Creating the intelligent utility with innovation

innovation

By Simon Vardy, Accenture’s Utilities Lead in Australia and New Zealand

While energy providers may lament the pace of energy policy development in Australia, there is one area where utilities have full control – innovation. The incentives are plentiful, and consumers are onboard, yet general conservatism reigns. This isn’t unique to the utilities industry, but endemic across Australia.

A 2017 report from Innovation and Science Australia found that Australian business is lagging behind its global peers in terms of research and development expenditure, in decline since 2008. That figure is now less than one per cent, and by comparison, leading nations’ businesses are typically spending three to four per cent of GDP on R&D.

It’s clear that most utilities are guilty of a conservative approach to innovation. While many have undertaken numerous pilots and trials, and some have even bought start-ups and are funding ‘shark-tank’ like programs, these are generally small-scale toe-in-the-water approaches.

It’s interesting to read stand-out innovation case studies from other industries, such as Thales Australia which has combined the ability to leverage global supply chains and markets with strong local research capability.

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Thales, in partnership with the Department of Defence, has developed superior sonars to detect undersea activity. This has found applications in non-defence industries such as the civilian seismic industry, resulting in $350 million in export revenues for Australia in recent years, and creating new opportunities for local companies in the supply chain.

By 2019, more than 10 gigawatts of new solar and wind power will have been installed in Australia.

The outcome of October’s National Energy Summit is pointing towards a trend of open markets that increases customer choice and integrates renewables and distributed energy resources into the Australian energy system. Along with Australian consumers’ vast appetite for rooftop solar, it seems undeniable that opportunity for new and expansive innovation programs abound everywhere.

There is an influx of new energy technologies such as DERMs (distributed energy resource management systems), IOT (Internet of Things) engines, artificial intelligence (AI) and machine learning. There is an increasing need to combine and process vast amounts of consumption and sensor data to manage the national grid in a reliable manner, from generation to end-point meter. There are many problems to solve and many technologies that can be leveraged to do it.

Yet there has been a tendency from utilities and their advisers to go looking around the world for magical solutions, however many of the problems are unique to Australia. We have a different energy market to most other jurisdictions (gross pool, energy only), the longest interconnected grid and some of the highest grid supplied electricity prices in the world.

Australia also has different consumer needs, wants and values than those in other countries. Yet the easy way out is to undertake yet another ‘market scan’ of what has succeeded in other markets with a view to piloting here. It’s as if we already believe we can’t innovate and develop our own solutions no matter how unique our circumstances.

However, we do have some extremely interesting and world-class innovative energy examples such as PowerLedger – the Blockchain peer-to-peer trading start-up and Reposit Power, allowing customers to store-shift and then trade on the wholesale market. But these are rare exceptions for a country renowned for its oligopolies and significant energy dilemmas.

The large energy companies have provided some notable examples too however.

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Amid market shifts, energy providers must fully pivot to the new, envisioning and developing an intelligent utility to create a future of sustainable value and growth. Accenture proposes five steps for Australian energy utilities to take to properly embed innovation in their businesses:

1. Innovate for the long run – and go in ‘boots and all’

Ensure that innovation is regarded as a strategic imperative for the long-term benefit of the business.

In our experience, when looking to scale new innovations, many companies become easily distracted by ‘shiny gizmos’ – short-term gains, losing sight of how advances being sought through innovation can be embedded in the business to bring long-term value.

If it is clearly linked to your business strategy and tied to business performance, it will be much easier to encourage the wider organisation to commit to a process for change.

2. Examine obstacles from a new perspective – stop protecting the ‘sacred cows’

Consider business challenges as catalysts to innovation, rather than obstacles to progress. Look to make the most out of rapid industry changes or new regulations by using them as an excuse to upend conventional thinking.

In all businesses there are operations and markets that are seemingly beyond discussion. Don’t let these sacred cows remain. Ask the hard questions.

3. Weave innovation into daily processes and re-design those processes

This will signal the importance the company places on innovative thinking, and will drive quicker development and greater business impact, while enabling the entire organisation to be more adaptable and responsive.

4. Look to innovate new business models and market roles

In areas including electric vehicles (EVs) and storage management, demonstrate potential benefits for customers, to influence regulatory support for implementation.

There is not one single approach to transform energy provider businesses for the demands of the future. The journey to innovation is dynamic and ongoing, not a single event. It is a pragmatic approach to change, and a deliberate choice to be continually iterative.

5. Design a new operating model – start with a blueprint

In the new energy economy, utilities need to invest in new capabilities. This will need new structures, functions, technologies and governance.

In short, new operating models are required. Too many companies go straight for technical solutions while failing to adequately plan for the structural, leadership and process changes required.

Timing is critical – building new capabilities is the long play, and those utilities who invest ahead of the curve to get the operating model right will be those reaping the benefits.

Most energy providers will need to operate in a hybrid model which, depending on market maturity, technology and consumer adoption curves, can evolve to be multifaceted, or operating at multiple speeds. Protecting old value pools at the expense of innovating and defining new ones has a very short life.

As traditional energy business models in Australia become increasingly disrupted by renewable energy solutions and Australia’s very unique market, utilities that embrace this approach to innovation and see their innovation story through to the end will become the new energy incumbents.