Interview with Geoff Tuff, principal at Deloitte Consulting LLC and bestselling author
Tuff is delivering a keynote address at the American Public Power Association’s 2021 National Conference in June.
Q: Deloitte’s Future of Energy scenarios, and your new book, Provoke: How Leaders Shape the Future by Overcoming Fatal Human Flaws, focus on navigating uncertainty. Are there any certainties when it comes to the future of the energy industry?
A: “Uncertainty,” like “digital” and “innovation,” has become an increasingly meaningless term. It has come to be used to describe any situation in which we don’t have all the data to be definitively certain. Especially as change accelerates, if we use that definition it will come to mean pretty much everything. So we like to differentiate between situations in which we don’t know if something is going to happen and situations where we know that something is going to happen, we just don’t know when, or at what scale.
There are some things that are genuinely uncertain. Take, for example, the possibility that a pandemic would kill millions and shut down the world’s economy for over a year. That had been considered a possibility for a very long time, but we were caught completely unprepared because most of the world listening to the prognosticators wondered whether it might happen rather than when.
But there are plenty of considerations related to the future of energy which might have been historically uncertain but are now demonstrably happening. Those are certain trends that we need to plan against, even if we don’t know everything about them. The world will continue to decarbonize. Innovation in renewable technologies will accelerate and their costs will come down exponentially. Global energy demand will continue to increase.
While we are living through an energy transition impacted by uncertainty, that doesn’t mean we should wait to see how it turns out before shifting our business models. It is a foregone conclusion that if you roll the clock forward 15–20 years, energy production and consumption is going to be fundamentally different. How it is going to be different is the billion- or trillion-dollar question … and those who act now have the chance to shape the outcomes if they can turn away from analysis of historical data and focus on driving the future in which they have advantage. That’s why I find this whole topic fascinating and exciting.
How can we best plan as a society which acknowledges that we have moved past the point of wondering if an overhaul of the energy system is going to happen to when it is going to happen? That is at the heart of the Future of Energy scenarios.
Q: What are the biggest changes that utilities will need to adapt to in our energy future?
A: The interesting challenge for any utility is to strike a fair balance between understanding how you deliver value through your system for your constituents today even as you pay attention to what the rest of the world is doing as signal for what might be possible to do – or necessary to avoid – in the future.
I have found that many utilities discount what is happening in other parts of the world because they operate in what are by definition regional – or in some cases hyper-local – markets, with unique license to operate and constraints. But the reality is that what happens in the rest of the world in terms of the energy transition will impact us: through the rate and nature of capital flows into new technologies, through the advent of new policy models, through the radiating impact on customer expectations, et cetera.
The good news is that utilities are on the forefront of actually delivering whatever energy solutions are available to their customer base, and therefore uniquely able to anticipate how needs are shifting. I would characterize the biggest change that we need to make as a shift from the old mindset of ‘delivering reliably at an acceptable cost’ to ‘innovating locally by paying attention globally, using customer insight as a core source of competitive advantage.’
I would characterize the biggest change that we need to make as a shift from the old mindset of ‘delivering reliably at an acceptable cost’ to ‘innovating locally by paying attention globally, using customer insight as a core source of competitive advantage.’
Q: Utilities are typically fairly risk-averse organizational cultures. What is the biggest threat to staying in a “wait and see” mindset for utilities?
A: We have for decades and decades lived in world of linear change. All of our businesses systems, reactions to policy, etc., have been implicitly built on the presumption of continued, somewhat predictable change. Over the past five years, that presumption has been challenged. Many technology advances these days are showing signs of being exponential in nature, in part because they are based on computing power which – thanks to Moore’s Law – has become one of the most famous examples of exponential change at work. But humans are pretty terrible at understanding the possibilities behind exponential change; we are genetically wired to live and survive in a linear world.
If you overlay an exponential curve on a linear curve, you tend to not see anything happening on the exponential until it crosses the linear curve. Once it crosses, it appears to come out of nowhere and shoot straight upwards. If that’s the first time you have paid attention to it, it will be way too late to react to it.
