Article 2 – Increase in utility cost, pressure and expectations by Government and customers to reduce the cost to end consumer – requires a digital transformation in the utility Sector

  • Home
  • Blog
  • Article 2 – Increase in utility cost, pressure and expectations by Government and customers to reduce the cost to end consumer – requires a digital transformation in the utility Sector

The Australian Utility sector is on the cusp of a new era full of challenges and opportunities waiting to be unleashed. Adopting the latest technologies and going through an end-to-end digital transformation presents enormous possibilities. Yet, the challenges, pressures and expectations, whether from customers, rising energy costs, government policies and consumers who expect more for less, can get in the way. On the flip side, these challenges can be the accelerator for transformation and growth.

All over the world, Utility companies are considered to be safe, stable and secure. They are rich in assets and customer base and operate in a sector with high entry barriers. And all things considered, the thought of disruption, transformation and change can be an uncomfortable reality looming ahead.

While the world moves towards rapid digitisation and the increased use of data to optimise and maximise operational and cost efficiencies, the Utility sector, arguably, has not kept pace. But now more than ever, it is time to shift gears and reinvent the wheel by undergoing a complete digital transformation – to see the Utility sector thriving once again.

Utility companies worldwide are starting to accelerate their adoption of digital technology for consumer engagement and conserving energy through smart metering and smart grids. However, there is much more that can be done in terms of safety and security as well as effectiveness and efficiency. As part of a highly regulated industry with a high customer churn out, the need is to ensure high operational efficiency and leverage technology to retain customers through improved services and experience.

The global Utility sector is hungry to innovate through technology. Australian energy providers are recognising the need to partner with leading companies to enable their transformation. For example, Fortescue Future Industries (FFI), a leading renewable energy and hydrogen company, is set to partner with the Queensland government under an initiative led by QLD Premier Palaszczuk to create one of the world’s largest hydrogen-equipment manufacturing facilities in Gladstone, QLD, as part of the new partnership between the Palaszczuk Government and FFI.

But partnerships are and will extend beyond that. It’s time to also partner with new energy startups to harness data analytics and microgrids using alternative energy sources. Consumer data can be harnessed to offer lower prices and optimise the distribution of energy.

With that said, let’s unravel the state of the sector, its past and upcoming challenges, and the opportunities ahead of it.

The challenges

Government policies directly impacting energy providers

Governments all around the world, especially in 1st world nations, are taking serious steps towards reducing carbon emissions and evolving into greener societies.

In April 2021, Boris Johnson announced the ambitious target of cutting Britain’s carbon emissions by 78% by the year 2035. This challenge to make the country a net-zero producer within the next 14 years makes digital transformation imperative to achieving the goal. The upcoming COP Summit is likely to bring on further promises of controlling carbon emissions and working to decelerate the pace of climate change, and encourage the conservation and renewal of natural resources.

In Australia, our nation is equally committed to becoming a truly eco-friendly nation and energy independent.

With rising concerns about fossil fuel depletion and climate change and commitments to “net zero” government plan, the pressure is rising to switch to greener methods of power generation. According to the NSW Government website, the 1st stage of the Net Zero Plan goes from 2020 to 2030 and sets the foundation for NSW’s action on climate change. By 2050, the NSW government is committed to reaching the goal of net-zero emissions.

As of quite recently, the NSW government, along with the new NSW Premier, has announced that NSW is set to bring more than $80 billion of investment in efforts to drive deep decarbonisation and establish itself as an energy and economic superpower.

“Australia has an opportunity to be an energy superpower, New South Wales will lead the country with this hydrogen strategy,” Mr Perrottet, NSW Premier, said.

And Australian Energy providers are starting to fully recognise the potential and need for transformation.

For example, Transgrid has revealed its vision for Australia’s electricity system, explaining how the shift to clean energy and decarbonisation could boost the economy and help energy providers create lower energy costs for consumers.

Transgrid Executive Manager for Network Planning and Operations, Kasia Kulbacka, said:

“The aim of the Energy Vision is to demonstrate an evidence-based approach that there is a pathway to enable Australia to become a global leader in clean energy, delivering significant benefits for the economy”.

Change is coming. And the Australian Utility companies have a once in a lifetime opportunity to capitalise on the opportunity and mitigate their risks.

How COVID-19 pandemic disrupted the global fuel supply chain

The COVID-19 outbreak brought air travel to a sharp halt in 2020 globally and also heavily influenced production, manufacturing and the global supply chain. The demand for oil hit an all-time low resulting in prices that slumped below zero. However, the prices have risen sharply again as China and other Asian countries experience an economic turnaround as COVID-19 retreats.

During the pandemic, we witnessed several changes that impacted the Energy sector in various ways. According to a report on impacts of COVID-19 on the energy management sector:

  • Families significantly increased their spending on ‘home improvement’ items, including low-cost energy management methods such as do-it-yourself (DIY) draught-sealing and insulation;
  • Whilst businesses were focused on reducing energy costs amongst other cost items, several businesses paused their capital expenditure, including on energy projects.

In addition to changes in consumer behaviours and sentiment, delays and cost blowouts associated with project development during the pandemic coupled with changes in domestic and international government policies, have taken their toll on the Australian energy sector.

In the face of all these challenges, the question that arises is whether and how digital disruption can help the industry. According to McKinsey Insights, the digitalisation of operations in the utility sector can boost operational efficiency and reduce operational expenses up to 25%.

