Next in energy and utilities: The future of cleaner energy: PwC

The power, utility and energy industry has a once-in-a-generation opportunity. Not only can it take a leading role in making its own cleaner energy future a reality, but it can help customers, communities and society accomplish this goal as well. Over the next decade, the lines will continue to blur among the industry’s traditional companies, emerging players offering new products and services as well as other adjacent industries, like transportation and manufacturing. Tomorrow will be more complex, less linear and more converged — looking nothing like today. At the same time, shifting policy, geopolitical uncertainties and technological advances will remain an undercurrent, shaping the path forward.

Industry leaders should bring into focus the role they want their companies to play in this new energy ecosystem, the path to get there and how to bring stakeholders along on the journey. The industry has the opportunity to be the author of its own energy transition story, rather than allowing others to define the narrative. Ahead, we explore what’s next for energy and utility companies.

“The industry has the ambition and know-how to lead the cleaner energy transition. Strategic reinventors will find new ways to create value, while moving the industry forward.”

Dan WhighamEnergy, Utilities & Resources Consulting Leader, PwC US

Convergence of good intentions and muscle to make it happen

By committing to net zero goals and accelerating their environmental, social and governance (ESG) journey, many leading energy and utility companies are starting to define the positions they will take now and during the transition. Even those who first saw this as a passing storm to be weathered now see this as the opportunity that it is: An opportunity for the industry to reinvent itself — fundamentally changing the way it operates. This includes keeping the attributes that have served the industry well over its long history, while sunsetting what no longer serves a purpose in the energy ecosystem of the future.

It can be argued that no other industry is better positioned to do this. After all, the industry has more than 100 years of experience in meeting the needs of a growing and evolving society all while providing reliable, affordable and safe energy. Today’s industry players have several key differentiators on their side: expertise in engineering, infrastructure, science and energy markets, to name a few. When faced with a challenge the industry rallies — from creating technologies that can capture carbon or pinpoint energy sources miles underground to mounting massive efforts to restore power in the wake of extreme weather. What’s ahead is the rally of all rallies. It won’t be an easy task, but it’s one that the industry is well primed to shepherd through with decarbonization at the heart of strategy, supported by the right capabilities, technologies, business configurations and culture.

Balancing the promise of tomorrow with the responsibility of today

While the industry has the opportunity to lead the energy transition, it first needs to find a way to straddle bold ambitions for the future with very real, present-day obligations. Many are working to find the right footing in what can feel like paradoxical challenges or questions. Here are some of those top-of-mind questions, with many more weighing on today’s energy and utility leaders.

How do we…

Deliver the energy needed to meet growing demand for net zero sources, when the bulk of energy still comes from hydrocarbons?
Balance the intermittency of renewables with the need for reliability?
Embrace innovation without compromising reliability or safety?
Invest in new technologies while keeping prices down for customers?
Work with capital markets to deliver near-term profitability while creating long-term value?
Recycle capital, or find new purpose for assets that are still on the books, to avoid stranded assets?
Protect critical infrastructure from cybersecurity and other threats while introducing new technologies and connections into the grid?
Manage geopolitical dynamics and potential risks while balancing a desire for energy independence with continued cross-border interdependence?
Recruit or retain workers with the right skills for a cleaner energy future in one of the tightest labor markets?
Keep costs down while facing record-high inflation and ongoing supply chain uncertainty?

The ability to answer these questions certainly relies on external factors, like continued policy and regulatory support and cross-industry collaboration. Internally, it’s more important than ever to be able to prioritize, identify and act on effective drivers in the value creation ecosystem. This isn’t about trying to be all things to all people. It’s about doing the right things for the right reasons, and setting that as the North Star for strategy resulting in continued relevance in the new energy economy.

