Conventional energy business model will soon be extinct

New analysis from Frost & Sullivan, New and Future Business Models for Energy Utilities, finds that the conventional utility business model of a pure play, centralised power producer providing electricity will soon become extinct. This is altering the course of the energy utility markets, especially in Europe, North America, Japan and Australia.

“The energy utility revenue model will gradually switch from electricity production and distribution to customer-centric solutions that include an array of services including energy management,” said Frost & Sullivan Energy and Power Systems Consulting Director Thomas Houareau. “Most utilities leading the change in business model innovation are now positioning themselves as ‘energy partners’ rather than electricity providers.”

Utilities will have to overcome several obstacles in order to tide over changing market conditions. Inefficient and old legacy infrastructure is increasing operating costs. Stricter environmental regulations create an additional cost challenge for utilities looking to stay in the business.

Utilities must strike a balance between legacy and new models, managing existing assets from the centralised power model while designing advanced products and services to cater to the new energy world. As a survival strategy, utilities need to build flexible operational systems that can adapt to varying power demand and supply dynamics across the grid.

“Moreover, the ability to integrate smart products and solutions within existing portfolios will help power utilities draw closer to the customer and deliver wider choices to the mass market,” added Houareau. “Utilities should therefore invest considerably in information and communication technologies in order to capture opportunities in the smart energy world and support the transition to pioneering business models.”