Connecting CommerceUtilities industry confidence in the digital environment

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Executives in the utilities industry rate their overall environment for digital transformation support as the worst across all industries (coming last out of 11) in The Economist Intelligence Unit’s barometer. Utilities also rely to a lesser extent on banks or other financial institutions for financial assistance for digital transformation than other industries (30% v 37%). Instead, government programmes (37%) are the leading source of financial assistance.

One reason for government financial assistance is that utilities in many countries are a local issue. Survey respondents in this industry agree to a greater extent than those in all industries that city governments are more influential than national ones in supporting the digital transformation efforts of businesses (62% v 57%). However, the reliance on government, coupled with new innovations, may be what’s holding the industry back.

“One challenge is regulatory,” says Guido Jouret, chief digital officer (CDO) at ABB, a Swiss-headquartered technology leader with about 135,000 employees that focus on electrification products, robotics and motion, industrial automation, and power grids, serving customers in utilities, industry, and transport and infrastructure globally. “Are you a utility company if you take power from car batteries?,” he asks rhetorically to illustrate the challenges of regulations keeping up with innovation. Another example is that power distribution stations are largely unmonitored. Hence, when a transformer stops, utility companies often don’t find out until customers call. But monitoring aging equipment is often subject to rules and regulations. “Good and enlightened regulations can stimulate the market by encouraging innovation and create jobs,” says Mr Jouret.

Figure 1: Overall barometer readings—utilities

6.31 11th

6.38 10th

6.42 9th

6.41

6.43

6.51

Overall environment

Innovation and entrepreneurship

Financial environment

Development of new technologies

ICT infrastructure

People and skills 11th

11th

7th

Score (out of 10) Rank (out of 11)

About the researchThis article is part of the Connecting Commerce research programme from The Economist Intelligence Unit, commissioned by Telstra. The analysis is based on a survey of 2,620 executives in 45 cities across 11 industries conducted in June and July 2017. C-level respondents account for 42% of the survey sample, with the balance being other senior executives. Based on the survey, The Economist Intelligence Unit created a “digital cities barometer for industry” to assess and compare confidence in the digital transformation environment across industries. Business confidence is a highly subjective measure of a state of affairs, based on attitudes, and is not necessarily an indication of an industry’s actual level of digital development.

© The Economist Intelligence Unit Limited 2018 3

“Digital transformation is not necessarily a technology issue but rather a combination of technology and business expertise,” says Mr Jouret. It is one reason that ABB has hired someone like him as a CDO, an increasingly common title at enterprises small and large.

A second problem is that digitisation can also open the market to new entrants, says Mr Jouret. Airbnb is one commonly cited example. “In the industrial domain, standard interfaces create bigger markets but also open the door to new entrants. The disruption to utilities isn’t due to standard interfaces but will come from the decentralisation of power generation (consumers with solar and

batteries, businesses with solar, wind, and other co-generation capabilities),” he says, about the potential of disruption in utilities.

Third, a lot of businesses in industries with digital transformation face an ageing workforce. “We need to get digital natives into these industries,” says Mr Jouret. But he also believes they have to work closely with domain area experts, who know the industry but not necessarily technology. “We need a marriage of the two generations, technology and domain expertise,” he concludes.

Digital transformation in the utilities industry is often associated with smart meters, which electronically measure consumption. But these are misunderstood, says Mr Jouret. “The benefits of smart meters were misunderstood as ‘lowering electricity bills’. But that’s not what they’re for. By measuring electricity demand more frequently (eg, every 15 minutes verses once a month) we can better match supply to demand.” Batteries, for example, cannot replace power

generators such as nuclear and coal plants, but they can be good at instantly providing additional capacity to the grid. “But then you need better demand data,” explains Mr Jouret.

Digital smart meters, however, are only the first step in terms of providing better insight into real-time demand. At the next level is energy transmission. “With renewables, we often see supply in one place but demand somewhere else,” says Mr Jouret, citing an example where

strong winds might occur in the North Sea but the demand may be elsewhere in Europe. This is a problem because up to 8% of power capacity can be lost when shipped far distances. In part, this makes the electricity market volatile, with huge price fluctuations. With access to better information through technologies, ABB hopes that the market can be more distributed and power generation closer to demand. “The grid will become more diversified,” predicts Mr Jouret.

“The basic idea behind digital transformation is to digitise processes, products and services,” says Mr Jouret. “A lot is driven by customers.” ABB is also keenly interested in improving its own efficiency through technology while better serving its business-to-business clients.

For example, ABB operates 275 factories of its own and is looking to leverage the revolution of using technology in manufacturing to improve operations. The company’s factory in Heidelberg, Germany, for example, has been labelled an intelligent factory in which sensors and customer data are combined with self-learning manufacturing to optimise efficiency.1

“We want to deliver more value to customers and increase agility and efficiency,” says Mr Jouret. “Most focus has been on cost reduction but the worldwide trend is on mass customisation, and ultimately we want to deliver a batch of one,” he says, referring to highly efficient but personalised products.

A different industry

Other opportunities Overcoming challenges

“ The basic idea behind digital transformation is to digitise processes, products and services”

1 https://www.youtube.com/watch?v=-bQj-ax6teY

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Pushing ahead

Regional takeaways for utilities services

There are three determinants of the future of utilities. First, macroeconomic trends, such as the move towards renewable energy, which is intermittent and therefore at the mercy of weather patterns, meaning that other sources of energy generation and storage are needed. “Renewables need to be co-ordinated and decentralised,” says Mr Jouret. The second is demand.

It is estimated that 75% more electricity is needed globally by 2050 (assuming the electrification of cars, trains, etc.). And third, there is the issue of ageing infrastructure. In the US, for example, many transformers are at the average age (40 years) of having to be replaced. “If you combine these trends with an exodus of talent,” says Mr Jouret, “the answer to many challenges is digitalisation.”

Figure 2: Barometer readings by region—utilities

OVERALL ENVIRONMENT

US 6.94

EMEA 6.35

ASIA 6.30

AUS 5.67

FINANCIAL ENVIRONMENT

US 7.39

ASIA 6.47

EMEA 6.18

AUS 5.85

INNOVATION AND ENTREPRENEURSHIP

US 7.48

ASIA 6.33

EMEA 6.31

AUS 5.59

PEOPLE AND SKILLS

EMEA 6.52

ASIA 6.47

US 6.22

AUS 6.19

DEVELOPMENT OF NEW TECHNOLOGIES

US 6.76

EMEA 6.52

ASIA 6.30

AUS 6.28

ICT INFRASTRUCTURE

US 7.03

EMEA 6.65

ASIA 6.47

AUS 5.85

Utilities executives in the US rate their digital transformation environment higher than all other regions overall, although it is second to last in the people and skills subcategory.

Australian respondents in utilities are the least positive about their digital transformation environment overall and in all subcategories.

Executives in EMEA rate the environment for the people and skills subcategory as the highest in the world; in all other subcategories, EMEA and Asian executives rank second and third (behind the US).

Asian executives rate their digital transformation environment in innovation and entrepreneurship, the financial environamental and people and skills as particularly strong (ranking second in each subcategory).

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