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4 signposts on the road to Utility 2.0

As the world tries to strike a balance between prosperity and sustainability, utilities find themselves at the eye of the storm in many of these debates. The ability to continue catering to the needs of burgeoning urban populations while keeping sustainability goals in sight will depend to a large extent on how utilities evolve.

The term “utilities” here refers to the ecosystem of private companies, public companies, regulators and policymakers involved in mass delivery of basic services related to energy, mobility, waste and water. The deep linkages between utilities and natural resource acquisition, conversion, transmission and distribution—and their corresponding effects on our air, water and climate—means that any sustainable development plan that does not actively engage upfront and throughout with utilities is bound to make us fall short of our goals.

However, this evolutionary path is fraught with challenges, such as entrenched interests, archaic infrastructure, systemic rigidities and corporate inertia.

Even in developed countries where utilities have a higher degree of private ownership and operate in a more deregulated environment, they have found themselves in a defensive position while dealing with technological development and societal changes. The clumsy response of electric utilities in the United States to developments such as distributed generation, storage and electric vehicles highlights what issues utilities may face the world over while trying to respond to changes in their operating environment.

One can only imagine the situation as being more complex in developing countries, where utilities have to contend with a surfeit of interests and conflicting goals. There is good news in that this issue cannot be viewed through the stifling “developed versus developing country” paradigm, which makes it ripe for international cooperation and knowledge sharing.

The world has begun to recognize this, and conversations are taking place in important corridors about “Utility 2.0” and what it should look like. Networks of practitioners such as the C40 Cities Climate Leadership Group and conferences focused on “smart cities” are providing the required spaces for such discussions.

While the details surrounding Utility 2.0 are specific to the nature of service, regulatory environment and service territory characteristics, there are a few guiding principles that could underpin such transformation.

1. Be customer-focused

Utilities have to view their customers as more than ratepayers and need to explore ways to create a value proposition that goes beyond resource delivery. Distributed generation is an important component of an increasing trend of energy democratization, and utilities that are customer-focused should be working toward making that more accessible for their customers rather than setting up barriers.

Electric utilities in the United States, driven mostly by fear of the dreaded downward spiral, have started taking steps to transform their image from being suppliers of electrons to a trusted energy adviser. While they have a long way to go to transform their business models, increasing customer engagement and intentionally putting customers first will be an important initial step.

2. Engage with the community

Utilities can play an important role in the communities that they serve by engaging in job creation, training, awareness-raising and education, among other things.

A common challenge faced by the world’s bustling metropolises (the top 300 metropolises are home to one-fifth of the world’s population and half of all economic output) is the continuing disparity in quality of life between the rich and the poor. This disparity has direct implications on productivity, security, health, competitiveness, etc., and utilities can assume an important role in reducing this and provide a more level-playing field. For instance, it is not uncommon to see, in many cities, lower-income neighborhoods being underserved by efficient public transport, which further ossifies the vicious cycle of urban poverty.

3. Act as an incubator

The term “utilities” brings up images of slow-moving territorial behemoths that are slow to respond to changes and to adapt to a changing environment (dinosaurs, anyone?). This notion is neither wholly inaccurate nor unjustified.

While state-run utilities exhibit typical characteristics of government-run institutions, privately owned utilities have not really fared much better. We cannot afford to let utilities hide behind business models that rely on their monopolistic privileges—we need them to be incubators of new technologies and business models. For instance, emerging waste management technologies reduce the amount of waste going to landfills, and waste utilities should be helping to demonstrate “proof of concept” more proactively.

4. Actively pursue decoupling

Decoupling economic prosperity from resource use, especially in the context of non-renewable natural resources, is the panacea to many of our environmental and social challenges. The sheer proportion of natural resources under control and use by utilities makes them one of the most important custodians and stakeholders in ensuring sustainable resource use.

Hence, a business model that relies on the volume of resource conversion (as traditional utilities are structured), rather than on the efficiency of use, is bound to create an unsustainable system of socioeconomic organization. As we find ourselves on the precipice of irreversible climate change and environmental degradation, we need utilities to actively pursue decoupling of their profitability (among other indicators) from resource use.

The above characteristics cannot be developed by utility service providers, whether state-run or private, in a vacuum—we need concerted efforts on the part of policymakers, regulators, investors, citizens, civil society and innovators.

This article first appeared at Worldwatch Institute blog.

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