by Matt Rennie, EY Partner, Global Infrastructure Economist
Much has been written about new energy sources and the customer as drivers of energy reform. But another factor is gathering pace and looks certain to deliver a greater impact on all aspects of a utility’s operation, and its relationship with stakeholders. Automation is coming – and how energy companies define and control its impact may be their biggest test to date.
Understanding the drivers of reform
Reform without purpose is futile. Understanding the drivers of each energy reform process and holding a clear view of where the market is now and where it needs to be, the specific circumstances of each country, its history and culture and particular barriers, is critical if reform is to meet objectives without delays and cost blowouts.
As many of the world’s energy markets wrestle with the challenges of reform, another change looms large. Automation – when technology takes over a task previously performed by people – is forecast to impact almost every aspect of utility company operations over the next 30 years. Of course, automation has already displaced many energy sector workers:
- Meter readers have been replaced by smart meters
- Call centre staff have been replaced by smartphone apps that allow customers to log outages and track maintenance times
- Line inspectors have been replaced by drones
But as the reach of digitisation and new technologies expand exponentially, more and more processes will be performed by robots or artificial intelligence. Automation is the ultimate fulfilment of the quest to ever perfect technique and remove cost.
Yes, digitisation creates jobs too – but not nearly as quickly as it culls them. By removing human capital, automation may represent the greatest energy reform ever to strike global energy markets.
The link between automation and inequality
Everyday energy companies make decisions to adopt new technologies to automate processes. When a task is automated, it’s through the application of technique.
That is, the expenditures of the company, both with and without the new technology, are determined, the technology is then purchased and implemented and corporate and culture changes are made to reap its benefits.
But for all these undoubted economic benefits, automation poses the genuine threat of increasing already high levels of societal inequality.
Of course, most utilities are aware that more automation means less people, but few follow the logic further. Are utilities considering how automating their processes will impact their company’s internal culture, employee morale – and society? How do these implications fit with a utility’s defined notion of purpose, which is their window to the world?
Benefits of a defined purpose
The benefits of purpose to utilities, and the countries in which they operate, have long been recognised. Put simply, purpose defines why energy companies exist. It helps them sift “on-strategy” tasks from the irrelevant.
It allows the development of KPIs that highlight exactly what achieving that purpose looks like. In this way, a defined purpose has challenged utilities to crystallise the reason they exist and what they are hoping to achieve.
They have found, in almost all cases, that what they and their customers value goes beyond profit. Outstanding service, freedom of choice, creating communities, alleviating hardship and powering developing countries are just some of the purposes identified.
Most importantly, knowing and understanding its purpose defines a utility’s targets. It also helps choose the technique employed to achieve these and – critically – it constrains those techniques, or parts of technique, that would lead it astray.
For example, requiring a technique of cost reduction may impact social obligations such as diversity. Each day, energy companies deal with these mild tensions through a clear view of what they stand for, which overrides the pure pursuit of profit through the unconstrained adoption of techniques.
Automation presents difficult choices
Automation is set to scale up these tensions quickly. Large utilities with a high degree of linear processes and which would profit most from mass unconstrained adoption of efficiency measures may experience this most intensely. Low margin businesses in highly competitive fields, such as energy retailers, may find that survival offers few options but to follow the path of automation.
Others will face a choice between their purposes and techniques. They will have to ask themselves what they stand for in terms of employment. They will have to consider their role in society and how to meet the expectations of their stakeholders, customers and employees.
The wrong decision that favors profit over purpose may prove perilous. Instead, utilities may have to consider how lessons learned from tackling other workforce challenges such as improving diversity of gender, age, background and orientation may be applied to the impacts of automation.
Is it time to design programs to employ people at high risk of losing their jobs through automation, such as the young, the old or the newly graduated?
How will the industry and the community as a whole judge those companies that prove their dedication to people within an environment where it is increasingly expedient not to use them?
True energy reform is choosing what you stand for
When utilities design for themselves a space in the future energy value chain it implies holding a certain place in society. It means accepting a role that balances the interests of stakeholders, government and customers. Purpose must span the interests of all of these.
As utilities transform, most are embracing changes through a strategic lens. They are investing in new energy technologies, seeking alliances and partnerships, and overhauling their business model.
But few are asking themselves what they stand for and how they balance their values in a world where technology offers us increased ways to skew returns dramatically towards one interest at the expense of another.
How will utilities balance the needs of their various stakeholders and weigh their responsibilities as an institution, an employer and a corporation?
As the world in which utilities operate changes, the need for companies to examine their purpose is more important than ever. Automation will create the greatest energy reform since 1881. Where will your company stand?