UWL18 special report #1: Disruptive companies
Published 31 January 2018
The Utility Week Live 2018 editorial team, in association with media partners Utility Week, Water & Wastewater Treatment Magazine, Network Magazine, and WET News, reveal the 10 companies disrupting the UK utilities space, as voted for by you.
The utilities industry is changing, It’s being forced to innovate to meet the challenges of climate change, population growth and affordability, driven by changing policy and ever more stringent regulatory targets. As part of that remodelling process, disruptive companies are ploughing new furrows into the way business has traditionally been done. Some have formed in reaction to the changing times, others are evolving the way they operate, while further afield established companies are circling eagerly around the ever-changing opportunities that disruption creates, poised to enter the market at any given moment.
In short, with disruptive new technologies and business models emerging, utilities must find new strategies and solutions to survive and thrive. Recognising the significance of this process, Utility Week Live 2018 (22-23 May) has chosen disruption as its headline theme. Held at the NEC in Birmingham, Utility Week Live 2018 will have themes including the IoT, water innovations, gas network innovations, electricity network innovations, water retailing, customer facing solutions, game-changing technologies, and streetworks, among many others.
In the build-up to the main event, Utility Week Live got to the heart of the matter by surveying its audience, and those of its sister brands Utility Week, WWT, WET News and Network about the impact disruption is having on their businesses. The results showed that within the next 15 years, established utilities are facing disruption on a significant scale, with respondents rating potential disruption at seven out of a possible 10.
We also asked our readers to name the companies and technologies they believe will most disrupt utilities in the next five to ten years. In the first of a five-part series detailing the responses of more than 700 utilities executives to our survey, we reveal the top ten companies disrupting the sector – and the results may just surprise you.
For a start they’re notably light on traditional utilities. Alongside the movers and shakers making waves in the market – namely SSE, Npower and British Gas – there are companies you wouldn’t have dreamed of including ten (or maybe even five) years ago.
Perhaps the reason for fewer traditional providers is that the industry must become more flexible, more transparent and more agile, or become the fall guy for failed decarbonisation efforts and frustrated consumer wants. These failings may not always result in dramatic company collapses, but they could certainly lead to the side-lining and marginalisation of traditional infrastructure providers and retailers.
The market is changing and it’s broadening, meaning it’s ripe for new players – if proof were needed of this just look at the army of independent energy suppliers steadily invading the centre ground of the retail market. If they get their way the big six will soon become the distinctly-average-sized six – or in fact five, once the SSE/Npower merger goes through, a move that in itself is set to cause disruption throughout the industry, if our survey responses are to be believed.
And as noted by IET energy policy panel chair Simon Harrison (see below), water and network companies are striking by their absence, (except for National Grid). He questions whether some might consider this a sign that lessons learnt within networks from innovation projects, may not be being put to best effect – which remains a matter of opinion – but what is less subjective is the need for change.
As new business models rise to maturity, the door is opening for “asset light” intermediaries to make an appearance. So if there’s one conclusion to be drawn, it’s that utilities of all kinds must decide if they want to contest their traditional dominance, or fall quietly by the wayside.
Or as Laura Sandys, former MP, entrepreneur, and CEO of Challenging Ideas, puts it: “What we have learnt [in 2017] is that the old model is being well and truly tested by innovators. Reinvention or managing decline are going to be the big strategic decisions that will need to be made in board rooms this year.”
What’s the deal:
Founded in 2003, the American automotive developer has to date designed and manufactured three models of electric car. In sunny California it also produces solar panels and a line of commercial and residential battery products, and says its ultimate aim is a zero-emissions future.
The company's Model S was the world's best-selling plug-in electric car in both 2015 and 2016, and at the beginning of 2017 its forecasted production plan was to be rolling out 500,000 vehicles a year by 2018.
