The New Consumer Era in the Utilities Industry after COVID-19
Disruption in the Utilities Industry
We are still in shock trying to understand the impact of COVID-19 in our lives. Of course, the priority for us now is our own health and that of our loved ones. We are staying safe in our homes trying to help our loved ones, our patients, colleagues, customers. But from our position in big multinationals, we need first to understand what the real impact is, for our customers business and for our customer’s customers business.
How is COVID-19 really disrupting the Utilities sector? One of the things that could happen in the very short-term is the Utilities industry facing declines in demand, distracted regulators and disrupted supply chains, according to experts. Large corporations have mobilized their industry expertise teams, trying to understand well this impact on businesses and come up with immediate and medium-term solutions for their customers, especially in areas like Digital Supply Chain, Finance, Procurement and Employee Experience.
Therefore, the economic implications of the coronavirus outbreak could cause widespread disruptions in the energy sector, harden demand and affect supply chains. Also, hard implications for regulation may appear, delaying important decisions for the renewable energy and prosumer industry and diminishing growth for solar and storage rollouts.
The novel coronavirus pandemic will most probably slow down the energy transition, affecting to some extent all aspects of the sector: renewable energy, energy storage, electric vehicles, circular economy, etc. Some analysts are starting to be particularly concerned about demand and supply, reducing solar demand forecast for the next 5-year period.
To follow, the investments in the industry could be reduced due to stock markets collapse and subsequent lack of capital. But most importantly, it could be the lack of consumer trust that will indirectly affect funding agreements, power purchase agreements and future installations. And, also, we will have to pay special attention to policymakers, who could put more focus now on other urgent topics such as basic supply, citizens payment failures, employees’ layoffs and other topics. The current situation has obliged some Utilities and Public Services companies to implement for the moment flexible payment plans for the citizens.
We are living difficult moments, we are testing the human being in many aspects… The impact of COVID-19 in our societies and in our businesses is something that is already evident, but how will it finally change our lives and consumption habits?
To put the serious situation into context, just in Spain, electricity demand has already fallen around 10% in the regions most affected by the coronavirus and illustrates the economic slowdown. Most of the electricity demand is linked now to the large manufacturing Industry, which cannot send its workers home without stopping its activity. The utilities sector fearfully observes the shock caused by the pandemic in some of the large supplier countries, such as China, or now to a greater extension India, or in cargo and transportation industry, and warns that in a few weeks it could run out of supplies.
On the other hand, the electricity sector is also one of the most regulated by the new state of alarm established, which gives the government the ability to intervene quickly to guarantee electricity supply in the event of a crisis. The main energy companies in countries like Italy, Spain, Germany, etc. have reacted to the pandemic by isolating their most critical operating units, such as those in charge of keeping the generation facilities up & running and promoting remote working for the rest of workforce.
At a business level, the Utility companies will facilitate delaying payments to their most affected customers by the pandemic. Some of them are allowing invoices to be extended for six months, while others have chosen to allow clients to split the payment of their receipts for a whole year and change their rate plans to ones concentrating most of the consumption in the central hours of the day, coinciding with the greater presence at home. In addition to these measures, the Government has prohibited Utilities from cutting off electricity and gas supplies to vulnerable households affected by the crisis.
Nascent Emerging Markets
But the current situation with COVID-19 could also affect some important growth areas such as Solar panels building, Wind farms and energy storage. In the U.S. for example, there are already some unexpected delays for the solar sector. There happened some supply chain disruptions, delays in project executions and the corresponding un-fulfilled project deadlines, and not being eligible for fiscal incentives, just to put some examples.
Moreover, in the U.S. and Europe the situation is getting more complicated for energy storage. COVID-19 could affect battery demand more than supply and demand for batteries across the globe could be much lower than expected for full year 2020. We need to consider the fact that we are currently living through a trade war between China and the United States, or experiences the effects of the oil price war between Saudi and Russia,and they are. not even one of the top 3 issues in the energy sector right now.
We need to consider that emerging areas like solar storage, e-Mobility and nascent Prosumer Energy industry are going to be more vulnerable to COVID-19 new panorama since supply chains, inter-company relationships and supply agreements are not as mature as in other industries. This fact will make these areas of investment less resilient to absorb the impact of coronavirus outbreak.
Specifically, in the Utilities industry, how will this pandemic and the period of isolation affect us? Will it make us more aware of making rational use of resources? Will we be more collaborative after the
Anticipating a change in consumer habits
But, let’s think for a moment about the consumers, the overall impact of the pandemic on utilities consumers habits. After the COVID-19, we will be more collaborative, not only because we need to work remotely and that for sure requires more tight collaboration, but we are also helping each other more, we go out every day to our balconies to thank our healthcare staff, we tend to want to know better our neighbors. In short, we will develop a better collaborative economy that will impact also the way we will consume energy in our companies and our homes. For example, we will develop a more rational consumption habit of our natural resources. And the utilities companies will need to adapt to this new reality.
It’s clear that there are still many unknowns about COVID-19, including whether it could roll back during the summer months, but it will have consequences anyway in some aspects of the consumer. While a lot will depends on how quickly our small and medium businesses are able to overcome this situation and how our governments and central banks mitigate the pain -healthily and economically-, it certainly seems like the situation is getting more severe in many markets like Oil and Gas and Utilities sectors.
To mitigate this complex financial situation, Utility companies will need to develop a robust customer engagement strategy over the following months. Customers are generally more empathetic to degradation or discontinuation of certain products and services during disruptions that are beyond a company’s control and involve life safety concerns than they are toward those that are perceived to be preventable. However, they expect transparency and timely updates.
Maybe Utility Companies should reinforce their communication plan with their customers: understand through any channel, digital or not, what are their pains, interests and priorities now and provide short-term solutions to alleviate the problems they may have. Customers may have specific questions about supply chain, pending payments, new product and services or any other topic of relevance. Special attention are digital channels like company’s website and social media, that can prove to be a useful tool to proactively address customer concerns. Additionally, companies may consider to be proactive and reach out to affected customers to check if customers have any severe problem affecting their day to day operations.
It is very possible that the future consumer in the Utilities industry will be more aware of the need to be more collaborative and better rationalize the energy resources. Could neighborhoods start projects to rationalize and share energy with each other? Could citizens raise more Crowdfunding initiatives for prosumer industry? Could the needs of utilities consumers be different than we think now?
The human being always learns from past dramatic experiences. It’s clear that nothing will be the same after COVID-19. Of course, the real impact in our industries, economies and societies is still unpredictable and remains to be seen in the long-term. However, there is something we need to have in mind: we need to constantly adapt to consumer changing habits, that’s the only reality of digital transformation.
Ernesto Rincón works at SAP, Head of Innovation Office, South Europe
