Utilities Next

COVID-19's Impact on UK Utilities: Challenges and Opportunities

 
August 21, 2020

Utilities generally are good in handling extreme weather conditions and short-term service interruptions. However, the months of lockdown and social distancing rules due to COVID-19 have pushed firms to take unprecedented steps to keep businesses going during this period. Amid the slow opening up and threat of a second wave of the pandemic, it remains uncertain how long the social and economic aftermath of COVID-19 will last.

Energy

Demand in the retail energy sector declined by 15%, pushing near-term electricity costs down. Similarly, wholesale energy prices are expected to remain low till all or most of next year. As incomes are impacted by COVID-19, the cancellation of direct debits by domestic consumers has increased three times and that for business customers by ten times leading to cash flow issues and bad debt.

Meanwhile, network companies and generators face challenges such as scarcely staffed control centres and restricted movement of operational outdoor crews. The reduced consumption, primarily by industries, has also negatively impacted these companies’ revenue. However, this is a short- to medium-term effect and the situation may recover as businesses return to normal operations.

UK-based regulator OFGEM expects network companies to catch up with backlogs. Failure to meet regulatory requirements may attract the same penalties as before, unless organizations can prove they were unable to do so due to government guidelines or as a direct result of the pandemic.

There is a push within the industry and from OFGEM for more transparency and to increase focus on customers and stakeholders through more targeted reporting, sharing of performance and collaboration. OFGEM wants companies to adopt digital platforms and enable data sharing and collaboration for better customer service. In response, companies are planning their investment strategies to adopt digital tools and data analytics technologies for the upcoming RIIO-2.

Network distribution companies are re-examining their strategy of transitioning from a distribution network operator to a distribution system operator driven by the impact of distributed energy resources. This will result in investment in new systems, processes, upskilling, and training of resources for the new functions to align with the post-pandemic world.

Water

Water companies too must keep water and wastewater services running, while complying with COVID-19-related government guidelines. At the same time, attending to customer complaints should at no cost be suspended due to social distancing protocols. Water consumption patterns have fluctuated with more people staying at home due to COVID-19 and this has caused an increase in sewer overflows and blockages.

Unpaid debts are on the rise owing to the economic instability. Water firms have just started to roll out their PR19 business plan starting from April 2020 but the pandemic has restricted them on multiple fronts: fewer people for field work, restrictions on construction work causing indefinite delays in capital projects. These factors will impact their customer services and financials in the short to medium term.

Utilities in the Post-Pandemic Era

To meet the challenges, utilities need to be resilient, adaptable, and purpose-driven to remain viable. To achieve these goals, they need to focus on:

  • Enhancing customer experience and building customer loyalty.

  • Maintaining viability by ensuring efficient and effective operations.

  • Leveraging ecosystem partnerships to collaborate and make supply chains resilient.

  • Implementing systems and processes to manage higher risks due to heightened uncertainties

We see companies increasingly adopting products that are nimble, born in the cloud, and designed to reduce costs and improve customer experience. Technologies like the internet of things, artificial intelligence, digital twins, augmented and virtual reality, and chatbots can help utilities improve customer experience, save on operations costs, and ensure safer deployment of the workforce.

Utilities need to redefine their purpose and move away from being single-service providers to becoming holistic providers offering products and services such as security and smart products for the home, electric vehicle services, peer-to-peer offerings, and storage services alongside traditional services. They need to do this in line with customer expectations versus what they can deliver.

Similarly, as DNOs transition to become DSOs, they can create value by introducing new services and products to enhance revenue lines but simultaneously develop capabilities to handle new data and entities in their operations and decision making.

The underlying key ingredient to make these changes successful is data that these companies hold in their various systems. A robust data strategy can help unlock new services and products focused on individuals through mass customizations, harnessing insights about customers and stakeholders. Similarly, technologies such as IoT allow collection of asset performance data that can be used to run predictive and condition-based monitoring models to deliver targeted interventions. Digital twins can perform ‘what-if analysis’ and monitor near real-time performance of assets and processes. All these if adopted will help companies to better manage their cost of operation in this challenging time.

To sum, utilities can respond to large-scale changes amid stringent cash crunch situations by adopting digitally-assisted business models underpinned by data and analytics. This requires carefully targeted and visionary business transformation initiatives.

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As the Head of Manufacturing & Utilities for the UK and Ireland at Tata Consultancy Services (TCS), Varun Kapur is driving business growth and digital transformation for several Fortune 500 companies by bringing TCS’ best practices and expertise on board. Varun has worked in a diverse range of industries and geographies, including India, the US, Middle East & Africa, the UK, and Australia. His expertise involves handling complex technology and business challenges that allow for effective cost optimization, transformation, innovation, and business growth. Varun has been instrumental in transforming TCS' Energy and Utilities vertical into a leading business unit within TCS UK.