The power, utility and energy industry has a once-in-a-generation opportunity. Not only can it take a leading role in making its own cleaner energy future a reality, but it can help customers, communities and society accomplish this goal as well. Over the next decade, the lines will continue to blur among the industry’s traditional companies, emerging players offering new products and services as well as other adjacent industries, like transportation and manufacturing. Tomorrow will be more complex, less linear and more converged — looking nothing like today. At the same time, shifting policy, geopolitical uncertainties and technological advances will remain an undercurrent, shaping the path forward.
Industry leaders should bring into focus the role they want their companies to play in this new energy ecosystem, the path to get there and how to bring stakeholders along on the journey. The industry has the opportunity to be the author of its own energy transition story, rather than allowing others to define the narrative. Ahead, we explore what’s next for energy and utility companies.
“The industry has the ambition and know-how to lead the cleaner energy transition. Strategic reinventors will find new ways to create value, while moving the industry forward.”
By committing to net zero goals and accelerating their environmental, social and governance (ESG) journey, many leading energy and utility companies are starting to define the positions they will take now and during the transition. Even those who first saw this as a passing storm to be weathered now see this as the opportunity that it is: An opportunity for the industry to reinvent itself — fundamentally changing the way it operates. This includes keeping the attributes that have served the industry well over its long history, while sunsetting what no longer serves a purpose in the energy ecosystem of the future.
It can be argued that no other industry is better positioned to do this. After all, the industry has more than 100 years of experience in meeting the needs of a growing and evolving society all while providing reliable, affordable and safe energy. Today’s industry players have several key differentiators on their side: expertise in engineering, infrastructure, science and energy markets, to name a few. When faced with a challenge the industry rallies — from creating technologies that can capture carbon or pinpoint energy sources miles underground to mounting massive efforts to restore power in the wake of extreme weather. What’s ahead is the rally of all rallies. It won’t be an easy task, but it’s one that the industry is well primed to shepherd through with decarbonization at the heart of strategy, supported by the right capabilities, technologies, business configurations and culture.
While the industry has the opportunity to lead the energy transition, it first needs to find a way to straddle bold ambitions for the future with very real, present-day obligations. Many are working to find the right footing in what can feel like paradoxical challenges or questions. Here are some of those top-of-mind questions, with many more weighing on today’s energy and utility leaders.
The ability to answer these questions certainly relies on external factors, like continued policy and regulatory support and cross-industry collaboration. Internally, it’s more important than ever to be able to prioritize, identify and act on effective drivers in the value creation ecosystem. This isn’t about trying to be all things to all people. It’s about doing the right things for the right reasons, and setting that as the North Star for strategy resulting in continued relevance in the new energy economy.
We see strategic reinventors emerging as the leaders (and survivors) in the cleaner energy transition. This means those who can successfully reconfigure their portfolio, offerings and business model by either doubling down on efforts to become true integrated players in the energy ecosystem of tomorrow or finding attractive niches based on differentiated capabilities. Strategic reinvention can take several forms.
Strategic reinventors will need to put a stake in the ground as to who they want to be and then make it a relentless enterprise-wide goal to operationalize the vision. There are many paths forward that will likely include making strategic choices to build, acquire, divest portfolios and consider new business partnerships. Ultimately, success hinges on evolving the operating model of today to support the desired future state, shifting from incremental and demand-aligned investments to purpose-driven ones.
For most industries, building a flywheel system is the answer to working toward a strategic goal. This term references the moment where all of the hard work to create efficiency and forward motion results in momentum that powers the whole enterprise forward.
To a large extent, the energy and utilities industry already has this flywheel, enabled by an established infrastructure, an often captive customer base and an embedded commitment to continuous improvement. But with the degree of disruption and change entering the picture, the industry’s existing flywheel is in question. Driving this are a number of unknowns. What happens when some of your assets are no longer needed? What if someone else can provide what you’ve historically provided — like commercial and industrial customers generating their own sources of energy? Who will invest in existing energy sources when corporate boards force capital discipline, demand goes up, supply capacity declines and commodity prices increase?
Adapting the flywheel will likely be needed to sustain momentum toward a new value equation — one that ties challenges facing society to an increasing value proposition. There could be different flywheels depending on the role you play in the energy transition. As just one example, it could mean shifting the current flywheel away from energy extraction through delivery to one centered on lower carbon solutions that can reduce risk, improve customer and employee satisfaction, and deploy capital funding. In order to create this effect, resource companies may need to demonstrate lower carbon investments to improve customer satisfaction or operational efficiencies, thereby justifying the need for increased capitalization and increasing lower carbon investments.
Moving at the speed and scale needed for the cleaner energy transition requires both the adaptability to consider and respond to today’s challenges as well as the agility to to take swift and decisive action. To a large extent, the industry recognizes how critical this is to future success. In fact, in the PwC Pulse survey: Executive views on business in 2022, energy and utility leaders named increasing agility to better operate in a turbulent environment as one of the most important factors for future growth.
