Since the 1990s, this process has been managed through enterprise-resource-planning systems, which have generally been unwieldy—easy neither to use nor to extend to scale. Sixty-eight percent of utilities say they spend more than an hour each day keying manually received data and reports into their systems, with more than half (53%) required to enter the data in two to three separate systems. The orientation demands a clear understanding of the end-user journey and the potential value lying therein. As part of the digitalization process, utilities are dealing with new challenges their organisation may never have previously faced. Generators and ‘prosumers’ are motivated by cost reduction, additional revenue streams and new services. Digitalization in utilities | Dimensys Gas is losing ground; electric power can be generated on a small scale, and even water treatment can be decentralised. With clarity on the expected changes, companies can develop a digital blueprint and lay the groundwork for its successful implementation. Email a customized link that shows your highlighted text. hereLearn more about cookies, Opens in new The digitalization of energy systems can provide various benefits, allowing utilities to: Maintain grid stability and reliability. Digitalization and digital maturity can help power & utilities companies to answer the challenges of decarbonization and growing demand. Digitalization is being rapidly adopted by multiple disciplines in the public and private sectors, and is ongoing in mature disciplines such as education, healthcare, energy, manufacturing, utilities management, transportation, and infrastructure development. Here are some steps to consider: Chart the path: The first step is to recognize that the transformation to “being digital” will be a substantial, significant, and long-term undertaking. A key challenge is to adopt this approach not only within a specially trained “digital” team, but across the entire enterprise. Power and utility companies that seek to thrive as the future unfolds should start their digital journeys now or keep moving if they’ve already started. How Hard is Digitalization to Implement? Faster, cheaper, more powerful computing and improved connectivity are fueling growing deployment of technologies such as sensors, mobile, advanced analytics, robotics, additive manufacturing, cloud computing, IoT, AI, and virtual and augmented reality. View in article, According to US Bureau of Economic Analysis data, annual US real Gross Domestic Product increased 19 percent from 2008 to 2018, averaging about 1.8 percent growth annually. Digitalization of Water means adopting a smarter approach to water management. The digital transformation of our society or the digitalization of everything (DOE) is a topic that’s grabbing headlines everywhere today. She has more than 20 years of experience in research, analysis, marketing, communications, and program management in the power and utilities, oil and gas, and renewable energy sectors. Overlaying these trends is the advance of digital technologies, sometimes at a breath-taking pace. View in article, Capital expenditures for 59 of the largest US electric, gas and water utilities tracked by S&P Global have reached new highs every year since 2010, rising 116 percent from 2009 through 2018. In recognition of the opportunity, almost all major energy suppliers have invested in online and especially mobile channels in recent years. In the aftermath of COVID-19, digital platforms have become the coveted assets for utilities in their business continuity and resiliency. As daunting as digital transformation programs might appear to individual companies, the potential opportunity is worth many times the attending cost and risk. But at the same time, large enterprises such as today’s electric companies can take advantage of these opportunities to disrupt the industry status quo themselves and remain competitive and profitable. In Germany, one energy supplier has already successfully completed a digitization program and now applies a full tool kit to improve the productivity of its maintenance personnel. Besides smart metering, utilities are expected to leverage digital platforms for many of their operations. Assess your company’s overall digital maturity and determine if it possesses traits common to digital organizations, such as “continuously innovating,” “intentionally collaborative,” and “democratizing information.”. Simply select text and choose how to share it: Digital innovation Source: SNL Energy, accessed October 30, 2018. Digital transformation across the utilities value chain. Ideally, the innovation process will enable your organization to rapidly design, test, and iterate each concept through to launch. The dimensions of these exciting opportunities can be understood in three developmental waves, comprising productivity and efficiency, the customer experience, and new frontiers. cookies, McKinsey_Website_Accessibility@mckinsey.com. Utilities can use information from smart meters to realize additional applications in this new business area, alone or with partners. Companies will roll out change management strategies and activities to shape this new culture—and those strategies will likely incorporate incentives, rewards, and performance milestones to encourage desired behaviors and practices. These stably support the large transactional systems that enable the day-to-day operations of the business. Develop or acquire new technology: Participate in a technology incubator, start a venture capital organization, or consider investing in or partnering with technology companies to develop innovative products, services, or business models and test use cases. Home INSIGHTS Digitalization of utilities operations. The earlier or quicker utilities can prevent the waste of treated water, the higher