The strategic reinventor will find new ways to create value

We see strategic reinventors emerging as the leaders (and survivors) in the cleaner energy transition. This means those who can successfully reconfigure their portfolio, offerings and business model by either doubling down on efforts to become true integrated players in the energy ecosystem of tomorrow or finding attractive niches based on differentiated capabilities. Strategic reinvention can take several forms.

Strategic reinventors will need to put a stake in the ground as to who they want to be and then make it a relentless enterprise-wide goal to operationalize the vision. There are many paths forward that will likely include making strategic choices to build, acquire, divest portfolios and consider new business partnerships. Ultimately, success hinges on evolving the operating model of today to support the desired future state, shifting from incremental and demand-aligned investments to purpose-driven ones.

The industry’s flywheel is wobbling … now what?

For most industries, building a flywheel system is the answer to working toward a strategic goal. This term references the moment where all of the hard work to create efficiency and forward motion results in momentum that powers the whole enterprise forward.

To a large extent, the energy and utilities industry already has this flywheel, enabled by an established infrastructure, an often captive customer base and an embedded commitment to continuous improvement. But with the degree of disruption and change entering the picture, the industry’s existing flywheel is in question. Driving this are a number of unknowns. What happens when some of your assets are no longer needed? What if someone else can provide what you’ve historically provided — like commercial and industrial customers generating their own sources of energy? Who will invest in existing energy sources when corporate boards force capital discipline, demand goes up, supply capacity declines and commodity prices increase?

Adapting the flywheel will likely be needed to sustain momentum toward a new value equation — one that ties challenges facing society to an increasing value proposition. There could be different flywheels depending on the role you play in the energy transition. As just one example, it could mean shifting the current flywheel away from energy extraction through delivery to one centered on lower carbon solutions that can reduce risk, improve customer and employee satisfaction, and deploy capital funding. In order to create this effect, resource companies may need to demonstrate lower carbon investments to improve customer satisfaction or operational efficiencies, thereby justifying the need for increased capitalization and increasing lower carbon investments.

Key considerations for energy and utilities

Adaptability and agility are now THE core capabilities

Moving at the speed and scale needed for the cleaner energy transition requires both the adaptability to consider and respond to today’s challenges as well as the agility to to take swift and decisive action. To a large extent, the industry recognizes how critical this is to future success. In fact, in the PwC Pulse survey: Executive views on business in 2022, energy and utility leaders named increasing agility to better operate in a turbulent environment as one of the most important factors for future growth.

Adaptability and agility are needed across all areas of the business — from the cross-functional teams piloting new technologies and testing new practices to the tax functions nimbly leveraging local, state or federal incentives to help bring even more value to the business. Leaders must relentlessly prioritize the areas that can bring more enterprise-wide value with these rising to the top:

Capital efficiency — Create innovative ways to recycle (repurpose) capital investments, pursue M&A to capture growth opportunities, leverage tax incentives for renewables and lower carbon solutions or use tax to unlock cash in business transformation.
Beyond digital transformation — Start with your big challenge and build, buy or collaborate to create the differentiated capabilities and technologies around it.
Enhanced experiences — Garner data-driven insights to rethink customer engagement and deliver new, seamless, exceptional experiences.
NextGen assets — Leverage data to make informed decisions, optimizing the performance and health of physical assets and tracking progress toward carbon reduction targets.
Regulatory — Nimbly navigate the changing regulatory environment to enable economic business cases and create pathways to sustained growth.
Workforce — Employ strategies to attract and retain a workforce with the skills and agility to support the move to the cloud as well as the broader energy transition.

The great enabler of the energy transition

With adaptability and agility being crucial skills to bring to the table, emerging technologies — enabled through cloud — can help to bring innovation to life. A majority of energy and utility companies are counting on it. In the PwC US Cloud Business Survey, 60% of energy and utility respondents said they view cloud as a platform for innovation that is central to their company’s business strategy and critical to growth. They’re hoping that cloud delivers on its many promises, including helping to drive standardization, resiliency and ESG strategies. Turning that hope into reality is another matter. Across industries, 53% of companies say they have yet to realize substantial value from their cloud investments. While there is a gap there, the flip side is that 47% of peers are already seeing value out of emerging technology and cloud investments, and it’s still relatively early in the adoption.