Adaptability and agility are needed across all areas of the business — from the cross-functional teams piloting new technologies and testing new practices to the tax functions nimbly leveraging local, state or federal incentives to help bring even more value to the business. Leaders must relentlessly prioritize the areas that can bring more enterprise-wide value with these rising to the top:
With adaptability and agility being crucial skills to bring to the table, emerging technologies — enabled through cloud — can help to bring innovation to life. A majority of energy and utility companies are counting on it. In the PwC US Cloud Business Survey, 60% of energy and utility respondents said they view cloud as a platform for innovation that is central to their company’s business strategy and critical to growth. They’re hoping that cloud delivers on its many promises, including helping to drive standardization, resiliency and ESG strategies. Turning that hope into reality is another matter. Across industries, 53% of companies say they have yet to realize substantial value from their cloud investments. While there is a gap there, the flip side is that 47% of peers are already seeing value out of emerging technology and cloud investments, and it’s still relatively early in the adoption.
We see the momentum continuing, with emerging technologies and cloud-based solutions playing a crucial role in enabling the energy transition at a lower cost and faster pace. This could include helping today’s transmission, distribution and storage infrastructure absorb new technologies and connections needed in the energy ecosystem of tomorrow. It could help others extract value from their existing investments in hydrocarbon technology, extending existing platforms to newer, cleaner energy assets. By embracing the cloud ecosystem as an incubator of innovation — and the fabric that connects everything — companies can accelerate progress, engage with customers in new ways and enable a quicker, more predictable evolution of our industry.
We see a future where energy and utility companies think of their technologies, processes and business outcomes as part of one connected platform that is flexible enough to scale and grow as the organization needs to evolve.
As energy and utility companies consider emerging technologies, it’s important for tax to have a seat at the table — whether for large-scale transformations, ERP and cloud modernization, even special projects like ESG reporting or emerging tech and cleaner energy-related pilots. Yet, in our January 2022 PwC Pulse Survey, just 30% of chief information officers (CIOs) said their company’s tax leaders were part of the planning process for digital initiatives. It can be a game changer to bring tax into strategy conversations from the start, sparking funding innovation. As an example, tax can help to bridge the cloud value gap — reducing the cost of operational and cloud transformations by leveraging federal incentives such as R&D credits as well as various state and local incentives.
Also, with increasing complexity and fluidity around US and global tax policy, it’s essential for tax leaders to be nimble and strategic allies. They can help the C-suite navigate the evolving situation, while leveraging available credits and incentives that can help to achieve cleaner energy goals. This is another area where adaptability and agility can emerge as core capabilities. Right now, energy and utility tax leaders have an unprecedented opportunity to change the thinking around tax — from being a consequence of business decisions to one that drives value for the business.
With today’s rapid pace of technology and the need to strategically reinvent the industry, it’s important for people to evolve along the same trajectory. Within a company’s current culture, there may be some long-established and unspoken codes or behaviors that seemingly work against the adaptability, agility and innovative mindset needed for the energy transition ahead. As an example, could utilities’ risk-averse and safety-first culture foster a reluctance to explore new ideas because of the risk they won’t pay off? What about the cultural implications of the boom or bust cyclical nature of the oil and gas industry? All valid questions. But, the converse is also possible. We believe that what the industry is known for can be harnessed and expanded, unleashing the positive aspects of existing culture to innovate through the energy transition.
The Katzenbach Center suggests that you can’t change your company’s culture, but culture can evolve and be energized by focusing on a critical few behaviors that can help an organization achieve its strategic and operational objectives. We see leading companies succeed when they approach cultural evolution and innovation like this:
Fueled by growing interest and increasing clean energy investments, there’s an unprecedented opportunity for energy and utility companies today. This opportunity comes with urgency, or a need to swiftly take steps to confirm that strategy, capabilities, technology and people are teed up and moving in the right direction toward achieving the promise of tomorrow. In the simplest of terms, what’s next for industry can be boiled down to these three actions:
Moving the industry forward will take the right capabilities, technologies, business configurations and culture. We’ll help leaders prepare for what’s next by exploring these topics and more:
Emerging technologies and cloud-based solutions will play a crucial role in the energy transition, helping to usher it in at a lower cost and faster pace. We’ll examine how companies can accelerate progress, engage with customers in new ways and enable a quicker, more predictable evolution of our industry.
Energy and utilities face tough competition recruiting or retaining workers with the right skills for a cleaner energy future. We’ll explore how the industry can compete in one of the tightest labor markets, plus what capabilities will be crucial to move the industry forward.
To remain relevant in the evolving ecosystem of tomorrow, energy and utilities must reimagine the value proposition for customers, shifting from a commodity to service provider. The cleaner energy transition may call for exploring new strategic partnerships, aligning to your customers' values and transforming core capabilities.
Record-long supply lead times, labor shortages and rising material costs pose unique challenges for the energy and utilities industry, where companies commit to the timing and budget for capital projects years in advance. How can the industry rethink supply chain and procurement, while increasing visibility, flexibility and resilience?
Energy, Utilities and Resources Consulting Leader, PwC US
Energy, Utilities and Resources Trust Leader, PwC US
Principal, Strategy&, PwC US