EU&R companies have to rethink their purpose
13/08/19
Transformation as a great opportunity
Recently, PwC published its new strategic vision on climate change, rising energy demand, technological opportunities and the consequences of these developments for global Energy, Utilities and Resources (EU&R) companies. "EU&R players are facing a transformation of an unprecedented scale," says Jeroen van Hoof, Global Utilities Leader at PwC. "Leaders of these companies should embrace this change. It’s not just a threat but also a great opportunity to build something new."
- Are business leaders in EU&R industries sufficiently aware of the situation?
Van Hoof: "I’m more then certain they are. The majority of CEOs in EU&R companies and affiliated energy and resource-heavy industries recognize the need to reduce carbon emissions. They’re convinced this is a serious matter and recognise the unavoidable route for a comprehensive transformation, but the complexities remain daunting. Some of these companies may still be contemplating what course of action to take, but to be honest, most of them working in this field are already moving towards low carbon solutions. They are thinking about, and experimenting with, innovative solutions and new business models for their sectors."
- What has caused the current challenges?
"Essentially, there are two main dynamics at work which spark this transformation for EU&R companies. On the one hand, there’s a rise in energy demand and, on the other hand, there’s the recognition that carbon use, like increased use of many other (scarce) resources, are a threat to the climate. By 2040, we expect the global demand for all forms of energy to be four times what it was in 1990. At the same time, the issue of climate change has moved to 'pole position' on the global political agenda driving increased legislation. Companies everywhere will have to address climate-related problems and dramatically decrease carbon use."
- The report distinguishes four factors that determine these challenges. Why are they important for EU&R companies?
"First of all, there’s the above-mentioned decarbonisation and the sustainability agenda. No matter how EU&R companies view climate change, it’s clear that their stakeholders, customers, financiers, employees, regulators and the wider public are increasingly insisting that energy and related products must be cleaner and less carbon-intensive."
"Furthermore, we expect continuous pressure on consumption of many different scarce resources. Resources in high demand include both the natural resources that EU&R companies supply but also include the financial resources available to them. Global population growth and the growth of the middle class (mainly in emerging economies) mean that increasing demand will be an issue if supply does not increase accordingly. Also, more circular ways of use will become more and more attractive.
Digitisation and technology advancing, along with urbanisation, are major factors in addressing these challenges. Data analytics, artificial intelligence, augmented and virtual reality, will provide opportunities for solutions to cope with the challenges described. The same is true for more energy-specific related innovations, such as cheaper renewable energy (solar and wind power production), the emergence of hydrogen, battery storage and carbon capture and storage.
Finally, there is decentralisation and customisation. Both - again supported by digital solutions- are enabling individuals and local communities to more efficiently produce, use and sell their own (renewable) energy at a local level. At the same time, this creates new channels for accessing, selling and buying energy. Like in many sectors, consumers want to be more involved than in the past. Digitally enabled retail channels, like in many industries, make this possible. This, in turn, enables companies to provide new combinations of products and makes the EU&R sector attractive to new unexpected entrants to the market."
"Essentially, there are two main dynamics at work which spark this transformation for EU&R companies. On the one hand, there’s a rise in energy demand and, on the other hand, there’s the recognition that carbon use, like increased use of many other (scarce) resources, are a threat to the climate."
- Which EU&R companies will be most severely affected?
"There will be direct consequences for a wide range of companies: producers of all forms of energy, disseminators and sellers of electric power, oil and gas companies, but also energy-based process industries such as chemicals and steel; and producers of other extracted commodities. Leaders in all those businesses will need to make and execute decisions that combine growth with environmental sustainability, often in ways that haven’t been done before or don’t even exist yet. Circularity and sector coupling will play an increasing role."
- When EU&R companies decide it’s time to transform and prepare for a sustainable future, what kind of an approach should they take?
"At PwC we distinguish four building blocks that appear in any successful transformation, including EU&R companies. First of all, a company should articulate a single desirable future and focus all its efforts on achieving it. Second, any company should ensure that it’s attracting and deserving the commitment and trust of everyone related to the enterprise, in particular customers and employees. Thirdly, the organisation should test new practices in an intensive, experimental, startup-style environment. It should pick the approaches that work and support them all the way from start to scale throughout the larger system. The fourth building block focuses on saving what’s best from the past (treat your legacy as an asset) and using the income from this legacy to fund the future."
- Under these circumstances, what course of action should companies take?
"Determining the best response will be different for each individual company. It will depend, amongst others, on the subsector an organisation operates in, the specific assets it operates, its coupling to other adjacent companies (suppliers and clients) and on the place in the value chain where they are expected to move. But they all need to rethink their purpose, ask themselves what their assets are and review their current market position. Then they can start to develop new business cases. At the same time, as I said before, companies have to take care of their existing business. While they’re innovating and exploring new business models, they need to ensure they have sufficient capital and cash flow to stay alive and simultaneously innovate. In many cases, the new business models will be technology enabled, so there will also be a growing demand for different capabilities and a new culture in organisations. This last point is often underestimated."
Download the research report: "Transformation in energy, utilities and resources - Strategies to confront rising demand and climate threats".
"At PwC we distinguish four building blocks that appear in any successful transformation, including EU&R companies."
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