We see the momentum continuing, with emerging technologies and cloud-based solutions playing a crucial role in enabling the energy transition at a lower cost and faster pace. This could include helping today’s transmission, distribution and storage infrastructure absorb new technologies and connections needed in the energy ecosystem of tomorrow. It could help others extract value from their existing investments in hydrocarbon technology, extending existing platforms to newer, cleaner energy assets. By embracing the cloud ecosystem as an incubator of innovation — and the fabric that connects everything — companies can accelerate progress, engage with customers in new ways and enable a quicker, more predictable evolution of our industry.

Having the right mindset: View “the cloud” as not a singular destination or a series of efforts, but as the connective tissue that enables broad business transformation. If you’re not planning ahead to adjust your operating model, your teams and create new ways of working, you could be off track.
Connecting the unconnected: Find the end-to-end interconnections that increasingly matter — from home EV charging or customer payment apps to your operations or infrastructure. Take a holistic view that helps you connect your people, customers, assets and information in new ways.
Focusing on outcomes: Prioritize and target business outcomes aligned to strategy, and then build what can help you achieve it. Prove the technology and solution can deliver value early in the process through rapid prototyping that allows you to make incremental improvements at the speed and scale needed. Even small wins advancing the business can build momentum quickly.

We see a future where energy and utility companies think of their technologies, processes and business outcomes as part of one connected platform that is flexible enough to scale and grow as the organization needs to evolve.

Unlock tax as your strategic advantage

As energy and utility companies consider emerging technologies, it’s important for tax to have a seat at the table — whether for large-scale transformations, ERP and cloud modernization, even special projects like ESG reporting or emerging tech and cleaner energy-related pilots. Yet, in our January 2022 PwC Pulse Survey, just 30% of chief information officers (CIOs) said their company’s tax leaders were part of the planning process for digital initiatives. It can be a game changer to bring tax into strategy conversations from the start, sparking funding innovation. As an example, tax can help to bridge the cloud value gap — reducing the cost of operational and cloud transformations by leveraging federal incentives such as R&D credits as well as various state and local incentives.

Also, with increasing complexity and fluidity around US and global tax policy, it’s essential for tax leaders to be nimble and strategic allies. They can help the C-suite navigate the evolving situation, while leveraging available credits and incentives that can help to achieve cleaner energy goals. This is another area where adaptability and agility can emerge as core capabilities. Right now, energy and utility tax leaders have an unprecedented opportunity to change the thinking around tax — from being a consequence of business decisions to one that drives value for the business.

Evolving without losing sight of the culture that defines you

With today’s rapid pace of technology and the need to strategically reinvent the industry, it’s important for people to evolve along the same trajectory. Within a company’s current culture, there may be some long-established and unspoken codes or behaviors that seemingly work against the adaptability, agility and innovative mindset needed for the energy transition ahead. As an example, could utilities’ risk-averse and safety-first culture foster a reluctance to explore new ideas because of the risk they won’t pay off? What about the cultural implications of the boom or bust cyclical nature of the oil and gas industry? All valid questions. But, the converse is also possible. We believe that what the industry is known for can be harnessed and expanded, unleashing the positive aspects of existing culture to innovate through the energy transition.