Increasing competition from new digital-native entrants

Alongside these external challenges that can boost the growth of digitisation in the industry, the internal challenges are yet to be overcome. Legacy leadership styles, legacy assets to protect and organisational beliefs often lead to smaller steps towards change, especially in the digital disruption space.

Innovative ideas can be faced with resistance from various internal and external stakeholders. However, within innovation lies great opportunity. The Utility industry needs to be proactive and embracing of new technologies to compete with new market players. The industry is likely to see tough competition from new digital-native entrants that have the edge over the traditional giants through their digital capabilities. Telecom companies are also predicted to dabble further into power distribution alongside their communication services.

A window of opportunity

While these challenges seem daunting, the potential that digital transformation offers weighs far greater. The future lies not only in the shift to green energy but a paradigm shift for the sector. The switch requires newer business models, powered by data and technology. Greg Jackson, CEO of Octopus Energy, believes that the future of energy is in the hands of the VC and en-tech (energy technology) ventures who can offer lower prices, reliable energy supply, and contribute to the net-zero objective. The industry needs to undergo a massive transformation. He believes that the big six energy providers in the UK, referred to as “lazy oligopoly”, are unable to meet the challenge and pioneer a digital transformation in the sector. Jackson’s claims seem harder to dismiss especially when Octopus Energy has stepped in and exhibited the capability of serving the exiting supplier, Avro’s, customers. Similar threats to Australian energy providers who aren’t evolving could be on the cards

Data analytics and the Internet of Things – paving the way to success

The deployment of data analytics and the Internet of Things offers numerous opportunities. Customer engagement through digital means is already in place. This consumer connect can be tapped as consumer data can be used to optimise the supply and distribution of energy. Knowing how and when consumers use power, companies can customise solutions and offerings to reduce power wastage and offer lower bills to customers.

Andi Karaboutis, Group Chief Information and Digital Officer for the National Grid, firmly believes that deploying digitisation can help cut carbon emissions and not just a switch from fossil fuels. Not only that, it will translate into lower costs for consumers through cost savings, “improve customer experience and accelerate the deployment of innovative technologies.

With the Internet of Things (IoT), the massive electricity power grid can be optimised to be more reliable, efficient and sustainable.

For example, with the deployment of smart metres and smart grids, companies can reduce wastage of power and heat and schedule timely maintenance and repairs to prevent untimely breakdowns that increase costs and contribute to losses.

Another way IoT can transform the energy sector is through resource optimisation using the contextual data collected and monitored. Home residents and building facilities can optimise their air conditionings systems usage to lower energy bills and smart lighting systems can turns off when no one is around. There are also tremendous applications in the commercial and industrial world.

The IoT lends several advantages, from testing the grids to monitoring the supply distribution through better network management.

With the increased technology implementation in operations, utility companies will require data governance and cyber security measures to ensure smooth and safe operations. The reliability of the digital utility sector will depend on the efficient management of security risks such as hacked systems and process controls.

Building relationships with ‘prosumers’

The utilities of today also have a lot to gain from customer engagement. Currently, digital channels are being used for feedback loops and customer relationship management. But these relationships can be harnessed to form partnerships with the customers. Today’s utility consumers are also serving as ‘prosumers’. These consumers are generating their power supply through renewable resources like wind and solar and can contribute to the main grid with their generated power. Partnering with these prosumers through smart microgrids will allow utilities to engage customers along the value chain and reduce the burden on the power gen companies. These prosumers can be offered support to build up profitable partnerships.

Katie Mills, Head of Sustainable Development and Innovation for the UK and Ireland at Schneider Electric believes the power of data transformation is the future for the industry. ‘Software will be a huge source of innovation which will change how we use electricity.’ According to Mills, digitisation is present at steps throughout the value chain of power generation. But the sustainability ecosystem needs to be addressed with a holistic lens that includes all of the value chains. There is growing investor confidence in the maturity of clean technologies, en-tech business models, and even consumers are now reflecting on their lifestyles with regards to climate change. Both these can serve as the catalysts for the inevitable digital transformation in the sector.

Forward-thinking industry leaders like Jackson and Mills are of the opinion that the pandemic has caused a significant shift in mindset for consumers as well as businesses, the global disruption caused by COVID-19 has induced the need for urgent change as well as the realisation that technological innovation cannot be as slow and gradual as in the pre-pandemic world. 

It is no surprise that the comprehensive digital transformation of the utility sector will require companies to choose strategic partners. These companies excel at utility generation and distribution, but the technical skills and expertise to catapult the digital momentum make partnering with smart solution providers such as Sigma Connected essential.

The bottom line

The utility sector’s disruptive transformation depends on the ability of companies to deliver swiftly and reliably on their promised services.

Sigma Connected  helps Utility companies on multiple fronts.

  1. Consult and deploy problem-solving units to create actionable plans and campaigns to deliver value speedily to customers.
  2. Identify and deploy immediate opportunities of productivity to deliver the right customer experience.
  3. Lay the pathway forward for sustainable operations and customer experience.

With a broad range of expertise across customer experience, vulnerable customer management, operations, and digital transformation, Sigma Connected is focused on enabling Utility companies to transform and thrive.


For further information or a wider discussion on how we can help your business, contact us below.

About the author

Jason Cowan is Sigma Connected’s Regional Managing Director, Australia.

You can contact Jason via email or connect with him on LinkedIn.