Jul 07, 2022

Energy and Utility Industries in the United States: A Comprehensive Overview

  • By Samatha Drake,
  • 412 Views
US Energy and Utilities industries outlook

The energy sector is a broad and all-encompassing term that refers to a complex and interconnected network of businesses involved in the production and distribution of energy, both directly and indirectly, to drive the economy and facilitate production and transportation.

Utilities often provide investors with reliable and coherent dividends, as well as lower price volatility than the overall equity market. As a result, during recessions and economic downturns, utilities tend to perform well. Utility stocks, on the other hand, tend to lose popularity with the market during times of economic growth.

Since 2020, the energy and utilities industry has been defined by a delicate balancing act between two contradictory narratives:

  • The first states that the trends in energy transition, climate change, technological advancement, and energy market evolution have persisted in 2019.
  • The second narrative insists that COVID-19’s significant industry-wide impact in 2020 in many ways, reset the baseline and created a new normal.

The Position of Power and Utility Industry Right Now

According to Deloitte’s 2020 Power and Utilities Industry Outlook, power and utility businesses are not only strengthening their commitment to decarbonization, but also taking the lead in enabling the transition to new power sources. In the upcoming years, these efforts are projected to ramp up, opening up new avenues for customer engagement and growth.

Deal activity in the power and utilities industry across North America continues to be influenced by looming federal regulatory changes, extensive investor interest, and environmental, social, and governance (ESG) measures. During the last 12 months (LTM) ending Nov. 15, 2021, the industry saw improvements in both deal volume and value, with major contributions from both financial and inbound investors, as well as those concentrating on renewables.

“Total deal value climbed to $49.9 billion in 2019, up from $48.4 billion in 2020 and $42.9 billion in 2019. Megadeals returned in the first half of 2021, contributing to the total LTM deal value of $49.9 billion.”

power and utilities resources

Image Source: Pwc.com

Digital Transformation in Utilities Industry

Many businesses are shifting to digital technologies and a more innovative approach to flourish in the new era as disruptive forces reshape the power and utilities sector. Forces that have been emerging and converging for more than a decade are reshaping the sector. Disruptive factors are revolutionizing the sector, forcing it toward a fresh and unique future, from rising costs to growing demand in decarbonization.

In today’s power and utilities sector, the opportunities are determined by three growing trends:

  • Electrification
  • Decarbonization
  • Decentralization

Electricity is getting cleaner, with emission-free sources like wind and solar power expected to account for up to 48 percent of total global electricity output by 2050, up from around 8 percent now.

At the end of 2018, power sector carbon emissions in the United States were down 28 percent from a 2005 baseline, and several power organizations have voluntarily committed to reduce emissions by as much as 80% from 2005 levels by 2050.

Overlaying these trends is the rapid advancement of digital technologies, which may be exhilarating at times. Artificial intelligence, Internet of Things, cloud, and blockchain technologies can assist newcomers disrupt the industry while also allowing incumbents to achieve new levels of performance.

The Future of Energy and Utility Industry

The introduction of new technology and the digital transformation of the power utility sector has driven traditional power utilities to reinvent themselves and ride the wave of change in order to remain competitive. Digital transformation provides a chance to improve conventionally available energy goods while also developing new business solutions and models that are strongly linked to digital technology. With the access, use, and analytical capabilities of the massive volumes of data generated by smart meters and the digitization of internal operating systems, a new era has begun. Thanks to new technologies and experiences that make it easier to use all of that data, power providers may directly communicate with consumers through a variety of channels.

Challenges of Energy and Utility Industries

Let’s discuss about the major challenges these businesses will confront in the upcoming years.

Competition

In 1989, the energy market in the United Kingdom was deregulated, as it was in most other European countries. The opening of this market has resulted in fierce competition among sector corporations as well as the emergence of new market participants.

The scenario has been accompanied by significant market shifts as a result of the deeper developments that have occurred throughout this time, such as:

  • Changes in nuclear regulations in many countries.
  • Far-reaching structural changes brought on by the financial crisis.
  • The significant inclusion of renewable energies into the system.

The emergence of new companies into the market with inventive end-user offers has resulted in higher customer turnover and, as a result, a fall in electrical energy supply commercial margins.

High Churn

Customers’ willingness to switch energy providers is increasing all the time. In Europe, 15 percent of people switch utility companies on a yearly basis. In the United Kingdom, the proportion has climbed to 18 percent in the last two years, and in New Zealand, the churn rate has already hit 25 percent.

Churn rates have a visible and direct impact on supplier profits. Utility companies cannot ignore the issue of churn. It is critical for utilities to lower this rate; not only does it pose a huge danger to their revenue, but it also presents a significant chance for differentiation and consumer loyalty.

Utilities are well aware of this, which is why they are constantly working to digitize their processes, making them available through a variety of channels and on a more customer-centric basis. It’s critical to strengthen areas like marketing and customer service that prioritize the client and their demands.

Customer experience will be critical, since it will allow providers to understand what customers need and set precise demands, as well as the timing of those demands, to address the needs. Furthermore, in order to stand out and remain competitive in the energy industry, distinctiveness is essential.

Digital Transformation

In recent years, digital change in the utility business has been more pronounced than in other industries such as finance and telecommunications. This is because power suppliers were among the last to digitize their customer communication channels. In today’s world, where digital technology is so pervasive, this is unimaginable.

Customers today are far more likely to use online channels than they were a few years ago. Consumers require a more seamless, personalized experience with which they are at ease. Furthermore, they anticipate additional information, including precise statistics on their rates and consumption. It is critical for businesses to make their strategy customer-centric, digitising processes and technologies to adapt to client needs.

Wrapping Up

Over the next several years, technological innovation, aging infrastructure, a desire for greener energy sources, and a recovering economy will all shape the energy and utilities sector in significant and unanticipated ways. In an evolving marketplace, significant new difficulties, challenges, and opportunities are unavoidable. Successful businesses will be able to take advantage of these changes in the future to better serve their customers.

 

 

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