the savings, not to mention the boost in customer confidence. The digitalization of infrastructure data allowed them to have maps and inspection data available to anyone in the organization at any time, and accessible with mobile apps. Follow RSS feed Like. Almost half (48 percent) cited changes in fuel prices and availability, most likely referring not just to an abundance of relatively low-priced natural gas, but more broadly to the rapid decline in the cost of solar and wind power, which increasingly undercut other resources for power generation (see figure 2). Operational staff manages data as much as assets. In the end, the company improved efficiency across its entire scope of operations and saved hundreds of millions of dollars. Digital Utility market size by 2025 45% of utilities' investment in analytics will be used in operations and maintenance of plant and network infrastructure The digital transformation is a centerpiece of many companies’ strategy. Global battery storage capacity at customer sites is projected to rise by 516 GW by 2050.4. In one case, a company digitized a single core process and cut process costs by 20 percent in the first year while also improving customer satisfaction. While many of the efforts have yielded optimal results, some lag behind with respect to usability and the interface between the online and traditional sales channels. Most customers prize a multichannel platform that seamlessly connects their interactions across all channels—online, mobile, call center, and local sales. Thepower and utilities sector was traditionally where many parents or grandparents parked their savings as they got older, attracted by low volatility and stable returns. We are in the age of digitalization – in all levels of the industry. Although digitalization of energy sector is progressing at a fast pace, energy and utilities companies are only approaching the Energy 4.0 and smart energy concepts, nevertheless paving the way to digital transformation of the entire industry. In many of these challenges lie opportunities to create value through innovation. The US logistics firm United Parcel Service, for example, introduced “track and trace” for parcels in the 1990s, aiming to improve the customer offering. Smart grids are more efficient and less capital intense, allowing for predictive maintenance and better asset health. Elevate the importance of design. Creating new business models and revenue opportunities ranked high for more than one in five respondents, but it was still at the bottom of the list. If accepted, the concepts are rapidly prototyped, tested with users, and either validated, invalidated, or revised and cycled through again. The power industry is in an unusual position as it is expected that the industry achieves full decarbonization by 2050. New twists on design, processes, and ways of doing business also offer opportunities and fresh ways to approach challenges—or to challenge the status quo. Certain services may not be available to attest clients under the rules and regulations of public accounting. Decentralization / Digitization / Energy Market / Utility / ... For this to happen, utilities would have to understand the opportunities (and pitfalls) of digitalisation, they would have to set up long-term strategies, hire staff or mandate existing digital utilities … With the rise of distributed generation, alternative energy sources, and the data-driven customer interface, utilities are intersecting an information-based digital economy. Press enter to select and open the results on a new page. Digitalization, on the other hand, breaks down the silos separating plant-wide (and fleet-wide) information flows. tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. Never miss an insight. The power industry is in an unusual position as it is expected that the industry achieves full decarbonization by 2050. Furthermore, a seamless multichannel platform is a requirement for the profitable analysis of customer behavior through the entire customer journey. Utilities struggle with digitalization – especially in retail business Similar to the smart home market, utilities struggle to make use of digitalization in the customer segment as well. For the success of most digital transformations, therefore, two-speed IT architecture is needed. Manage the journey and expand or extend MVCs in key areas of the organization as necessary. It will likely require an organizational transformation that introduces organizational, operational, and behavioral changes and instills them enterprisewide. Today digital business is everywhere around us, and companies that master digital technologies are creating new markets and disrupting the existing ones. Engineers will eventually be provided with information about potential maintenance contracts for customers. The motivation for industry digitalization will be different for each player. Digital technologies can also be enablers, enabling new levels of performance, such as cutting maintenance time and costs by using automated drones backed by cognitive capabilities to inspect assets in the field. The key drivers were higher-quality data and effective process automation. Water utilities are not on the sidelines of this wave of change. See Terms of Use for more information. Automation of back-office processes. For more on agile business practices, see Amir Rahnema et al., “The Adaptable organization: Harnessing a networked enterprise of human resilience,” Deloitte, 2018. This means that today’s utilities face a digital transformation of their organization and business. This year, the first Danube Water Forum was planned to convene relevant stakeholders in Banja Luka to discuss data and digitalization. And because of repeatable processes, it’s less likely to require heavy governance. To realize these digital opportunities, utilities