackling climate change…

“We’ve already come a long way and now produce over 80% less carbon than a decade ago through shifting our focus away from being a traditional utility operating centralized generation and production assets to become a customer-facing energy and services company.

“We are now entering a new phase where we must innovate to facilitate and harness our customers’ ability to change, finding ways to help (them) use energy more sustainably…”

Consumers are becoming increasingly aware of the things that harm the Earth – and two surveys conducted in the US late last year showed that people now CARE more about that too. 

In the most recent of a regular survey series on ‘Climate Change in the American Mind’, run by Yale and George Mason University, 60% said global warming is caused mostly by humans; 72% said the issue is personally important to them; and only 14% thought it was already too late to do something about it.

Another survey, titled ‘Is the Public Willing to Pay to Help Fix Climate Change?’ conducted by the University of Chicago’s Energy Policy Institute and the Associated Press-NORC Center for Public Affairs Research found that 44% of respondents would support a carbon tax on emissions. That rose to 67% if the funds were used to restore environmental assets or 60% if it went towards developing renewable resources.

People are turning against fossil fuels. They want renewable solutions, they want efficient energy, they don’t want waste, they want flexibility but they don’t want all this to affect their lifestyle.

It’s a tall order, but at a time these demands are growing, developing technologies are starting to offer solutions that meet them – most notably the advancement and increasing affordability of renewable distributed energy resources (DERs) like rooftop solar, battery storage and electric vehicles and the rapid development of smart devices.

People are becoming energy producers as well as consumers, coining the new term ‘prosumers’. Meanwhile, smart technology is starting to open up the opportunity for them to help manage the grid at the ‘grid edge’ by sharing data and shifting usage patterns to reduce demand instead of utilities having to meet demand by supplying more energy onto the grid.

And that is going to radically change the way the energy industry works.


The traditional vertically integrated model, where utilities owned power plants, ran the networks and sold to the customer, is breaking apart. 

As Fred Mills, VP of Comms at utility Indianapolis Power & Light, told the Indianapolis Star: “Today we just say ‘we are the utility and this is what we have’ but that will transition to ‘what do our customers have in terms of what they’ve produced, and what do they need.’”

But this is just the tip of the iceberg.

The opportunities offered by this new digitized electricity network will inevitably lead to the biggest change in an industry since cell phones tore the telecommunications sector apart.

Before cell phones, people were happy with phones plugged into the wall. Once the network was built to take away the wires, the opportunities cascaded. Services changed and previously non-existent products that use those services – namely smartphones – have now built a brand new global industry that, in 2018, was valued at $522bn. 

That is what’s now happening in the energy industry and Beth Soholt, Executive Director of the Clean Grid Alliance, told the Indianapolis Star: “(Utilities’) challenge today is to reinvent themselves as fast as things are moving. They have to create the airplane as they are flying it. 

“One of the big risks is [they] become irrelevant and customers…figure out how to go around [them]. It’s hard to make the total grid be irrelevant, but people will figure out a way to get what they want and utilities can figure out how to be a part of that or be left behind.”


The original parts of the chain – production, distribution and delivery – still remain but each one is changing.

Production is moving from fossil fuel to renewables (both large scale and DERs); distribution is moving from long-distance transmission to smaller more localized two-way distribution to facilitate those DERs; and delivery is no longer just about putting ‘magic in the walls’, it’s now focused on big data, technology, customer servicing and making energy tangible.

That’s creating an industry of expanding opportunities – but at the same time the new digitized core is opening up these opportunities to new players from the technology sector.

Add to that oil companies like Chevron and Shell, who are doing mergers and acquisitions to enter the new energy economy with new offerings from EV charging to microgrid management, and the industry is becoming one in which the incumbent utilities are increasingly challenged for space.

“Through new business models, more and more companies will join the game, blurring the line between sectors and increasing competition,” Francesco Venturini, CEO of Enel X, told Raconteur.

“If I think about electric mobility, utilities compete with car manufacturers; in energy management systems, utilities compete with digital platform providers; in the field of the smart home, utilities are competing with the tech giants; and so on. 

“So, traditional utilities that are not ready to tackle this new ecosystem are definitely disadvantaged in comparison with those players that decide to deal with these new business models proactively.”


For some utilities, the answer is to move from their traditional vertically integrated business models to specialize and scale in one or two specific areas.

In Europe, for instance, rivals E.ON and RWE have worked together to carve new niches for themselves.

They both separated their conventional generation business units from their network, retail and renewable business units in 2016 and, last year, RWE bought E.ON’s renewables unit to focus on power generation and E.ON bought RWE’s network and retail business to focus on grids and services.

In the US, the move to Performance Based Regulation (PBR) is shifting the utility revenue model away from one in which profit is driven by returns on capital investments like power plants or volumes of electricity sold. 

It’s reducing the returns from simply pumping power onto the grid and spreading the revenue generation across the full package, rewarding those who can deliver affordable, reliable, and clean power.

That has led Duke Energy to put its focus on the distribution side of its business in Indiana, with Indiana president Stan Pinegar admitting: “We just need to find our space and be really good at it. We are the wires provider. So in the future we will be relied on as the transporter of power.”


The next decade will see the rise of the prosumer, threatening to take power production out of the hands of the utilities. 

But the future for utilities as the power provider is not over. There will still be a need for major generation facilities and existing utilities are already closing down coal facilities to focus on renewables.

