We cover the range of strategies used, as well as the reasons for adoption, as background to the future dynamics of the sector. Creating insight into the strategic actions of the world's largest utilities provides insight into the paths chosen by peers and offers a glimpse into the art of the possible. The Strategy Index is a targeted examination of the strategies employed by the world's forty largest utilities.
Some of the utilities in the above countries are among the largest in the world in terms of assets, revenues and customers. Creating insight into the strategic actions of the world's largest utilities provides insight into the paths chosen by peers and provides a glimpse into the art of the possible.” Various measures provide insight into the financial positioning of the peer group and the level of financial performance.
However, the study is a timely look at the strategies of the largest companies around the globe.
Utilities find themselves buffeted by several concurrent factors that influence the nature and direction of responsive strategies. These factors
Investors and analysts are aware of the strategies of several utilities—rather than the utilities themselves—and need to dissect those strategies to understand consistency or uniqueness. Utilities need to be able to communicate that their strategies are not perishable so that they can be sustained well into the foreseeable future. The investment community knows that strategies are designed to meet currently anticipated future demands.
But behavior is changing as they recognize new ways of thinking about the factors that drive energy use, such as choice, control, comfort, convenience and communication. Strategies must embrace a move from passive interaction to responsive engagement that anticipates rather than reacts to customer needs. With customers thinking in terms of now, not tomorrow, strategy development must emphasize short-term readiness and offerings over long-term preparation and launch.
With customers thinking in terms of now, not tomorrow, strategy development must emphasize short-term readiness and supply rather than long-term preparation and piloting.”
Utilities articulate their strategies in a way that makes it clear where and how they intend to focus their market and internal efforts. The strategies
Business models are an art form because there is no real blueprint for designing, constructing or executing them. The utility sector has little experience with non-traditional business models and has adopted simple models – for example integrated and regulated, or separate and unregulated, depending on the value chain segment. Business models are an art form because there is no real blueprint for how to design, construct or execute them.”
However, these business models tended to be traditionally role-based, for example an asset owner, or broadly defined, for example a pipe and wire company. The range of potential business models provides a more comprehensive view of the nature of future functions in the utility sector, challenging conventional norms for participation in the value chain. It is more likely that utilities will maintain multiple business models tailored to the needs of the areas where they want to compete.
Consequently, utilities must be adept at managing across multiple value chain segments, each of which may employ one or more business models to meet discrete market demands.
The eight types of business models
The global utilities sector has continued to expand its presence and financial scale through sustained capital investment and operating
Some GT40 utilities have reorganized or are reorganizing themselves around specific value chain segments, and in some cases specific generation technologies, i.e. renewable versus conventional. The $1.1 trillion market cap for the GT40 utilities has increased at a CAGR of 3 percent since 2010. Price-earnings (P/E) ratios for GT40 utilities have not always matched local exchange rates, with performance varying across regions.
In North America, P/E ratios for GT40 services have increased, albeit at a slightly lower rate than the overall local exchange. Some GT40 companies have reorganized or are reorganizing around specific segments of the value chain, and in some cases specific generation technologies. Some GT40 companies have been able to work with their regulators to achieve a more balanced capital structure.
The GT40 tools have made clear and tangible changes to manage risk, capture additional value and change their business models to position themselves for a more connected future. As a result, GT40 utilities have sought to reduce their exposure to conventional power generation, particularly coal. Some North American GT40 utilities expect to continue building gas production capacity, at least in the near term.
GT40 companies in all regions are expected to retain most of their nuclear power generation capacity. GT40 economic companies have been increasing their investments in network business and network in recent years. More than half of the GT40 European public utilities offer products and services in total defined values through proprietary companies or as original providers.
North American GT40 services with fully regulated customer bases face different competitive dynamics than European ones and generally believe they have more time to prepare to offer value-added products and services to meet competitors. North American GT40 services with fully regulated customer bases face different competitive dynamics than European ones. Seven of the top 10 GT40 enterprises most committed to innovation and R&D are European players, while North American companies are still building their innovation capabilities (see Figure 11, page 31).
Aggressive business model restructuring was essential to allow various GT40 utilities in Europe to achieve strategic priorities and secure their market positions in the future.