need to transform operations. McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. tab. Our “see, think, do” approach to transformation means we can help you identify needs and opportunities, visualize your future state, thoughtfully design processes and strategies to support your “to be” vision, and perform the hands-on work for turning that vision into a reality. Conservative estimates supported by analysis of real-life cases suggest that digital optimization can boost profitability by 20 to 30 percent. Its main goal was to keep the lights on without breaking the bank. In order for smart utilities to benefit the community, he said, all parties need link and match cooperation. We strive to provide individuals with disabilities equal access to our website. Through a series of surveys, interviews, and working sessions, identify your company’s digital ambitions and create a blueprint of the new DNA traits you need to achieve them. The company’s distribution assets communicate with each other to self-balance, self-diagnose, and heal. A network of sensors, drones, cameras, and other devices provides a continuous stream of data on the status and performance of power plants, lines, towers, substations, transformers, poles, and other equipment. Using AI, visualization, and simulations incorporating data on voltage, load, grid topology, and more, the platform helps operators assess available capacity on the system and plan for future needs. Only later did it become clear that the greater transparency obtained through digitization allowed for better management of parcels, vehicles, and distribution processes. Transform culture: Cultural transformation involves not only adopting new technologies but incorporating a digital mindset into the DNA of your organization. Plants have higher heat rates and availability, are more demand-responsive, and profitable. She is based in San Francisco, California. Inspections can be cut from 5 hours to 30 minutes, while reducing labor and equipment costs and eliminating the safety hazards associated with manual inspections at that height.13 In addition, drone inspections can improve efficiency and reduce asset downtime and potential revenue loss. The Informal Council of EU Ministers responsible for Telecommunications and Digitalization, chaired by German Economics Minister Peter Altmaier, resulted in the declaration "A European Initiative on Processors and semiconductor technologies" which will be signed by Austria's responsible Minister Margarete Schramböck. Taking action against systemic bias, racism, and unequal treatment, Key opportunities, trends, and challenges, Go straight to smart with daily updates on your mobile device, See what's happening this week and the impact on your business. Many respondents also noted shifting customer behaviors, electric vehicles, and wind power in another nod to the new products and technologies that are helping to transform their sector. This model has generated and tested ideas to improve the customer experience, promote new services, and complete customer transactions through multiple channels, including smart phones and smart home speakers. HR will create strategies to find the requisite skills in the marketplace, or to develop them from within. It should be designed around the company’s existing value drivers and strengths, including the product portfolio, technical competence, and customer proximity. Digital technologies can act as catalysts that help incumbents or new entrants develop new business and operating models, such as using advanced analytics to segment customers and target prospects for new services. Invest in a digital foundry: This will be the hub of your digital activities—a dedicated function that can continuously ideate and carry concepts through implementation. Nothing is protected. Clear targets require concrete budgets. We'll email you when new articles are published on this topic. Among utilities—electric power, water, or transportation—the electric power utility industry is undergoing a momentous change. All the same, digital capabilities allow utilities to enter new business arenas, whether alone or in partnership. A sequenced road map that is actively managed and well understood internally and by regulators is critical. In other words, they need to become ‘Live enterprises’ and … © 2020. In fact, capital expenditures have trended upward in recent years as utilities boost spending to upgrade aging infrastructure; harden systems against increasingly severe climate events; modernize and digitize systems and processes; defend against increasingly virulent cyberattacks; and address the growing mandate for cleaner energy sources from legislators, regulators, and customers.6 Other societal changes pose additional challenges, such as sophisticated consumer expectations set by high-tech companies and the need to replace retiring workers and attract new ones. Wastewater leaks are also problematic, as utilities can be fined for releasing contaminants into the environment, not to mention the safety hazards for people, property, and impact on the image of a water utility. Smart meters are a requirement for the advanced credit and collections algorithms that can identify which customers will need help to avoid default. As an executive director for the Deloitte Center for Energy Solutions, Deloitte Services LP, Andrew works closely with Deloitte’s Energy, Resources & Industrials leadership to define, implement, and manage the execution of the Center strategy; develop and drive energy research initiatives; and manage the development of the Center’s eminence and thought leadership. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ("DTTL"), its network of member firms, and their related entities. Optimizing resources. All power and utilities executives represented organizations with revenue of US$500 million or more, with more than half (51 percent) from organizations with more than US$1 billion in revenue. With such tools, utilities can optimize staffing levels at power plants and manage the intricate energy terrain of renewable and conventional sources, trading options, and patterns in demand. This can begin with quick moves to improve efficiency and expand the customer base. Phase 2: During this phase, the ideas are researched with customers and other stakeholders, and evaluated for feasibility; other dependencies are also identified. Digitalization can trigger the earliest possible warning. View in article, In additional, unpublished survey results from “Deloitte Resources 2018 Study– Energy Management: Businesses drive and households strive,” one quarter to one half of residential respondents said they would be willing to purchase additional services from their electricity provider, including internet service (49%), energy efficiency services (47%), cable television service (34%), and telephone service (25%). Much of the untapped potential of digitization, particularly for utilities, may be the ability to analyze customer data, like that from smart meters, and quickly and at minimal cost create customized rates, or customize demand response programs and DER opportunities similar to the PGE’s pilot. Digitalization of Energy Systems, a report by Bloomberg New Energy Finance ... Utilities face pressure from customers, government policy and regulation to improve their businesses. After analyzing the customer journey, one company streamlined its product portfolio by 30 percent and established a customer-friendly digital channel for its core products. The key action areas for digital transformations are outlined in Exhibit 3. Digital technologies offer unlimited potential to transform the world’s water systems, helping utilities to become more resilient, innovative, efficient, empowering them to arrive at more economically viable strategies. Experience in other industries has already revealed that the possible gains from digitization are greater than early project planners had believed. Digitalization of Utilities. Generation assets are becoming more flexible, with the intelligence to self-ramp, self-balance, and self-diagnose. And special thanks to Jaya Nagdeo, assistant manager, Deloitte Support Services India Pvt. We help our customers and partners accelerate the digital transformation to gain further productivity and growth. are such complex ecosystems. Digital transformations must go forward in an environment of the existing IT architecture and processes. View in article, US Energy Information Administration (EIA), Electric power monthly, February 2019; EIA, Annual energy outlook 2019, January 24, 2019. However, energy demands are expected to grow between now and 2040. In the 1970s, power utilities were digital pioneers, using emerging technologies to facilitate grid management and operation. Our flagship business publication has been defining and informing the senior-management agenda since 1964. Our Digitalization solutions allow you to manage day-to-day performance safely and reliably. As in sectors such as private equity, the approach grants additional funding to successful projects, while identifying lagging projects for modification or termination. They can also respond to swings in market dynamics, operate at a true optimum, squeeze down on the gap between potential and realized margin, create more utility for the end customer / consumer, and outmaneuver your competition. And that future could be bright. Utilities face continued uncertainty as the industry continues to transform. The utility customer of the future has a personal relationship with their utility, which provides a dedicated “smart home platform” that they can access through their phone, laptop, tablet, or smart home speaker. Develop a journey map that plots out the series of MVCs over a selected time horizon. On the growing mandate for cleaner energy sources from customers, more than half of all residential respondents (53 percent) in Deloitte’s 2018 annual Resources Study said that it is extremely or very important that part of their electricity supply comes from renewable sources, trending upward since 2013. For utilities, the transition from time- or condition-based maintenance to risk-based maintenance strategies is inevitable. The agile approach to change is based upon a culture of sharing, open communication, and visible support from top management. More precisely, this means finding the points in the value chain where digitization would make the largest revenue contribution in the next year or two. A common thread runs through these four types of forces—digital. Not infrequently, however, the potential benefits of such efforts are underestimated. Source: Marlene Motyka et al, Deloitte Resources 2018 Study–Energy Management: Businesses drive and households strive, Deloitte Insights, 2018. The sector is being reshaped by forces that have been evolving and converging for more than a decade. The DSO gained 50 percent efficiency and saved EUR 9.44 million over 10 years in capital expenditures.11. By digitizing the customer experience, utilities can simultaneously improve satisfaction and lower costs. The companies that take it will be ready for future market challenges. Once they understand how customers interact with them from touchpoint to touchpoint, many utilities alter their management approach. For those incumbents, a lot may be at stake, and even more may be possible. Are outlined in Exhibit 3 which was published in November 2017 business processes it... Long or medium duration, and applications offered through the platform, grid can... Sidebar, “ NGIN solutions drive your future, power utilities were digital,. 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