Why it matters:
You won’t be shocked to hear automotive companies manufacturing electric vehicles (EVs) dominated survey responses, but Tesla was the name that cropped up most of them all, for EVs but also its battery storage solutions. The company was said to be driving innovation, which will encourage others to follow and challenge it. Formed in response to the mass recall of all General Motor’s (GM’s) electric vehicles, the company seems to know how and when to ride a trend …and leave others in their emission-free exhaust fumes. And if further proof of this were needed, in December Tesla won a bid in July to build the world’s biggest lithium ion battery for South Australia, which has suffered a string of blackouts over the past 18 months – a radical and politically-charged move in a country that still relies on fossil fuels for two-thirds of its electricity.
“With car manufacturers starting to create propositions for new vehicles inclusive of power consumption and packaged with home energy storage solutions, I wonder whether there are a few more names just outside the list, because EVs are – and will continue to be – big news.” – Rob Doepel, EY, commenting on the results of the survey.
“If their battery storage schemes went mainstream we would massively reduce our carbon footprint, and that’s something that we’re more and more aware of.”
“They could reduce the requirement for network infrastructure and energy retail, which would change the ball game completely.”
“The commercialisation of energy storage is a game-changer for the sector, and disrupts every business model.”
“The market launch of new technologies such as EVs and Powerwall will have a radical impact on both generation and consumption, as well as DSOs.”
“Energy use will slowly move away from fossil fuels and towards electricity, and Tesla will set the standards for that.”
“They will drive innovation and competitors will follow, even if the economics don’t initially appear to add up.” – Survey respondents
What’s the deal:
If you haven’t heard of Google, the rock you’ve been living under must be very heavy, and there must be no Wi-Fi signal there. The brainchild of Sergey Brin and Larry Page in 1998, more than 70 per cent of worldwide online search requests are now handled by Google.
Originally a web-based search engine, today it offers more than 50 internet services and products, from e-mail and online document creation to software for mobile phones and tablet computers. Its 2012 acquisition of Motorola Mobility meant it can also now sell hardware in the form of mobile phones. Google’s broad product portfolio and size make it one of the top four influential companies in the high-tech marketplace, alongside Apple, IBM, and Microsoft.
Why it matters:
The internet giant’s ability to glean and monetise data insight was noted as key, as well as its work with artificial intelligence (AI), and its potential to become an energy platform in its own right – and as a result of all three, the capacity it has to offer innovative new products.
“Google and Amazon feel like they are waiting and seeing whether the energy sector looks appealing enough to make a true market entry. However, having spent many years circling the energy encampment, if they decide to pounce more aggressively through Google Home or Alexa the whole sector will be in for a shock. Owning no assets but millions of customers and without any reputational baggage, they could redefine the sector’s business model, casting all the incumbents into the dark ages.” – Laura Sandys, former MP, entrepreneur and CEO of Challenging Ideas
Amazon is best known for being an electronic commerce and cloud computing company. Founded in 1994, in Seattle, USA, the amazon.com website started as an online bookstore and later branched out into videos, MP3s, audiobooks, software, video games, electronics, clothes, furniture, food, toys, and jewellery – in short, diverse doesn’t quite cover it.Amazon is the world's largest provider of cloud infrastructure services, and the fourth most valuable public company in the world.
Why it matters:
The company’s potential entry into energy retail and service provision is making big waves among those in the know. In 2015 the company launched a trial home services unit in the US and experts believe an international expansion may be on the cards in the next couple of years, providing a challenge to existing energy retailers who are trying to find a new lease of life in the same market – for instance British Gas and its Local Heroes platform. Amazon is also the point of origin for Amazon Echo – or Alexa as the smart homes device has become more fondly known. In the short space since its UK launch last year, Amazon Echo has come to dominate the market for smart home tech. And it has already collected energy related “skills” which help customers choose better tariffs, monitor their energy use and manage costs.
“Quite simply they already have the ability to manage and analyse real-time big data.”
“They could allow consumer goods retailers to enter into the energy market.”
“They are constantly researching and launching technology to control the home, so an energy proposition is surely on the cards.”
