Value Driven Transformation in Belgian Utilities: The entire value chain put to the test

10 December 2015

Why does Value Driven Transformation form the biggest challenge for Utilities in Belgium over the next few years? Because every party involved is facing a transformation, spurred by the enormous changes the market is about to face.

For decades, our energy sector’s market model has largely remained the same: electricity is produced centrally and distributed through a national grid (Elia) to regional distribution grid operators (Eandis, Infrax, Sibelga, Ores, Nethys), who in turn provide electricity to homes and companies. Within this value chain only production and supply are commercialized, all other activities are regulated.

Gas distribution follows a similar model: Fluxys imports gas over sea and international pipelines through a high-pressure network, after which they offer it to the DGOs.

Balancing the various networks by making supply meet demand is no easy feat, because input and uptake aren’t measured in real time. And when you factor in that privately produced sun and wind energy is not being measured, finding the proper balance becomes extra tricky.

The utilities sector is facing much bigger challenges than the ones related to supply/demand and metrics though.

Transforming now to stay relevant tomorrow

An increase in sustainable and decentralized production requires a network that can measure – and possibly even steer – that production. If not, there’s a risk of going back to very small and local grids that both offer and consume their own production. The danger then becomes: what if these microgrids become autonomously ‘balanceable’ thanks to the Internet of Things (IoT)? What role can DGOs play still, if any?

The avalanche is already taking shape on the horizon and will be here sooner than you think. Homes are becoming ever more energy-efficient, require less gas for heating and in the future will all have a local battery to store self-produced energy, rural areas will be provided by (self-steering) cars from urban areas etc. All of this will be maintained by communities that will put together their equipment through the internet/IoT to manage their energy consumption as efficiently as possible. In that case, will there be anything left for suppliers to supply and produce?

And it doesn’t stop there at the consumer end. In the near future, companies from other sectors will enter the utilities market. Telecom is looking for added value in utilities to combine with their existing capabilities, Colruyt will start as an official producer and supplier and even wants to take on the role of DGO, they’re building a natural gas network etc.

In this context, it’s not necessarily a bad thing that the Belgian government hasn’t succeeded in developing a vision for our country’s energy supply. At least it has prevented useless investments from happening. And by continuing our nuclear production for 10 more years, the government has allowed the utilities sector, and itself, some extra time.

This gives our companies a chance to look for real value opportunities in the energy world of tomorrow. And that’s precisely the starting point for Value Driven Transformation: thoroughly examining the own organization and everything that happens around it and finding true value for itself and its customers. Naturally, that value has to be guarded and kept track of during the transformation process, one that all sector companies will face over the next few years.

Challenges & Value Driven Transformation

How to tackle transformation the right way

In more traditional companies this is done by putting together a broad internal team consisting of young creative people along with savvy sector veterans. Then, this team is given permission to collaborate with people from other sectors, in those areas where co-creation and innovation are prevalent.

Together, they can find new value for the organization and are given the freedom to exploit initiatives in the project and investment portfolios that may or may not deliver value.

In parallel, more portfolio investments need to happen that structurally prepare the company to new value models: implement processes and IT systems that allow for external partner collaboration, install flexible services, embrace digital, make your internal data available for the outside world etc.

In short: keep a close tab on your organization’s evolution and the value delivered and optimize where necessary.

Whereto for DGOs and suppliers?

DGOs will have to find their place in the energy world of the future. What value can they still deliver? What value can they offer to their customers? At what price? The current distribution rates are already under pressure, more accountability is demanded with regard to budgets and delivered value, and they’re also facing the extra investments for smart meters and the new market model.

Suppliers need to think about where there’s added value to be found. The added value of gas and electricity decreases each year, customers don’t immediately see a supplier’s value and are primarily looking for the lowest rates. How can suppliers deliver value in a way that increases customer loyalty? In a sustainable way, preferably?

Everyone in utilities is facing such a soul-searching journey, and if they don’t act fast enough, other companies will outpace them… or even worse, take their place and push them out of the market. Examples of both hits and misses are a dime a dozen: Nokia and smartphones, Swatch and cars, Proximus as a TV channel in the world of media, Lego as a cartoon and as a producer of digital games that provides valuable educational solutions … and in the UK, telco providers have been players in the energy market for years.

In the coming years, the value chain for utilities will change drastically. AE has the expertise to help you face your challenges, look at them from a new perspective and offer structural solutions.

Contact us to find out how we can help you in your value driven transformation process.

Pieter Jaeken

Written by Pieter Jaeken

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