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E.ON splits: a sign of things to come? But the innovation challenge remains

The logic of E.ON’s announcement is compelling. It creates an old world (20th) century utility and a new world (21st) century utility. The former is centralised and asset led. The latter is decentralised and customer led.
 
We like to think we’re far-sighted. Four years ago we forecast, in a joint study with Accenture, that to thrive in the future utilities would need to develop new business models around distributed generation and energy services. We even held two ‘Energy Services in Europe’ Summits in 2010 and 2011. But we concluded that utilities were far from developing new business models based on service rather than supply. Maybe we didn’t sell the story sufficiently well to utilities. Or maybe those at the top of the organisations weren’t ready to really listen. Since then, progress on energy services has been slow (and thats being charitable).
 
E.ON’s announcement isn’t a bolt out of the blue. Utilities have been starting to talk up growth strategies around energy services. E.ON’s launched a new business unit, Connecting Energies and has made some interesting strategic ventures investments in the area. EDF’s chairman talked about a future where energy services played a key role in its company. Centrica’s investing heavily in its Connected Homes subsidiary.
 
But few companies have – in our views, and in the views of utility equity analysts - yet shown they can grow significant energy services revenues. We believe that to do this the ability to innovate is a critical asset. Our new WHITEPAPER describes the growing drivers for change and the rationale behind our view on innovation.
 
The institutional barriers in many large utilities are one of the key barriers stifling innovation. An asset led business- most utilities today- makes a small number of conservative 'big' decisions that have longstanding impacts. A customer focussed business needs to be nimble, make many small decisions, segment its customer base, iterate, learn, and pivot. Almost the polar opposite. 

Eons strategic split addresses this barrier. It doesn't guarantee that the new utility will succeed but it gives it a better chance of succeeding.
 
And we see benefits for a range of stakeholders
  • Investors: they now have choice to invest where they see value
  • Employees: each company has a clearer strategy and can play to its strengths. They can attract and retain staff with the right skills for the right business
  • Customers: the new utility will be able to respond to their needs faster, innovation will (hopefully) accelerate and customers will be offered a range of compelling propositions.
So yes it's a bold move. But a logical one. E.ON is facing a new future head on and is structuring itself according where the market is going. It now needs to transform itself in a customer-focussed, innovating, distributed and fleet-footed business. A hard decision has been taken. But the hard work how has to be done.
 
We’ll be launching new research on Innovation and Energy Services shortly – subscribe to our blogs to keep in touch. To find out more about Innovation and Energy Services please contact Nigel Timperley.

 

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Wednesday, 18 September 2019

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