Utilities across the globe are at different stages of market action
But a number are starting to differentiate themselves. From redirected investment to breakthrough innovation, these utilities are positioning
The differentiation comes in how these utilities segment the value chain into addressable elements such as back-up supply, energy services, electric transport, distributed energy services and meter offerings. North American utilities such as Sempra Energy, Dominion Energy, DTE Energy, NextEra Energy and Duke Energy are active in the natural gas sector, including pipeline and midstream storage and natural gas facility development. Some Asia-Pacific companies, such as the Hong Kong and China Gas Company, are also involved in natural resource activities such as natural gas and liquefied natural gas, while others have increased their natural gas footprint.
The strategies used by GT40 are still being developed, but they have common elements woven into them, such as customer value and the exploitation of natural local assets such as wind or sun. GT40 exemplars such as Xcel Energy, Eversource Energy, Entergy, PSEG and NextEra Energy in North America; Iberdrola, SSE and EDP in Europe; and KEPCO, Tenaga Nasional Berhad and CLP Holdings in Asia Pacific are building their portfolios by building or buying renewable energy supplies to meet mandates, renew supply sources or meet their largest customers' sustainability commitments. This led to investments in emerging disruptors such as Ring, Ecobee, Greenlots and Tendril.
Traditional utility models were designed to meet operational rather than market needs and focused on natural segments such as supply or transmission rather than markets such as customer types or verticals. These models served a historical need to ensure that utilities met goals such as system reliability and asset capacity. European utilities such as E.ON are moving away from the traditional segment, which combines related operating assets, towards diversified infrastructure models focused on transport and delivery.
Similarly, European utilities such as RWE and EDF have shifted their thinking from a customer service-based model to one that emphasizes customer solutions, the customer experience, and creating and delivering services to meet customer needs. Several peers in North America, such as Southern Company, Duke Energy, NextEra Energy and Exelon, have used formal events to engage their employees in ideation and demonstrate the intellectual capacity inherent in their organizations. Members of the GT40 peer group have already realigned their businesses around their decisions about where and how to play.
Pricing options, such as service contracts, pay-per-click, fixed fees, variable pricing, rental fees, and value-based fees, can all provide unique forms of value to companies. Barry Perry, chief executive of Fortis, believes that “the services model has a long way to go. With the availability of customer-side technologies such as software, sensors and controllers, enterprises are recognizing that their role in energy intelligence and management is expanding.
Asia-Pacific services are generally similar to North American integrated services, with a focus on services and solutions as part of the core business.
The GT40 study provides a snapshot of where utilities sector leaders are laying their markers for future growth. Achieving this planned growth is not
As activist investors seek to capture greater shareholder value, utilities will need to recognize that future growth is enabled not only by the elegance of a strategy, but through a relentless focus on shareholder financial performance. As these new technologies proliferate, utilities will need to become more adept at deployment and configuration. GT40 must understand that customers become aware of the solution options that exist and who best delivers them.
The utility sector will need to consider this accelerated market pace so that its future strategies do not become ephemeral. Tools must understand how these actors shape markets and whether they are market enablers, suppliers, competitors or partners in the future marketplace. In PwC's 15th Global Power and Utilities Survey, one response in particular stood out regarding the opportunities for utilities.
They will need to engage in constant market perception and continuous innovation, adopt a commercial mindset, pursue aggressive branding and make quick decisions. This suggests that GT40 utilities must soon create attractive partnerships with these competitors to secure a successful market position. Before establishing pricing protocols, utilities must figure out where and how to make money from competitive bidding.
GT40 services will have to learn to price based on a market sense of how customers feel about the value produced. This means they will need to become adept at bundling multiple offers and pricing as a bundle, where it is beneficial. With bundles, companies will need to develop pricing approaches that recognize and incorporate risks into the pricing model.
In the future, pricing of products and services must be a core feature of utilities. This is consistent with how utilities will need to dramatically elevate their thinking about how to act commercially, rather than as unsophisticated regulated market operators. It is not surprising that strategic initiatives have a high degree of similarity, as is often the case in the supply sector.
It is the strategy that guides an organization through today's changes and drives results that redefine tomorrow.