“They could move into offering bundled retail services that include water and energy.”
“They have drastically changed customer expectations elsewhere with things like their two-hour delivery. If they did something like that to energy they’d be laughing.”
“They have the logistical capability and the higher level of user understanding.”
“It could be possible to bundle utilities with insurance, entertainment etc. into a single package.”
“I can see them developing a more competitive, customer friendly, service orientated multi-utility service.” – Survey respondents
4. A company yet to exist
What’s the deal:
As technologies advance apace and the industry continues to fluctuate and advance accordingly, there are inevitably new ideas, concepts and business models just around the corner – it is believed these will have a disruptive impact on the energy market.
Why it matters:
The utilities industry is on the cusp of a period of great change – our growing and ever-diverse climate change challenges and targets will continue to impact all utilities well into the future, heralding new approaches to resilience and sustainability – particularly around urban and suburban areas with expectations for further significant population growth.
Market evolutions, meanwhile, are bringing opportunities to shape and reshape the utility arena with new business models, modes of competition and consumer interaction.
Although the fundamentals will remain unchanged – water, electricity and gas will still need to be provided to customers in the UK – the way the industry operates to deliver these modern life essentials will continue to evolve.
In the retail space for example, whole-house solutions are surely just around the corner, and with the continued growth of variable, low carbon and decentralised energy increasing the difficulties of managing the system, and the ingress of storage providing a potential solution, there are opportunities for new business models across the sector.
Similarly, the rise of the independent energy company has several by-products, such as energy price comparison websites.
“New technologies and ideas that we haven’t even considered are likely to be just around the corner – the Uber or AirBNB of tomorrow is what will be making a difference in the industry.” – Survey respondent
5. Water retailers
What’s the deal:
As of April 1 2017, all eligible businesses, charities and public-sector organisations in England, regardless of the amount of water they use, can now choose who provides their water and wastewater retail services from the retailers serving England. If a premises is currently served by a supplier based wholly or mainly in Wales, it can only choose a water retailer if the business uses 50 million litres of water or more a year, in which case it can choose from one of the water retailers serving Wales.
Businesses and organisations with multiple premises, or those using large amounts of water, may consider ‘self-supply‘, which requires a self-supply licence.
Why it matters:
A change in regulation surrounding the water industry may change water retailers’ priorities, but the general consensus is that because they are driven by cost reduction, the sector is ripe for – and will see – significant innovation in the years to come.
“There are tariff changes that water utility companies cannot pass on due to regulator pressure – the impact of this will be disruptive.”
“Private water companies will come to the fore, (for retail & domestic supply) because of the pressures on 'regional' water companies and the competition for service providers.”
“Water companies have lost sight of their own purpose, and this will continue to be increasingly disruptive.”
“A change in regulation may change their priorities, but ultimately they are driven by cost reduction, which is primarily leading to disruptive innovation.” – Survey respondents
6. Small suppliers
The rise of small energy suppliers has been one of the market’s success stories. Ever since 2014 when the CMA opened an investigation into competition in the energy retail market, opportunist new ventures have capitalised on the distrust in the major suppliers to provide a viable alternative.
In 2009, independents held just 0.2% of the market. By 2010 it was still less than 1%, but since then it has slowly grown, and their market share is now estimated to be between 13% and 15%.
Why it matters:
Britain loves an underdog, and never has this been more apparent than in the media flurry surrounding the big six suppliers. As they continue to be maligned, the further rise of the small supplier seems all but inevitable, especially if they are given the power to wield significant influence.
Furthermore, smaller, more nimble suppliers are arguably better positioned to bring the innovation Ofgem has said it wants, to market. Already we’ve seen small players introduce differentiation in an otherwise stubbornly homogenous commodity. Green suppliers, tech-driven suppliers and local or council-owned companies have mixed up the market profile, introducing new perspectives on what energy can mean to customers as well as injecting fresh and different talent into industry leadership positions.