We’ve increasingly seen that companies that operate within a very specified industry can get blindsided by competition that seems to come out of nowhere because they have been operating – usually implicitly – based on a belief that linear change will continue. Digital native companies are often the ones best able to blindside the incumbents because they understand and take advantage of the power of exponential change.
We have enough data now to say that if companies don’t turn outward instead of inward and pay attention to ways they might be able to operate differently, there is increasing chance that someone else is going to come in and figure out a way to provide the service that they provide in a fundamentally different way — via a better experience or in a cost-advantaged way.
Even if someone is not going to come in and blindside you, it is inevitable that the energy system broadly will increasingly be using different sources of energy and different assets to deliver the services it delivers today. While it may be uncertain which of those energy sources will be the leader for any given application, the fact that they will shift is not.
If you are only planning the way you have historically, then you will be left behind — either by the regulators that impact your right to operate or by others who infringe on your territory because they are further down the learning curve around new energy sources.
What we’ve learned throughout our careers may be helpful in some circumstances but is actually going to be more of a constraint than if we are able to look at things differently. One of the best things about looking through the lens of scenarios is trying to imagine how we are or are not prepared for each of those versions of the future and what we can do to better prepare ourselves for any of them … even if we’re confident that none of the scenarios is definitely the way the future will turn out.
Q: How might public power utilities play a different role in the energy transition than private sector players or investor-owned utilities? Is there anything holding public power utilities back from being ahead of the curve on industry changes? Do they have any advantages?
A: The role of any utility, whether public or private, is the same. It is the operating conditions and both the constraints and the enablers that will differ. It is easier to point to all the constraints and things that an organization can’t do because of the environment it is plugged into. But the public power ownership model brings a whole bunch of enablers as well. The first thing I would pay attention to are those enablers and what we have access to that gives our model the possibility of lasting advantage against possible disruptors.
Public power organizations are in theory already connected with those that govern them with much greater system of insights than any private player. Just because you have operating conditions that provide limits doesn’t mean you are ultimately limited in the way you go to market.
How do we not think about our relationship to government as a hindrance, but instead as an enabler? That will help accomplish the mission of whatever administration we’re working with.
Q: What should public power utility leaders do to plan for the future?
A: Looking across all four of our scenarios, there are a small set of “no regrets” moves that utility planners need to make in order to create the nimbleness as change unfolds, but also they are the way we need to be able to operate in the face of a new energy transition.
Almost always, one of those “no regrets” moves has to do with digitization of assets. That’s the type of thing that’s going to be if not future-proof, then at least future-ready.
A reality for any company that is dealing with increasing uncertainty is that the closer you can get to your end-customer base, the more advantage you are going to hold. The most basic driver of demand conditions in any business, but especially in energy, is the behavior of individuals who sit at the end of your value system. What customers and end users ultimately decide to do is going to have an impact at the local and regional level, even in the most highly regulated markets.
There is a traditional way of “knowing your customers” — satisfaction data, survey data — which are retrospective reflections of the quality of service provided and the degree of satisfaction provided.
Instead of only looking historically, utilities will increasingly need to anticipate what customers will want in the future. Power users are going to be facing a range of choices that they haven’t historically had, so you can’t just ask them how they’ll likely react in hypothetical situations: they can’t predict how they are going to act any better than you can. Using tools like observational research and ethnography can help utilities to anticipate what customers will be looking for in the future. It doesn’t mean you need to use that data to shift your services, but it gives you better insight into the direction your organization is going and can inspire new ways of competing that you might not have seen before.
There is a ton of data and insight into actual customer behavior that any utility has access to, which a lot of companies would pay a lot of money for. The ability to turn that insight and data into new business models and new revenue streams — and to do things differently in the face of a highly regulated environment — is one key to evolving using your natural advantage. There are some with a perception that the power industry is not going to change, that they can’t act like companies you see in more dynamic environments, where the expectation is you are going to shift up your offerings all the time and do innovative things.
For the organizations that can figure out how to do that and overcome conventional wisdom — releasing the constraints that are naturally embedded in well-established business models — there is a ton of upside both in terms of value they can bring to their customers and their ability to thrive through the energy transition.