ISG Provider Lens™ Power and Utilities - Services and Solutions - Next-Gen IT Services - Australia 2023

Australia is transitioning from one of the largest fossil fuel generators to a renewable energy leader

The utilities industry of Australia is facing a scarcity of resources due to a spike in population, mass urbanisation and changing weather conditions. These challenges are further elevated by the dynamic changes in the regulatory landscape of the country. Consumers,  especially mid-income and low-income citizens, are also facing different challenges, including the increasing cost of living and high energy costs. Furthermore, the Amazon effect has increased the expectation from utilities by many folds, and customers expect superior CX  coupled with self-service omnichannel support and personalised advice to manage energy consumption on their premises.

Utilities were not keen on addressing challenges due to their high resistance to change and slow adoption of technologies. However, they are now proactive to regulatory changes and customer and market needs. At the same time, technology adoption is forming the next wave of disruption in the utilities industry. The industry is undergoing large-scale digital transformation, with a focus on investing in AI, IoT, data analytics and automation. Utilities’ operation leaders are focusing on the efficient delivery of products and services using  sustainably low-cost methods.

ISG, as an advisor that has helped several globally leading utilities navigate their digital transformation, believes that building a successful, competitive and future-proof utilities business requires a focus on strengthening the technological and digital foundation,  transforming grid operations, continuously improving cybersecurity, digitally enabling the workforce and improving CX through digital channels. Some of the key trends in the Australian power and utilities market are mentioned below:

Digital transformation is now a need, not a choice

Australia is one of the most urbanised countries in the world, and 80 percent of its population lives in urban areas. The electricity, water and wastewater management segments are under constant pressure to improve and invest in digital solutions to meet the demands of  its growing urban population and become resilient to weather disruptions. Data analytics and ML are identified as the technologies that are being adopted the most to improve power and utilities operations in the country. Half of the electricity retailers in the country believe that ML and analytics can help them improve customer-facing systems, which can enhance CX and reduce the customer churn rate. 

Pacing towards energy transition

Australia’s geographic location, favourable weather conditions (sunny and windy) and low population density support its aim to become a global leader in sustainable energy. Currently, Australia relies on coal as the primary source to generate electricity. In 2022, the  country produced 85 percent of its electricity from coal, followed by wind (6 percent), hydroelectric energy (3 percent) and solar energy (3 percent). In 2020, Australian Energy Market Operator (AEMO) announced a plan to generate 90 percent of electricity from  renewable sources by 2035. Furthermore, the Australian government has announced that it will not allow the operation of gas and coal generators after the retirement date and may plan to decommission them earlier if the country is able to achieve cost benefits from  renewable energy sources. The regulatory push has spiked the investment in renewable energy projects and generated $4.3 billion in just Q4 2022, which is 10 times higher than that of the previous quarter of the same year.

Rise of electric mobility

Australia is one of the largest per capita carbon emitters in the world, and transport is the third-largest source of carbon emission in the country. Electric vehicle (EV) sales were 3.8 percent of the total car sales in 2022, which indicated a lower number compared with  that of other developed nations. In April 2023, the country unveiled its electric vehicle strategy aimed at increasing the penetration of electric vehicles in the country. The Australian federal government has also announced plans to invest $70 million in grant funding for  charging infrastructure, which will be administered through the Australian Renewable Energy Agency (ARENA). As the number of EVs and charging facilities grows, electricity demand will increase, which needs robust planning of power grids’ capacities to meet the  demand for electricity. Recently, South Australia started vehicle-to-grid (V2G) bi-directional charging pilot projects, allowing electric car owners to get paid for feeding unused energy stored in EV battery back into the grid.

Rising cost of electricity

Post-COVID-19 inflation has resulted in a steep increase in the cost of electricity. According to a survey by the Australian Council of Social Services and AEMO, people who belong to the low-income category are compelled to take extreme measures to balance the  usage of energy. For instance, 65 percent are cutting down on heating and cooling; 59 percent are limiting the use of lights, and almost 60 percent are going without essentials to afford bills. In 2022, there was a 15 percent increase in the number of customers  participating in energy hardship programs, with half of them unable to meet current energy costs and the number with energy debts above $2,500 rising to 39 percent.

Increase in employee care to bridge the talent gap

As warned by the Australian Clean Energy Council, Australia’s renewable energy projects can be stalled as it may face a shortage of around 12,000 skilled professionals. Traditional utilities are also facing staffing issues, which makes it difficult for them to meet business challenges like sustainability and cybersecurity. Aiming at bridging the talent gap and creating a more sustainable world, utilities are rethinking how to position themselves as technology innovators and create job opportunities in the areas of renewable energy and cybersecurity. Numerous utilities also have enhanced the mental health benefits and learning and development opportunities offered to employees. Easy-to-use technology that delivers value is extremely important to enhancing employee experiences for  both office and field workers.

Regulatory push to improve cybersecurity

Cybersecurity has become one of the major needs for the utilities and government sectors, as even a small cyberattack can disrupt the necessary public and private operations and can result in a bigger threat to the social and financial stability of a country. To ensure  the cybersecurity of critical infrastructure, the Australian government launched Critical Infrastructure Risk Management Program Rules 2023 (CIRMP Rules). These rules state that entities responsible for handling critical infrastructure have six months to ensure they  have a risk management program that adequately addresses all hazards, including in four key risk areas: cyber, personnel, supply chain and physical security.

Rise of microgrids

Australia is a vast country with low population density and extreme weather conditions. Therefore, developing and maintaining transmission and distribution infrastructure is difficult and expensive. One of the solutions to this problem is the development of microgrids for remote areas. These microgrids can use the power generated by renewable sources and can be developed and maintained by local people. In 2021, ARENA announced the launch of the $33 million Regional Australia Microgrid Pilots Program (RAMPP) to support  microgrid pilot projects across Regional Australia. Recently Kalbarri, a Western Australian coastal town, has completed the development of the state’s largest fully functional microgrid. It is powered entirely by renewable energy solutions, utilising rooftop solar and wind  generation coupled with battery storage.

Energy trading infrastructure upgrade

In July 2021, AEMO transitioned the Australian electricity market settlement time from 30 minutes to five minutes. The new settlement period will take care of the growing share of renewable energy and distributed energy resources (DERs) and provide more flexibility to adjust to the increasing demand and supply variability. It will also improve price signals for efficient investment capacity and demand response technologies. The new settlement regime will generate an immense amount of data necessary for analytics,  intelligence and demand forecasting.

The regulatory push in Australia to increase the renewable energy mix, DERs and EV charging infrastructure will bring investments in grid infrastructure, digital transformation, AI, analytics and cybersecurity technologies, and CX solutions.

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