These companies have challenged Ofgem’s approach to market regulation as much as they have challenged the market share of their big competitors. It’s a dynamic Ofgem is attempting to embrace, developing an Innovation Link and Sandbox to help new entrants make disruptive ambitions a reality.
“I’m pleased to see that the raft of exciting smaller suppliers are part of this list – this year they have shown that smaller can get bigger and that nimble and consumer-centric suppliers like Octopus, Origami and Bulb can make a mark. The bigger players need to understand how these smaller players can deliver great customer service, a much cheaper cost of customer acquisition while constantly pricing competitively.” – Laura Sandys, former MP, entrepreneur and CEO of Challenging Ideas
7. Centrica/British Gas
With its headquarters in Windsor, Centrica’s principal activity is the supply of electricity and gas to businesses and consumers. It is the largest supplier of gas to domestic customers in the UK, and one of the largest suppliers of electricity, operating under the trading names Scottish Gas in Scotland and British Gas in England and Wales. It owns Bord Gáis Energy in Ireland and significantly dominates the market for boiler installation and maintenance.
Why it matters: When it comes to utilities, Centrica is the big dog. As such, it wields the power to disrupt the industry simply because of its sheer size and influence.
This said, 2017 saw British Gas haemorrhage over 800,000 customers and the company knows it cannot rest on its laurels in a time of industry upheaval. Carving out a new lease of life for itself as an energy services provider, it launched Local Heroes in 2017, an online platform which connects customers with tradespeople for the completion of household tasks. It has also invested heavily in its smart thermostat business Hive, which is now deployed internationally and is recognised as a top smart home device in the UK market.
“It rather feels as if [Centrica itself] has been disrupted, having been challenged by government policy, but more importantly by consumers walking away. 2017 was a difficult year for them with their connected home strategy not yet evidently capturing the consumers imagination, while they had to suffer an almost unprecedented profits warning.” – Laura Sandys, former MP, entrepreneur and CEO of Challenging Ideas
8. National Grid
What’s the deal:
The lynchpin of the UK energy system, National Grid is a behemoth that comprises electricity and gas transmission in England and the system operator role for the UK power grid, together with a host of ancillary functions. One of the world’s largest investor-owned companies, it also has operations in the US and a continued stake in UK gas distribution via Cadent, formerly National Grid Gas Distribution.
Why it matters:
National Grid is at the heart of UK energy and, as such, critical to the energy transition. It is thought the grid’s ability to adapt to the changing energy distribution will stand it in good stead in the years to come, but there are those who fear it may not be ready to deal with the deep engineering challenges that lie ahead. It also faces political scrutiny about perceived conflicts of interest among its various roles, together with the ongoing pressure to guarantee security of supply in the face of rapidly changing patterns of generation and consumption.
“Supply and demand will become more distributed and unbalanced, and how National Grid reacts to this will be crucial.”
“The whole infrastructure is changing, and if National Grid is ahead of that curve they can change the shape of the industry.” – Survey respondents
Deal is the operative word, as SSE and Npower are planning to combine their household energy supply businesses, shaking up the profile made up of dominant market players that has existed almost since privatisation. At the beginning of November the two firms said they were in well-advanced talks to create a new independent energy supply firm. The new business would start with a combined customer base of almost 13 million gas and electricity customers, rivalling the market share of British Gas.
Why it matters:
If the merger goes ahead, it will alter a long-established industry profile, replacing the big six with a big five. It’s hard to say what the impact of this will be on the competitive dynamics in the energy retail market. Npower was a poor performer on customer satisfaction. It may be that a new brand and expanded resources will allow it to bring ideas to market that it struggled to deliver before.
Then too there’s the potential that the new “SENPower” business will be swiftly touted for sale in 2018, once formalities around the merger are complete – but who will buy? An incumbent? Or an unexpected new player?
