Utilities must ‘embrace rapidly changing energy market’

The ‘big six’ energy suppliers must change how they do business if they are to thrive in the future, to prevent the energy transformation leaving them behind, according to a new report by sustainability organisation Forum for the Future and the Friends Provident Foundation. The transformation will deliver an exciting and very different future for energy in the UK but, in order to avoid stranded assets, the big six must shift from centralised fossil fuel generation to focus on mainstreaming smart energy services and local renewables, says the report. 

The report suggests that forecasts for renewables and battery storage costs and deployment have been chronically underestimated, and that the speed of the energy sector’s transformation has caught the industry off-guard, leaving the incumbents fighting for a place in the future market. Investors are warned that the old-world business model of large power stations and passive consumers is being rapidly undermined by a decentralised, renewable, digitised and people-led approach.

Publication of the report came shortly after new figures showed that the number of British homes, communities and businesses now generating their own renewable power has risen to over 900,000, while the UK’s largest utility, Centrica, has reportedly lost 50% of its market value since 2013, according to Forum for the Future.

Two former energy company chiefs are quoted in the report. Ian Marchant, Chief Executive of SSE between 2002 and 2013, and a Past-President of the EI said: ‘There is now a “prosumer” revolution, where ordinary people and businesses are both producing more energy, with more and more households and communities becoming generators, actively creating their future energy system.’ Steve Holliday, UK Executive Director of National Grid between 2007 and 2016, and currently Vice President of the EI, added that: ‘Energy policy can either speed up or slow down the rise of renewables, storage and electrification of heat and transport, but it cannot stop it.’

Will Dawson, Associate Director for Energy and Climate at Forum for the Future, said it was now time for the incumbents to accept and embrace the revolution: ‘It’s important that the large energy companies that have dominated for so long are playing their part to the full so we don’t lose the expertise and valuable assets they have built up. That means rapidly making decentralised, community and smart energy systems their core business, not innovation trials on the side.’

Going further, Colin Baines, Investment Engagement Manager at Friends Provident Foundation said it was increasingly clear that the big six needed to develop new more resilient business models if they were to survive the ‘3D energy transition’ of decarbonisation, decentralisation and democratisation.