Transforming risk for power and utilities
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At the beginning of 2020, Australia experienced some of the most devastating bushfires in its history, and then COVID-19 emerged.
All industries were affected by these events, however the power and utilities sector faced multiple, unique impacts that were further exacerbated by an already unstable market.
While many organisations in this sector have mature risk measures and controls in place for networks and assets, they are now facing into an environment that requires deeper controls to protect brand reputation and access to capital.
This article explores the current complexities, the management of risk and questions to ask yourself.
A scope of the current complexities in the power and utilities sector include the following:
Organisations in this sector have the dual responsibility of protecting employees from potentially dangerous situations and the wider community from hazards the associated infrastructure could cause, particularly bushfires.
Ensuring that there’s reliable, quality service can literally mean life or death for some customers. For power companies, this must be provided in an environment where there’s increased variability in the networks through additional distributed energy resources.
For this sector, the effects of extreme weather events can be disastrous to infrastructure assets, which are located in some of the harshest environments. To prevent against this, many organisations are undertaking expensive programs to harden assets to ensure a resilient network.
Non-traditional energy providers are entering the market; this increase in market competition means that organisations need to adopt a more rigorous customer-centric approach. As energy retailers look to move into new markets, such as telecommunications which requires additional regulatory compliance, their compliance burden increases.
Cyber security is a growing concern across all industries, however organisations in the power and utilities sector must also contend with the changes in regulations in the upcoming critical infrastructure regulations. Current geopolitical challenges, increasingly frequent nation state attacks and reliance on global supply chains for infrastructure components creates an increasingly difficult environment to safely navigate.
The move towards net zero is having deep impacts on the industry. The challenge to ‘leave it in the ground’ to meet carbon reduction goals could see billion-dollar assets being stranded. Additionally, debt markets and investors seek to understand what an organisation’s strategy towards net zero will look like – in the short and medium term – before granting finance. For some organisations, this could mean a major structural reform to separate out potentially stranded assets.
Retailers in this sector must meet the same regulations as financial services organisations – demonstrating that they are selling the right product to the right person at the right time. Regulators are active in uncovering areas of malpractice in this sector.
The move towards renewable energy requires major network and system upgrades, in a market and regulatory environment that doesn’t reward such large financial investments.
The risk management landscape for power and utilities organisations is multifaceted and quickly evolving.
It can no longer exist in isolation from the rest of the organisation’s operations. For executives to successfully navigate the challenges and seize the opportunities, they must implement a risk framework that delivers a holistic view of the potential impacts across all business functions.
Safety is at the core of operational excellence, so executives must establish risk controls that will deliver a foundation to allow organisations to execute on their strategic initiatives. They must move towards creating a holistic risk framework that brings all functions onto the same page, helping to improve processes and efficiencies – supported by the right risk technology.
KPMG’s Powered Risk is designed to achieve this – it brings together the right tools, processes, automated risk controls, and data and analytics insights to help achieve a better standard of risk management at an accelerated rate.
Our team brings to the process a deep understanding of the power and utilities sector, risk landscape, and technology implementation, which all work to make transformation as seamless as possible.
Questions to help drive discussion and change in your organisation.
Managing today’s challenges and the associated risks requires a clear prioritisation of risk from the board and leadership, as well as from the business functions.
If risk is managed well, organisations have a better chance of delivering on their core strategies and evolving with the changing marketplace.
For boards, CEOs or CROs in the power and utilities sector looking at how to better navigate the risk landscape, here are some questions to get on track.