When was the last time you paid for phone calls or text messages on your mobile phone?
And when did you last pay for the exact number of megabytes you downloaded on your broadband?
The telecoms industry has responded to the digital revolution by completely changing the way customers pay for their products. Telecom companies have developed fixed-price packages of data that are easy for the customer to understand and often give away phone calls for free.
Other utilities must follow the telecoms industry’s example, or risk losing market share to more innovative new entrants.
The Google effect
For example, Google, a company that famously gives away its main products for free, already offers home heating products with its Nest range of smart thermostats. It is not inconceivable that it moves from simply offering the thermostat to offering a smart home data service that includes the hardware and data insights, plus gas, electricity and water all for one competitive fixed monthly fee.
Unless utilities become more in tune with what today’s consumers want and expect from a service, they will lose out to companies who are experts at doing just that.
Some utility companies are waking up to this reality. They are starting to realise that the Fourth Industrial Revolution means more than simply installing Internet of Things (IoT) connected sensors and cutting-edge analytics systems in their power plants and water treatment facilities.
Tata Consultancy Services commissioned a survey of 120 senior IT and non-IT decision makers from European utilities, which found that many are looking at new revenue models.
In the energy sector, 36% of utilities expect new energy products and services will make up 10% of their revenues in the next two to three years.
The importance of new revenue models is particularly acute for Europe’s energy sector when you consider that in some countries, such as Germany, renewables like rooftop solar are leading to negative electricity prices at certain times.
If this trend continues over longer periods of time, it may lead to a situation where energy users would need to be paid by generators to consume electricity.
Despite this apparent threat to power companies’ revenues from homes and businesses generating their own cheap electricity, the utilities regard this ‘distributed generation’ as a major opportunity.
More than three quarters (79%) of respondents to the TCS survey claim that distributed generation will be the key to new revenue channels for their business.
There are two main ways in which they plan to create value for their customers. Firstly, they will invest in increased grid flexibility to accept more renewable and distributed generation. They will also provide connection services to customers and retailers to help connect distributed generation resources.
Leaders in the energy sector also see opportunities in providing storage services for distributed generation and charging points for electric vehicles.
However, this recognition of the need for new services and revenue models is only the first step towards a complete digital revolution among the utilities.
At this stage the utilities are only recognising that their margins on the commodities are wafer thin and that they need to find alternative revenue streams. The complete transformation will come when they realise that they need to put the customer in the driving seat. And what do customers want? Abundant affordable electricity and a home at a comfortable temperature, provided by heating or cooling depending on the location. They are also increasingly concerned that it comes from low-carbon sources.
They are less concerned about knowing the precise number of kilowatt hours consumed. They don’t need to count the megabytes consumed on their broadband, or minutes on their mobile phone, so why should the energy sector be any different?
Those companies that can transform themselves to meet consumers’ new expectations of what a utility is, will be the ones to thrive and grow in the decades to come.
And meeting those new expectations may mean a business model that, like Google, gives away their main product of energy or water for free.
Sandeep Simon is the Tata Consultancy Services Utilities Segment Head, Europe