Structural change and the Energy Market

Fujitsu’s Utilities Expert Graeme Wright addresses how structural changes are poised to shake up the Energy Sector.

The mood following the financial crisis is hard to characterise in simple terms, but it’s clear that all kinds of “big business” have been sucked into a cloud of negative public perception, along with banks and politicians. The common theme is a loss of trust in large, powerful, over-centralised organisations. The energy industry, rightly or wrongly, is in the suspect line-up.

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But what does “large” mean in the energy industry? Large utilities get economies of scale while serving the entire community. The point where sheer size stops being a benefit and starts being a problem is hard to call. It’s complicated by the key aspects of the industry: its need to plan and manage assets over very long terms, its extensive risk management obligations, and its relatively static, inflexible processes. SMEs can be nimble, take on greater risks and cherry-pick markets. We ask the large utilities to be reliable, durable, safe and universal.

The UK’s original 1990 model for the privatised and deregulated market was based on the separation of generation, transmission, distribution and supply in order to create competition. This was successful. But there has since been much vertical integration, with Suppliers now owning distribution and generation capability.

Clearly, there are benefits for suppliers in vertical integration – it’s the model in almost all other countries. Integration also looks like a strength in the evolving market. As generation becomes more local, being able to use data across the value chain to optimise costs and provide a resilient energy supply will become critical. Data protection legislation and the security issues around sharing massive amounts of customer data between different legal entities provide further encouragement for the integrated model.

The conflicts around size and control which are helping to reshape the energy industry echo events in the wider cultural sphere – notably in political events ranging from the Scottish independence referendum to the drift away from mainstream political parties across Europe. Wherever you stand on such issues, there’s no doubt change is coming to the energy industry: change that will affect the everyday lives of us all.

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