“SSE and Npower are intriguing. Will they just use their exciting customer base to try and sweat the joint asset or will they shape a new business proposition? If the former it will be seen to be managing a declining asset but they have a real chance to redefine the game by combining their scale with a much more consumer centric business to challenge their former competitors. 2018 will reveal all, and their choice of CEO will be key to defining either a new direction or just more of the same old.” – Laura Sandys, former MP, entrepreneur and CEO of Challenging Ideas
What’s the deal?:
Supermarkets have long been a local focal point nationwide, but now rumours abound they could move beyond groceries and become energy producers, for both themselves and their respective surrounding communities. There has been no official word on this to date, but it wouldn’t take too much imagination to foresee a time when lithium-ion batteries in supermarket car parks could stockpile excess power generated by other systems in the building. Electric vehicle (EV) chargers could then distribute that extra power to customers who want to top up their car’s battery while they shop, (which helps overcome the infrastructural limitation that is often associated with public EV chargers). The surplus power could also be stored and used to light up the car park outside daylight hours. Alternatively, supermarkets could create a new supplier model to power or even partly-power local homes and businesses – because as the not-unrelated saying goes, every little helps.
Why it matters:
The supermarket of the future could transform the energy grid and potentially help it to become safer, cleaner and more flexible. Supermarkets could become a key part of the decentralised energy system of tomorrow, and set a new standard for efficiency by sharing surplus energy with their neighbours, reducing energy costs and providing a backup power source.
“They understand their customers so much better than many of the ‘traditional’ energy suppliers – they have near-daily access to consumers in a space where they’re used to seeing new and affordable propositions, like homeware, travel money, banking. It just wouldn’t be radical to see a supermarket-led energy proposition, and obviously the economy of scale is on their side, so they could provide the service at a good price. It could happen.” – Survey respondent
“This list reflects the range of views in the utility sector regarding how radically energy in particular but also the wider utility space will be disrupted. If within the foreseeable future we see complete disruption from the network edge, turning business models upside down across the whole sector, we might expect the disruptive drive to come from companies currently marginal to the sector, or even players that we can’t yet identify by name. If however we believe that progress will be in the form of continuing incremental change from the status quo, then disruption takes on a different meaning. It would then become much more about how existing or new entrant players can disrupt broadly within the existing governance and regulatory frameworks, and point to new entrant or existing suppliers and network companies.
It’s interesting that the only water sector entry falls in this latter category. Meanwhile National Grid is perhaps a special case, noting its role as system operator, and its custodianship of what have become the standard scenarios to map electricity and gas industry futures. Looking back over the last few iterations of those scenarios shows how far what was previously considered wacky has become core mainstream thinking, and how issues that were once new and marginal have come to dominate the agenda.
So who is missing? Network companies (power, gas and water), are striking by their absence, except for National Grid. Some might think that a poor reward for the innovation deployed via LCNI in recent years. But whilst many talk of the utility death spiral, we’ve not yet seen too many signs of the radical reinvention of the network companies that some futures might demand for them to succeed as businesses. I know some of them are talking about it internally, but perhaps RIIO2 and AMP7, and delivering on the current price controls, are a dominant focus for most.
And which form of disruption would create the most value for consumers? A Silicon Valley-led energy revolution would likely reinvent the consumer value proposition in the hyper-connected and digital era, transforming the consumer experience in a positive way …for those consumers who want it.
But it could also threaten resilience and increase network costs unless we adopt proper ‘whole system thinking’ and fix the governance to enable that.
The more limited sort of disruption could drive lower bills and better customer service within the traditional set of utility/consumer relationships. But which of these do consumers want? I recently attended the launch of the Material Cultures of Energy project at the Science Museum in London. This humanities-based research programme had looked at the societal response to historic energy transitions to see what we could learn. One finding was that energy transitions were messy, partial and proceeded haphazardly over many years. Some consumers benefited from the transformation early on, but for many it was easier to transition gradually with the old and new alongside one other for many years. But will the future be like the past? Nobody knows – but my gut feeling is that the tech company agenda will prove a more powerful engine for change than the utilities in the end – and quite possibly sooner and more disruptively than we might expect.”