For the first time in your life, the relationships you have with your energy suppliers are contestable. Will fossil fuel companies be in the contest?
Contestability Defined
While in junior high school many years ago, I played basketball, and I was pretty good at it. I was competitive in the city league, but that all changed once I got to high school and had to compete against kids a foot taller than me.
Basketball is one of a handful of sports where the ball is the subject of a continuous contest for possession. The ball is contestable. An opposition player can slap the ball away, grab it from your hands, or block your shot
Similarly, businesses are in continuous contests for the consumer wallet. How does contestability work in the context of the energy industry?
Our Relationship with Energy
As consumers, we’re conditioned to have an ambivalent unemotional relationship with our energy. It’s just there, lurking behind the light switch, the thermostat, or the ignition. Many people have no idea who even supplies their energy or how it gets to their homes.
Our relationship as energy consumers with energy suppliers is not particularly contestable. Once you sign up with a local gas or power supplier, you don’t easily or often change.
In many settings, regulators see to it that you have only one energy supply option (admittedly a highly regulated one). In turn suppliers are motivated to introduce some friction into the process of switching to make it a little difficult for the consumer to craft a contest.
In truth, to most power and gas utilities, there are truly no customers at all, just billing addresses.
The most contestable of these energy relationship isn’t even a relationship, but a transaction—when you fill up your fuel tank. We get to make a choice of energy supplier at the margin every time we fill up.
These fuel suppliers are in a daily contest for the energy dollar in your wallet. It’s been this way for my entire life, 60+ years. And it’s all about to change.
The Energy Consumer Relationship Is Now Contestable
Several factors are coming together that put all of these energy customer relationships into play at the same time, creating a war of all against all for the customer energy relationship of the future:
Energy transition: Carbon is being both priced out of the market losing ground in head-to-head competition against renewables, even in places like Texas. New energy suppliers are taking market share.
Energy production: Household solar changes the relationship the homeowner has with their electric and heat utility supplier quite dramatically. The formerly one-way arrangement (power utility sells, customer consumes) changes as the consumer-producer can wheel their unused solar energy to the grid for a toll, or sell it to a neighbouring home.
Energy storage: If you aggregate enough batteries together, you can create a virtual on demand stand-by power plant. Once enough households have their own batteries, through software they can store selected energy supplies, dispatch energy on instruction at market peak, as well as supply energy for themselves and adjacent households.
Battery electric vehicles: All those batteries in the aggregate also form another virtual power plant that’s inconveniently on wheels. These batteries are big enough to displace household mains for a time, but it will take considerable software smarts to figure out the optimal way and timing to replenish those batteries when they’re on the move, and when to discharge them to the grid.
Whither the Incumbents?
The incumbent energy companies (gas utilities, petroleum fuel companies) need to be all over this once-in-three generations opportunity:
Fossil fuels used in transportation account from between 25% to 50% of the value of a barrel of crude oil. Up to 50% of the demand for crude oil is in play, leading to potential stranded resources in the ground, along with stranded infrastructure used in the industry.
Petroleum companies have the financial resources to invest to figure out the new customer relationship. Margins in oil and gas are more volatile, but when they’re good, they’re exceptional. There are no windfall taxes on solar.
Oil and gas companies have the engineering talent base to devote to this challenge, and that engineering talent base will be increasingly looking for other things to do as the battery vehicle market eats the petroleum industry.
The oil and gas industry has been setting and following standards for the use of its products since the inception of the modern industry over 150 years ago. The energy world of the future will be highly fragmented and costly without some standard ways of working.
Conclusions
This epic contest for the energy consumer relationship of the future is playing out all around us. The incumbents need to get in the game or they won’t even be warming the bench.
By Geoffrey Cann, Author, professional speaker at Madcann Alberta Inc
Geoffrey Cann is an international author, professional speaker and corporate trainer. His passion is the Oil and Gas industry and its imperative to exploit digital innovations as we slowly evolve our energy systems. He has worked around the world, including Canada, the US, Korea, Japan, Hong Kong, China, Australia and the Caribbean over a 35 year career. He teaches a seminar on digital oil and gas, produces both a weekly article and podcast on digital issues in energy, and hosts a weekly video interview called Energy Innovations. His first book, Bits, Bytes, and Barrels: The Digital Transformation of Oil and Gas, was released in 2019 and sets out the business case for digital in oil and gas. His latest book, Carbon, Capital, and the Cloud: A Playbook for Digital Oil and Gas, a study of the leading practices for digital in oil and gas, was released in March 2022.