Executive Summary: ISG Provider Lens™ Power and Utilities - Services and Solutions - Europe 2023
To download the report for all quadrants, click the PDF on the right or the contact now button for access.
The individual quadrant reports are available at:
Commitment toward self-reliance driving investments in the European power and utilities industry
The power and utilities industry in Europe has always led the way regarding its energy sources mix. The region has a good combination of nuclear, conventional and renewable power generation and the options to choose among the utilities for its customers. While the regional supply of electricity and utilities is sufficient to address the local demand, Europe’s dependency on gas imports from Russia is a major challenge in the current geopolitical situation. The ongoing Ukraine and Russia conflict significantly increased gas prices, especially in the past winter when heating was necessary. On the other hand, water demand is met by supply within the region.
Energy inflation reached a record high in the region and exceeded more than 40 percent compared to the previous year.
European governments have allocated significant support to their citizens and businesses to reduce the impact of this inflation and utilities stepped up to invest in upgrading their infrastructure, a move toward achieving energy self-reliance.
ISG has helped several global organizations in their digital transformation journeys. It believes that building a competitive and sustainable power and utilities industry in Europe requires focusing on digital transformation, moving toward future utility, transforming grid operations, continuously improving cybersecurity practices, digitally enabling the industry workforce and continuously investing in strengthening technical and channel partnerships. ISG sees the following trends in the power and utilities industry in Europe:
Industry convergence: The distinction between oil and gas or power and utilities had demarcation until the early 2000s. The need for sustainable energy sources and net-zero targets started to blur the distinction between the industries and have started to converge, with companies journeying simultaneously to achieve sustainability goals and energy transition. The oil and gas and power generation companies have begun moving toward becoming new energy companies through green and sustainable efforts like renewable and hydrogen projects. The so-called brown industries have started to invest in clean technologies as a way forward to becoming green industries. The utilities are also moving toward not just being transmission and distribution companies or retailers. They are starting to invest in sustainable technologies like e-mobility or its related infrastructure needs. Decarbonization has been the critical factor for the industry convergence, which has led to unlocking the value of the companies and newer revenue streams.
Environmental protection and regulatory uncertainty: The global energy sector is moving toward sustainable clean energy sources due to the hype and issues around climate change and net-zero goals that have become the priority for the governments of the world and the United Nations. The European Commission’s REPowerEU Plan, presented in mid-2022 in response to the energy market disruption caused by the Ukraine-Russia conflict, is one such example that there can be sudden changes and uncertainty regarding regulatory requirements. These sudden changes to regulations and environmental protection policies add costs to power and utilities companies. Because they are in a capital-intensive industry, any change which results in unplanned investments can be hard on these companies.
Aging infrastructure and rising costs: Most nuclear and thermal power generation units are nearing the end of their lifetime and require upgrading or replacement with new-age units. Compared to the initial asset installation, the demand has also increased multi-fold, resulting in the maximizing the lifecycles of these assets and infrastructure. Even the first-generation sustainable power generation equipment such as wind and hydro turbines have almost reached the end of their lifecycle to be decommissioned. The current transmission and distribution infrastructure and its supporting grid infrastructure also face the challenge of needing an upgrade or replacement. Given the current energy needs in the region, power generation companies and utilities are compelled to run the assets at maximum output, resulting in faster wear and tear of the infrastructure. The cost of replacing the entire asset at once is next to impossible, therefore power generation companies are incurring increased costs.
Asset resilience and rising operating costs: As noted for the aging infrastructure to have sustainable value chain activities, power generation companies and utilities are more concerned about asset resilience. Due to the age of these assets, there are increased possibilities of unplanned outages. The average load uncertainty due to volatility in hourly demand also creates possibilities for unplanned outages and sub-optimal asset performance. This results in increased operational costs and an inability to meet the demand; therefore, asset resiliency services are much sought after so providers can maintain their current generation and distribution output.
Energy consumerism and customer expectations: The choice of selecting an energy supplier rests with the end customer. This has led to market reforms, linking the retail and the wholesale markets closer as consumers are provided access to information, especially on the costs and the source of energy generated, which is reaching the end customer. The open market policy in Europe has brought competition onto the wholesale market in keeping a check on the pricing levels. Given the environmental concerns, some customers prefer energy supply from a sustainable source, and some have even installed greener energy sources (solar PV) in their individual properties. This trend has increased consumer expectations for an enhanced experience from the initial touchpoint.
Future utility: Digital has been the buzzword for the future of the utility. To address the above observed trends and other business challenges, power and utility companies have started their digital transformation journeys by adapting new-age and next-generation technologies to address. Digital transformation in the power and utilities sector would enable moving toward sustainable sources, increase asset performance and improve customer experiences while also meeting regulatory requirements.
Access to the full report requires a subscription to ISG Research. Please contact us for subscription inquiries.