When customers can power themselves, will they need energy suppliers?

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1 When customers can power themselves, will they need energy suppliers? John, the CEO at Energy X, sees it every day his customers becoming more active players in a power and utilities sector in which he was once their sole supplier. With advancements in distributed energy and digital technologies, he watches a truly smart grid unfold with an open platform, evolving for new entrants to both access and profit from. And the new entrants aren t the only ones that benefit they can pass new capabilities and savings onto their own customers, too. In a world where technology companies are drawing up plans for electric cars, connected homes, battery storage and distributed generation, how can John ensure his energy business is responding to the disruption? Of special interest to: The better the question. The better the answer. The better the world works. Chief executive officers Chief financial officers Chief technology officers Managing directors Strategy directors Operations directors

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3 Empowered customers call for empowered suppliers Today s energy customers are more powerful than ever before. They are taking a lead in redefining the industry and driving a revolution in energy. Business customers are leading the way in self-generating, storing and trading their own energy and the former ratepayers have evolved to become energy suppliers in their own right. One global technology giant, for example, has applied for licences in some of its markets to sell its excess renewable energy directly to customers. As customers are increasingly empowered by access to knowledge, technology advances, and a broader range of providers and intermediaries, does this mean a real threat to the role of energy suppliers as we know them today? The challenge for incumbents: they must define their role in this new world of distributed generation and peer-to-peer deals. Trends are converging and creating a brave new energy world A number of trends are converging to enable more innovative, integrated and networked solutions. 1. Decarbonisation and a changing energy mix: cheaper coal and gas will not derail the transformation and decarbonisation of the world s power systems. 2. Decentralisation: distributed generation and the small-scale application of traditionally large processes will play an even bigger part in the new energy world. Solar panel costs are expected to fall by 60% 1 over the next 25 years. 3. Efficiency and storage: the rapid electrification of transportation is accelerating storage capacity, and steeply declining energy storage costs are projected to fall 47% 2 over the next five years (the price of grid-scale lithium-ion battery packs). In addition, heating, lighting and other appliances continue to get more efficient. 4. Interconnected world: rapid expansion in the volume of networked switches, sensors and meters means we achieve a truly smart grid. There are numerous examples of new platforms being established that will match renewable suppliers with buyers and potentially enable customers to disconnect themselves from the grid infrastructure and be served by local customer network operators. 5. Innovation: technologies such as robotics, artificial intelligence, drones and blockchain pervade business processes across utilities and potentially enable much wider disruption than previously believed possible. The result of these trends leads to further fragmentation of the energy market and more empowered customers from industrial businesses to households, customers increasingly have the choice to be active players in the energy system like never before. 1. New Energy Outlook 2016 Long-term projections of the global energy sector, Bloomberg New Energy Finance, June Lazard s levelized cost of storage analysis version 1.0, Lazard, November insights for executives 2

4 Energy suppliers have a critical stake in making sure they stay in the driver s seat The fear for traditional utilities companies is that, if they don t reassess their position in this new landscape, they risk becoming irrelevant and potentially obsolete to customers in the medium to long term. If you are an energy supplier today, you need to determine the value you can deliver for the likes of leading technology companies that are aiming to produce 100% of their own energy, are spending more on electric vehicles R&D than on traditional core products and are exploring selling energy directly to the end user rather than going back to the grid via the wholesale market. In turn, what role do large integrated energy players take in a market where new start-ups are building disruptive technologies such as the virtual power plant aggregating the power of distributed generation assets to create profits for generators and contributing to an efficient and reliable grid and infrastructure funds are developing domestic-level storage solutions? With customers driving the change and using new technology to take control, what value can suppliers continue to deliver to them? 3 5 insights for executives

5 What s needed: a clear understanding of what your empowered customers want All players in the market need to look at their business and commercial models, and how they can respond to the fragmentation of the market and the role they want to play. To do this, it will be critical to understand empowered customers what they want, what drives them and what delivers value to them. 1. Deliver the basics no excuses: now is not the time to be losing customers. Retain them. Deliver real value today and continue to strengthen the right relationships to be relevant, and help them to plan their route through the disruption in the market and make the best decisions for their situation. 2. Prepare for the future innovate with customers: energy products and services must evolve and transform. Customers are already making disruptive decisions on their energy needs. Help them plan their route and innovate together with the end users. 3. Build and integrate key capabilities transform with the right ecosystem: in the new energy world, being able to manage insights, services and outcomes seamlessly across multiple platforms, technologies and providers will be necessary. Integrate your internal capabilities and build a connected network of partners outside. Mapping a route from today to tomorrow will ensure that investments can be planned, markets tested and future revenues delivered in line with shareholders expectations. 5 insights for executives 4

6 Can you meet a disrupted industry s great expectations? We believe empowered customers mean engaged customers who are clear about their expectations. Energy businesses that listen to these signals, have a clear view of what their role in this new energy world is and invest in building new capabilities will seize the long-term value opportunity. It is a less forgiving world for those who don t act. It is an exciting time for those suppliers that evolve and develop their businesses successfully and that engage and work with their customers to define the future. 5 5 insights for executives

7 Want to learn more? The answers in this issue are supplied by: Yunus Ozler Partner Advisory Services Power & Utilities Ernst & Young LLP Benoit Laclau Partner EY Global Sector Leader Power & Utilities Ernst & Young LLP Tony Ward Partner EY UK&I Sector Leader Power & Utilities Ernst & Young LLP Brendan Lane Director Advisory Services Power & Utilities Ernst & Young LLP For related thought leadership, visit ey.com/analytics. 5 insights for executives 6

8 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. We want to hear from you! Please let us know if there are subjects you would like 5: insights for executives to cover. You can contact us at: fiveseries.team@ey.com EYGM Limited. All Rights Reserved. EYG no Gbl BMC Agency GA 0000_10226 ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. ey.com/5