A perspective on digital transformation in the Dutch market | Energy, Resources & Industrials | Deloitte Netherlands


Power & Utilities; A perspective on digital transformation in the Dutch market

The power and utilities sector is in a period of disruption and transformation and a wide array of new players want in. This blog takes a local perspective and assesses the digital transformation of companies operating in the Dutch power & utilities market. How digital have these companies become and what is the impact of the unique Dutch market structure?

Brief introduction to the Dutch Power & Utilities Market Model and Key Priorities

According to a recent Deloitte survey[1] digital transformation is a top strategic priority for 95 percent of the power executives. Based on this survey Deloitte posted a blog that discusses these results from a global perspective.[2] In contrast, this blog takes a local perspective and assesses the digital transformation of companies operating in the Dutch power & utilities market. How digital have these companies become and what is the impact of the unique Dutch market structure?

The Dutch power & utilities market is characterized by its “Supplier Market Model” that has been effective since 2013 and supports a competitive energy market in the Netherlands. In this model energy producers and energy suppliers operate in a free and competitive model, whereas transmission and distribution operators operate in a regulated model. Consequently, suppliers are in competition for customers that regularly switch between suppliers, increasing the risk of a commodity trap with margins under pressure. In this model the Netherlands Authority for Consumers and Markets (ACM) ensures fair competition between all companies involved in the energy market and protects consumer interests.[3] Besides the traditional companies operating along the value chain, Energy Data Services Netherlands (EDSN) is a dedicated organization that provides central market facilitation services to the Dutch energy value chain. EDSN acts as the open central data hub that facilitates a free flow of information between companies involved in the energy value chain.[4] In essence, this company facilitates the whole energy market by sharing information between all parties.

A key topic in the power & utilities market in the Netherlands is the energy transition. There is opportunity in digital technologies to enable and accelerate the energy transition, both at the industry and consumer side. This opportunity is driven by the increase in electricity demand, decentralization of production, unpredictability of renewable energy, energy consumers becoming prosumers[5] and required infrastructure optimization to accommodate for the energy transition. Moreover, the opportunity can come in different forms; think of smart home appliances, smart grid meters, energy storage at different points in the value chain or smart infrastructure.

Digital Transformation in the Dutch Power & Utilities Market

Depending on the position along the energy value chain, digital transformation provides opportunities for the parties involved in the Dutch Market – and the majority of them are taking actions along five steps to consider in digital transformation.

Chart the path: The first step is to recognize that the transformation to “being digital” will be a substantial, significant, and a long-term undertaking. It’s an ongoing process that won’t end anytime soon. Start by defining your organization’s ambitions and then chart a path to success by developing a roadmap to achieve those ambitions.

  • The paths charted by the Dutch power & utilities companies are shaped by unique value chain dynamics. Most visible is the difference in ambitions relating to the value chain position. Companies fulfilling the transmission and distribution functions mostly focus on increasing reliability and security of supply, safe operations and facilitating the energy transition through infrastructural changes enabled by digital technology. Companies operating in the production and supply markets have a stronger focus on leveraging digital technologies to better match supply & demand, opening up the energy market, increasing customer retention and developing and delivering new services. Regardless of position in the value chain, digital technology is recognized and leveraged as a tool to improve operational performance, win customers and optimize customer experiences.

Develop innovation capabilities: It’s important to establish repeatable innovation capabilities to continuously supply the business with a robust pipeline of digital projects. Ideally, the innovation process will enable your organization to rapidly design, test, and iterate each concept through to launch.

  • Digital capabilities are recognized as key by Dutch power & utilities companies, to meet customer demand and expectations, stay relevant and facilitate the energy transition. As a result of increasing pressure from start-ups and new digital entrants invading the energy market, incumbents are actively developing these capabilities regardless of their position in the value chain. This is especially true for companies operating at the consumer side of the energy value chain. For example, it is no surprise that a supplier has created a direct competitor to Google’s Nest. Nonetheless, as of today no dominant party within this space has emerged.

Develop or acquire new technology: Participate in a technology incubator, start a venture capital organization, or consider investing in or partnering with technology companies to develop innovative products, services, or business models and test use cases.

  • New digital technology is obtained by Dutch energy companies, typically through innovation hubs, co-innovation, acquiring start-ups and developing inhouse innovation capabilities. Blockchain, AI, IoT and Big Data based innovations are currently actively being explored and developed and are gradually dripping into the market. Key to many of these innovations is cooperation between multiple parties including governmental, research and privately-owned organizations.

Transform culture: Cultural transformation involves not only adopting new technologies but incorporating a digital mindset into the DNA of your organization. This requires developing processes to encourage experimentation and innovation as well as a transformation that introduces organizational, operational, and behavioral changes and instills them enterprise-wide.

  • Cultures take a long time to transform but steps have been/are being taken to transform culture. Digital and Agile practices are being adopted by energy companies to drive transformation in ways of working, mindset and ultimately organizational cultures. The cultures of these former state-owned companies have already transformed considerably in comparison to their starting point.

Invest in a digital foundry: This is a hub for all digital activities—a dedicated function that can continuously ideate and carry concepts through implementation. It will use new skill sets and new ways of thinking, such as Agile and design thinking.

  • Although most companies have some form of digital foundry, no foundry is the same. Whereas the transmission company mostly focusses on large scale projects on a (trans)national scale, distribution and supply companies focus more on local/customer-focused innovation through innovation hubs and co-innovation with municipalities, universities or other research institutes.

Digital Transformation: a lot of potential, but not a ‘fix all’ solution if it stays siloed

In summary, Dutch power & utilities companies have all kicked-off their digital transformation journeys to some extent – some are more mature then others. Given that the Dutch Supplier Market Model has a different focus depending on the position in the value chain (e.g. more on customer retention for suppliers, more on reliability and safety for operators) some have already progressed quite far on their journey. Their ambitions and journeys are widely unique and shaped by their function in the value chain for which the impact of the unique Dutch market conditions can’t be underestimated. However, the end is not yet in sight given that the cultural change and development of digital capabilities seems to be lagging.

                Furthermore, due to the unique market characteristics there is a high untapped potential for digital innovation. The traditional players have ideas, but non seem to really stick. Therefore, there is still a lot of untapped potential which could be fulfilled by both utilities and non-utilities companies.

                More importantly, digital transformation is by no means a silver bullet for value chain crossing topics. Digital transformation is not a “fix all” solution if it stays siloed. Digital technology must be combined with infrastructural developments and aligned with horizontal strategic drivers and realistic ambitions that enable the functioning and improvement of the energy value chain.

More information?

To learn more about Digital Innovation in the Power and Utilities sector from a global perspective, please see our Deloitte report Digital Innovation: Creating the Utility of the Future.

If you have any questions or would like to discuss opportunities, please contact us.

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