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Utilities issued stark ‘adapt or fail’ warning as energy transition takes hold

A group of six former energy leaders has warned today that the UK’s utilities must adapt to the energy transition if they are to survive. 

The warning comes from the likes of ex-SSE chief Ian Marchant, former RWE boss Volker Beckers and the previous National Grid CEO Steve Holliday, who’ve contributed to a new report issued today by Forum for the Future.

The report, titled ‘Wise Minds: The energy transition and large utilities’, argues that the energy system is currently changing “more fundamentally” than at any point since the industrial revolution.

It notes that since 2008, European utilities have lost more than €100 billion in value – Centrica’s value alone has halved – reinforced by the fact that the so-called ‘Big Six’ UK suppliers have witnessed their market share fall from 99% to 85% in the same time frame.

This transition, the ‘wise minds’ have concluded, is to benefit from four key drivers that have become commonly referred to within the industry as the four Ds; decentralisation, digitisation, decarbonisation and democratisation.

The decentralisation of power has been typified by the surging number of small-scale generators actively contributing to UK power demand. Having previously been supplied by as few as 80 generators, the country now has more than 900,000 independent providers of power at its disposal.

This goes hand in hand with a wider democratisation of power as consumers and communities take control of their power and share the ownership. The digitisation and decarbonisation of power meanwhile has been driven by huge technological trends and exceptional reductions in cost best shown in solar and onshore wind.

The radical pace of change has led the report to conclude that power utilities can no longer deny or prevent the transition from occurring. They can either “embrace or block” that shift, with the latter option dismissed as a “fool’s errand”.

Instead utilities have been urged to “own their own disruption”, with Ian Marchant suggesting that utilities would be best served by watching consumer trends carefully.

“There is now a ‘prosumer’ revolution, where ordinary people and businesses are both producing more energy, with more and more households and communities becoming generators, actively creating their future energy system,” he said.

However former energy secretary and contributor to the report Sir Ed Davey had a stark warning for utilities, suggesting that the companies that will dominate the future energy market either don’t exist yet or are currently occupying markets other than power.

Davey could be referring to the likes of Apple, Google or Amazon. The online companies are huge proponents of renewables, have extensive generation assets at their disposal and have been linked with possible energy supply launches in the past.

Furniture giant IKEA has also discussed how it could become an energy supplier given its significant wind and solar portfolio.

Will Dawson, associate director for energy and climate at Forum for the Future and lead author of today’s report, said now was the time for utilities to embrace the future.

“It’s important that the large energy companies that have dominated for so long are playing their part to the full so we don’t lose the expertise and valuable assets they have built up.

“That means rapidly making decentralised, community and smart energy systems their core business, not innovation trials on the side,” he said.