The Katzenbach Center suggests that you can’t change your company’s culture, but culture can evolve and be energized by focusing on a critical few behaviors that can help an organization achieve its strategic and operational objectives. We see leading companies succeed when they approach cultural evolution and innovation like this:

Establish a clear vision and goals: Innovation and cultural change needs to be grounded in purpose. Create a common vision and success factors across the entire organization that go beyond financial goals and constraints. Make sure everyone knows what you are doing, why it’s important and the impact it can have on society.
Define the behaviors that will contribute to the goals: These are behaviors that exist within your organization and if executed repeatedly by more people will move the habitual ways of working into better alignment with your organization’s strategic and operational objectives. As an example, one international oil company prioritized four critical behaviors and deployed them across a series of pilots leading to measurable business performance improvements that were directly attributable to the behavior change.
Strive for quicker wins: Accelerate innovation through rapid prototyping and shorter testing cycles, making small shifts based on results. Many are doing this today by building EV charging infrastructure, blending lower carbon fuels, leveraging carbon management technologies and testing new ways to engage customers. But, to operationalize across the enterprise, this iterative mindset should be applied across every initiative: from back office transformation or tax strategy to workforce or asset management.
Shift away from project-based mindset: Break away from people organized in functional silos and temporary project teams by adopting an approach where people are organized by value streams. The funding model should also shift from project to a portfolio — the overarching business outcome versus the technical implementations and other components that contribute to that outcome.
Break down silos to assemble diverse teams: Move beyond titles, reporting lines and job descriptions to bring together whatever skills and experience are needed. Blurring the boundaries among functional teams — from operations, engineering and IT to finance, regulatory and customer — enables the team to jumpstart innovation and narrow the gap between what needs to be done (from a customer or operational perspective) and what can be done quickly (from a technology or regulatory standpoint).

The wave of opportunity

Fueled by growing interest and increasing clean energy investments, there’s an unprecedented opportunity for energy and utility companies today. This opportunity comes with urgency, or a need to swiftly take steps to confirm that strategy, capabilities, technology and people are teed up and moving in the right direction toward achieving the promise of tomorrow. In the simplest of terms, what’s next for industry can be boiled down to these three actions:

Decide who you want to be … and own it: Industry players can be at the heart of making this cleaner energy future a reality. This is the moment to shine front and center, or take a step to the sidelines.
“Be” the solution and double down on finding connections: Success means finding new ways to connect what was once disconnected — both in the broader energy ecosystem and within your own company.
Keep strategy at the heart of everything: Strategic shifts as massive as taking a leading role in creating a carbon-free tomorrow can’t become real until the business reallocates the capital, talent and other resources needed to put them into effect.

More from our ‘Next in energy and utilities’ content series:

Moving the industry forward will take the right capabilities, technologies, business configurations and culture. Prepare for what’s next by exploring these topics and other key focus areas for energy and utilities:

Creating more customer value
Rethinking supply chain
Enabling innovation
Evolving your workforce

Creating more customer value

Retaining customers and growing your business

To remain relevant in the evolving ecosystem of tomorrow, energy and utilities must reimagine the value proposition for customers, shifting from a commodity to service provider. The cleaner energy transition may call for exploring new strategic partnerships, aligning to your customers' values and transforming core capabilities.

Rethinking supply chain

Building resilience to prepare for tomorrow

Record-long supply lead times, labor shortages and rising material costs pose unique challenges for the energy and utilities industry's cleaner energy transition. Growing and investing to move the industry toward a cleaner future calls for a new supply chain value equation. Explore the new formula for success as well as immediate and more transformative steps to fortify your supply chain.

Enabling innovation

Connecting customers, field and assets in new ways

Emerging technologies and cloud-based solutions will play a crucial role in the energy transition, helping to usher it in at a lower cost and faster pace. We’ll examine how companies can accelerate progress, engage with customers in new ways and enable a quicker, more predictable evolution of our industry.

Evolving your workforce

The evolving energy and utilities workforce of the future

With increasing pressures to meet a cleaner energy future and growing customer expectations, energy and utility companies continue to embark on transformational journeys involving new technologies. Getting it right goes beyond successfully implementing a new system, it requires creating lasting, or sustainable, change throughout your workforce.

Next in energy and utilities: The industry’s role in the future of cleaner energy