Intense is a good word for the electric utility business. Capital intense to be specific. Capital flexibility is another and may be even a better way to look at corporate financial health and the ability to serve utility customers.
Capital intensive industries require heavy investment in fixed assets simply to compete, to measure up, to serve customers well. In the utility industry assets that make, transmit and maintain electric service are big investments. It takes money to make money. It takes money to serve customers.
New technology can mean that a company has to spend money to stay up-to-date, or just tread water. The power industry is a poster child of technology change right now. Almost $23 billion in utility investments in the country is intense. “Bloomberg New Energy Finance reported investor-owned utilities and independent transmission developers increased investment to an estimated $22.9B. This is 10% more than 2016 levels and 91% over 2011.” (Source)
Big money, big increases. Utilities are capital-intensive in normal times, and need exceptional financial flexibility in normal times.
Is this a normal time? Unlikely.
Accelerated technical advances in electric power can easily need increased investments, especially combined with high customer expectations. A lot is expected. “Based on the experience of other industries, utilities can begin with more ambitious digital goals. They can plan confidently for transformative enhancements in productivity, reliability, safety, customer experience, compliance, and revenue management,” said McKinsey.
Innovation unlocks upside potential for utilities, and ECC adds, for customers, and maybe the regions where they operate. They are interdependent. “It’s vital for an [energy] organization to develop innovation capabilities that enable it to design, test, and iterate each concept speedily through to launch,” said one energy expert this summer. He adds, “Fostering an innovative company culture is another step towards setting an organization on a sound path for the future.”
Technical changes bolster the need for business and financial flexibility. “As utilities adopt renewable, digital and distributed technologies, we can see old electricity business models begin to shift and a new energy ecosystem form that prioritizes systems working together,” said Siemens Energy, which has a significant Carolina presence.
A well-planned, well-operated electric system is essential for society’s health and the welfare citizens. All of this costs, and money has to flow into the company even when …
Demand for the product is down. That’s right. “Over the last decade, the U.S. reduced its energy consumption by 2% while population grew 6% and GDP grew 15%. We are clearly doing more with less energy.” (Source) When the nation sees a recession, energy use can reduce further, too. That can mean less money into the utility that maintains the system. A further press on cash and flexibility. Rock/Hard place.
The best energy suppliers are agile. They know the decisions to make and have few financial constraints to make the right call for customers. They have a track record of being able to plan their work then successfully work their plan.
New utility investment is not debatable, but essential if we want a secure, efficient and reliable power supply.
That’s intense. Capital intense.