In mid-2017, Minneapolis-based utility Xcel, which serves 3.6m customers across eight states, unveiled their new business model of ‘steel for fuel’, the steel being wind and solar infrastructure.

At the time, company CEO Ben Fowke told Utility Dive: “If I were talking to you 10 years ago, I don’t think I’d be telling you that I think solar is competing with fossil. I wouldn’t tell you that wind is beating fossil. I am telling you that now.”

Late last year Xcel announced plans to fast-track the retirement of its two remaining coal-burning power plants as part of a commitment to be 80% carbon free by 2030 and Fowke told VOX: “When your customers are asking for this over and over, you really do listen.”

In Germany, RWE’s shift in focus to renewables has been accelerated by the government’s announcement in January that the country’s 84 coal fired power plants must all close in the next 19 years. The company is now planning to invest up to €2.5bn on renewables globally.

And in the UK, the ventures arm of the National Grid – the business that runs the UK’s entire grid infrastructure – has acquired wind and solar developer Geronimo Energy, securing a pipeline of renewables projects including 30MW of solar and 40MW of storage.


Whatever the power source, managing the wires and infrastructure also remains a crucial role for utilities – but even in this area, the way it’s done is going to have to change.

The existing infrastructure is still being built upon, but as more DERs emerge, the opportunity will lie in the creation of community microgrids and, ultimately, local energy marketplaces like LO3 Energy pioneered in Brooklyn.

“We will not go back to a centralized grid,” Charlotte Ancel, Director of Clean Energy Development at New England utility Eversource told Microgrid Knowledge. “Utilities (will) have to be players when it comes to resiliency and cleaner electricity.”

And according to Lola Infante, Senior Director at the Edison Electric Institute, the steamroller is just starting.

Half of all microgrids now have some type of utility involvement compared to 10% a few years ago,” she told Microgrid Knowledge. “Utilities own and operate the distribution assets that microgrids need. They are able to extend and maximize the benefits that microgrids offer.”

But Energy is no longer just a product, and its distribution is no longer simply linear.

In the future, we’re going to be talking about ‘energy as a service’ (EaaS) – a new subset of the energy industry that sells technology, analytics, personalized services and even grid access.

With prosumers now selling as well as buying and consumers with smart technology open to new market offerings, such as energy use time-shifting, the service element of electricity is about to boom.

Haley Fisackerly, President and CEO of Entergy Mississippi, which services half a million residents, told Delta Business Journal: “We are evolving to become a partner, one who can offer tailored solutions based on customers’ individu

Fisackerly explained: “These meters will allow us to betteal preferences and ever-changing expectations.” 

The utility has just rolled out smart meters to all its customers as the first phase in its evolution into an EaaS provider. They are now waiting for the data to roll in to advise them on where to go next.r pinpoint outages which means we’ll be able to respond faster when the lights go out. Beyond the meter, (it’s) data, data, data.

“By building the infrastructure needed for advanced meters, we also make our grid smarter. These upgrades let us use data to optimize the operation, maintenance and planning of the grid. This will improve the efficiency of our processes and deliver a better customer experience.”

According to Navigant Research, the energy-as-a-service annual market for commercial and industrial customers is expected to reach $221 billion by 2026.

James Sprinz, head of Decentralized Energy at Bloomberg NEF told Raconteur: “We are seeing more effort now to develop a new retail model than at any time over the last 100 years. 

“Energy providers are looking at other things they can sell besides electricity, which has seen a large increase in capital in the market, as well as more mergers and acquisitions.

“We are at a stage where several companies are the market leaders and are making the necessary investments, while others are unconvinced by the demand. Over the next few years, we will see which are successful.”


As Casey Herman, Jenny Koehler and Alex Lago wrote in the Transmission and Distribution industry magazine, T&D World: “The industry holds the key to defining its own future, instead of letting external forces define it for them.”

This is a massively expanding market, and energy is just a part of it. Every manufacturer of a technology that uses energy now has the chance to get involved. 

Utilities are fast realizing they need to embrace this disruption, not fight it.

To stay relevant in this new digitally driven ecosystem, they need to pick their specialism and stick to it, whether it’s as an energy producer, in an expanded role as a ‘utility platform player’ or in EaaS.

According to a PwC survey of 133 senior gas, electric, water and renewable professionals in the US, 60% of the respondents’ investment has been on distribution and smart metering, with the focus on becoming the platform provider for services offered by new entrants.

As they gather data from their newly installed technology, they will start to better understand their customers’ needs – so they can then focus on the services that are most required, such as net metering solutions for distributed power, remote control of energy use and EV charging.

They can then work with experts in the field, like LO3 Energy in the local energy marketplace sector, to maximize those opportunities.

Ultimately, however, this is, and always will be, an essential industry and the incumbent utilities have a core skill in producing power and maintaining the safe, reliable and economical service that keeps our planet going. 

By focusing on that, while connecting with new providers to capitalize on the new EaaS opportunities, they can become even more vital than any of the new tech innovators entering the space.

Ultimately though, it’s a strategic bet as to how the industry will move forward – and right now, utilities are like mountain climbers sitting on a knife-edge ridge. 

If they adapt and seize the opportunity, they could go on to climb higher summits and prosper more than ever before.

But slip up and they could tumble out of existence altogether.