With further implementation of distributed energy resources (DERs)and the subsequent shift in relationships with customers, utilities of all sizes are updating infrastructure and technology to balance the supply and demand on the electric grid as well as comply with policy and regulatory requirements. Zpryme Research’s latest white paper with SAP, The Future of Midsized Utilities & Energy Service Providers however, covers the complex landscape that midsize utilities face and their opportunities to evolve.
Concerns
In this white paper, the top three challenges midsize utilities have are:
- Funding of traditional infrastructure investments
- Digital technology investments
- Incorporating DERs
Over half of midsize utilities plan to increase their digital investments by more than 25% over the next few years.
On top of that, midsize utilities are also concerned with the change management related to the advent of digital technologies and a workforce on the cusp of retiring. Aging infrastructure challenges come top of mind for nearly half of utilities surveyed. The COVID-19 pandemic has added additional pressure to the situation and utilities may be left wondering how best to juggle the needs of the community and necessary infrastructure investments over the next couple of years.
Figure 1: Top Challenges Facing Midsize Utilities
“Our economic recovery from this pandemic requires smart investments and incentives to foster economic development and job growth…We cannot allow one crisis to be swapped for another unchecked.”—Congressman Jimmy Panetta.
Drivers
There are several factors that are pushing midsize utilities to make these changes, including the steady growth midsized cities have seen prior to COVID-19. In fact, 66% of utilities surveyed saw an increase in residential load growth and 39% industrial load growth, as well. These providers could very well see a return in load expansion, despite the pandemic; though revenue growth will most likely be slim over the next year or two.
In tandem with the increase in consumption, midsize utilities have seen a dramatic uptick in rising customer expectations; particularly in light of the growing interest in DERs. This is only going to increase as utilities continue to implement digital services for improved customer experience, as well. Existing utilities should be on the lookout for competitors to begin jockeying into the market as up-and-coming providers could more easily offer frictionless services, while established utilities struggle to make the shift. This may prove difficult as nearly a third of the utilities surveyed are still trying to prioritize internal customer experience and 22% report a lack of consumer data and analysis.
Renewables will remain a focal point for customers and utilities alike for the next few years. 41% of utilities reported that they expect 10% of their total power generation will be DERs in the next decade. Many midsize utilities are in the process of retiring coal generation operations and supplementing the energy supply with wind and solar generation in combination with battery storage. Investments in this change requires a shift in utility operations that further adds cost and resource pressures on top of an already strained operating model.
An Inside Perspective
While opportunities exist for midsize utilities to not only bolster existing infrastructure, but to also lay a scalable foundation for future services, prioritizing these efforts can be difficult. Thankfully, Zpryme and SAP survey respondents gave great insights on what their specific utilities could focus on in the next few years. (One should note that 68% of respondents were in either management or professional staff roles and 30% were at director or executive levels).
According to them, a whopping 76% said that electric vehicles (EVs) would provide new sources of load growth within their territories; 67% reported that it was essential their utility moved towards cleantech and renewables; and 60% think that new business models are necessary to meet policy and market shifts. Interestingly, however, more than half of respondents weren’t certain if DERs represented a threat to their existing business models.
Figure 14: Midsize utility Perceptions on Transformation
Staying Ahead of the Curve
There are several ways for midsize utilities who see the needs and ways to capitalize on shifting markets and customer expectations but aren’t sure how best to get started.
Aligning themselves with trusted, quality partners can make utilities’ transformation efforts nearly frictionless. It’s not possible for utilities to be the only experts in the room, especially when talking about multi-layered smart grid solutions. Sourcing the right partners can help shape a strategic roadmap, however, and better manage deployments once implemented.
But that doesn’t mean that utilities can’t do a lot on their own.
Utilities that upskill staff by training them on the latest digital technologies can better retain talent and re-engage team members. They can also make their innovation dollars stretch farther by creating a work culture that fosters innovation through intrapreneurship and change management.
While there’s no silver bullet that will quickly mitigate the risks and challenges that midsize utilities will face within the coming decade, that doesn’t mean there aren’t ways to maximize the downturn through strategic investment, both internally and externally.
