As an essential sector, power and utilities companies keep the lights and heat on and our phones and internet connections running. As a critical service that underpins all other essential services, this sector is one that historically has seen consistent, and largely stable demand for its services. However, it is not immune to fluctuations according to economic activity and suffered an unprecedented 10 percent1 reduction in demand for power on average through the early COVID-19 lockdowns around the world as offices, commercial sites and many manufacturing operations closed down. But these shutdowns have now largely passed and economies are opening up again, while residential demand for power is possibly higher than ever with so many people working from home and moving power that was traditionally centered in metropolitan areas to the suburbs. As a result, 40 percent of CIOs in the sector describe their businesses as being in ‘surge’ mode.
Nevertheless, there are challenges the sector must navigate. Some CAPEX projects have been interrupted by COVID-19 due to restrictions on physical workforce co-locations; the loss of jobs in many markets during the pandemic has resulted in cash flow issues for power and utility services and left uncertainty in the sector’s ability to recoup payments for unpaid residential services; renewable energy projects may also have suffered disruptions to supply chains and project financing during the pandemic; and there is an ongoing need for significant investments for upgrades to electricity grids and gas/water pipelines – some of which are often postponed due to regulation caps on consumer pricing levels. Electricity transmission and distribution grids need upgrades to support future demand and modern consumption, not least as electric passenger and commercial vehicles spread and residential solar power further impact the two-way power grid. Long-term, companies in this sector will also need to set carbon reduction targets and increase investment in green energy sources to meet the low carbon agenda.
From a technology perspective, the innovation imperative is centered around the asset: physical assets need to be digitized and digital assets need to be monetized – such as digital twin technology that replicates power plant and transmission-distribution equipment and processes in a virtual environment to model scenarios that reduce CAPEX or OPEX. While the definition of “smart cities” is not universally agreed upon, smart functions for utilities may include integrated two-way power grids for home solar, carbon reduction or increased use of clean energy sources, widespread use of commercial and passenger electric vehicles, or digital customer channels that give customers choices over how they consume and monitor energy usage. In the new reality, power and utilities companies need to deliver more personalized services and communications, and digital technologies that create more seamless customer interactions. They need to consider digitizing front-to-back operating models to standardize disparate operations, integrate enterprise-wide architecture, respond to dynamic energy consumption and enable shorter decision cycle to drive profitability. Data must be captured and leveraged to enhance higher precision, predictive modeling of power demand and for dynamic maintenance and upgrades of networks. Companies in this sector are largely looking to increase automation (73 percent) and invest in infrastructure/cloud (35 percent) to meet their strategic goals in the new reality.
While the annual pace of investment has remained high, the Power & Utilities industry traditionally moves relatively slowly, so there is a critical need for companies in the sector to double down on innovation and speed. Accelerated investment in digital is key, adopting digital infrastructure, cloud based collaboration platforms, IOT and modern networks to enable the next generation of the smart grid, enhance operations, manage workforces and reduce cost. 51 percent of CIOs in this sector expect their budget to increase in the next 12 months, signifying the investments in OPEX to reduce long-term OPEX spend. This diverges from the sector’s typical prioritization of CAPEX due to the rate case model. The primary area in which Boards are looking to IT to support the business is by helping boost operational efficiency with 58 percent of companies in this sector identifying this as a top priority and 37 percent placing operations and production as a top three technology investment. In some regulated markets with rate cases capping revenue and increased state intervention, it is no surprise that companies in this sector are looking to optimize their operations, stabilize IT performance and use systems of insight to drive efficiency and maintain profitability.
While KPMG firms are some of the largest providers of services to power and utilities organizations globally, we take a boutique approach to client issues with a focus on flexibility, adaptability, and innovation. We recognize that there are many on-ramps to supporting IT transformation and we’ve tailored our services accordingly: