Big Energy Is Learning to Simply LOVE the Little Guy: Gadfly

Possibly Surprising Company Getting Into The Power Business

Apple

This expansion, in both consumer preferences and options for their power, as well as the shrinking growth opportunity, are why utilities are experimenting with different customer offerings in developed markets. If the old business was to simply build the biggest hosepipe of electrons, the one taking shape now involves helping customers manage their demand -- see Enel's EnerNOC deal -- optimize their sources of supply, and, if possible, sell them other services. As this (very simplified) chart of inputs and outputs to America's electricity system shows, there is clearly a big opportunity to do things differently if possible:

Even in emerging markets, where overall demand will keep growing, considerations around pollution (including carbon dioxide), capital availability and energy security mean equipment and services to boost efficiency and manage demand will be valuable alternatives to simply building more power plants and wires.

Similar to the oil majors, this pivot toward adding more value at the customer end rather than relying on a tight grip on primary sources of supply, while necessary, isn't going to be easy for utilities. Even for relative leaders in this, such as Centrica, retailing energy still generates two to four times as much revenue as services do, according to Bloomberg New Energy Finance.

And, again similar to what the oil business is experiencing in terms of shale supply and transportation markets, new entrants to the power game offer things like software, sensors, storage and services where traditional utilities haven't necessarily developed a competitive edge. That is partly because these things compete with the incumbent business model -- which, for now, remains highly profitable, blunting the instinct for change.

Like any other consumer industry, though -- cameras, vehicles, telephones, computers, clothing, books, groceries -- energy's 20th-century model is officially up for grabs. The industry's embrace of all things downstream is the surest sign of it.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

1. This chart is adapted from the Lawrence Livermore National Laboratory's fascinating sankey chart of U.S. energy consumption in 2016-(available here Take a look and you'll see also how much energy is wasted in the internal combustion engine which also helps explain why electric drive-trains are likely to keep gaining ground.

To contact the author of this story: Liam Denning in New York at ldenning1@bloomberg.net.

To contact the editor responsible for this story: Mark Gongloff at mgongloff1@bloomberg.net.