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Power & Utilities

Projects and the Power Industry: The Next Normal

In recent years, the Power Utilities industry has been characterized by change and increasing opportunity. To keep pace, organizations have funneled more investment into capital and operations and maintenance (O&M) projects.

In emerging markets, the Power Utilities industry has been experiencing strong demand for several years. Power generators and transmission and distribution companies have done particularly well. These positive conditions provided reliable returns to power generators and transmission and distribution companies, as well as steady work for equipment manufacturers and EPCs. As a result, Power Utilities in emerging markets didn’t need to focus as much on improving project efficiency.

What is happening now with power industry projects?

The most pressing issue facing the Power Utilities industry (indeed any industry) is the global coronavirus pandemic – and the uncertainty it has caused. When the Coronavirus pandemic hit, the Power Utilities industry was severely disrupted. According to the International Energy Agency, estimates suggest energy demand will fall by as much as 6% this year. It is highly likely that like other industries, the energy sector will be forced to make increasingly severe job cuts.

With reduced income and concerns about health and safety, investment has fallen to its lowest levels in more than a decade. Globally, government economic stimulus packages for the energy sector have been uneven, further adding to strategic and operational uncertainty in the sector.

While the overall picture has been negative, one recent trend has continued despite the pandemic – a strategic shift toward renewable energy. In fact, renewables are the only segment within the industry to record a positive return this year. As a result, the industry is doubling-down on renewables as a strategy, even though there have been supply chain issues and project delays since the pandemic started.

How must power utilities evolve?

Emerging from the other side of the pandemic, the power industry projects will be under pressure to deliver profits. Increased competition, along with demands for complex services will further reduce the margin for error.

Developing the ability to adapt in the face of uncertainty will be crucial to remaining competitive in this new landscape. Each sub-sector of the Power Utilities industry faces a slightly different threat. Utilities companies must update and secure infrastructure. Renewables developers will find their space becoming increasingly crowded and competitive because of new market entrants. Equipment manufacturers will need to pivot towards new energy sources as demand for fossil fuels continues to fall.

In the medium-term, the focus will need to shift towards building capabilities. These are the tools, technologies and processes that will increase efficiency and provide insights that drive innovation.

What challenges are on the horizon for the power industry?

Further into the future energy demand should finally return to, and exceed, 2019 levels. Indeed, predictions suggest that energy requirements will increase by up to 70% by 2040.

Decarbonisation efforts will be well underway, forcing an almost complete abandonment of fossil fuels. The grid itself will be smarter, using sensors and technology to improve security, and create innovative delivery and billing mechanisms.

To meet increased demand, the Power Utilities industry will need to significantly ramp up operations. Efficiency of project execution will be critical as firms undertake many major projects simultaneously. Unfortunately, the Power Utilities sector does not have a good track record when it comes to project delivery.

Improving project controls for power utilities projects

The Power Utilities industry has two constant requirements in the current situation; to maintain profit margins and to complete ongoing projects as efficiently as possible.

These goals can only be achieved by improving the way in which projects are managed. Total visibility of each project and its performance will be critical to success.

In many ways, these efforts to improve project performance are long overdue. According to T&D World, large and complex Power Utilities industry projects have a track record of problems, typically running two years behind schedule and 35% ($2bn USD) over budget. As a time when investment is being scaled back, overspend and delays are completely untenable.

It is also important to remember that the marketplace itself is becoming increasingly complex. Demands for increased transparency, flexible pricing and greater customer control of supply means that firms must change the way they work, embracing digital transformation to supply them with the data they need to improve project outcomes and operations.

In these current circumstances, improved project performance could mean the difference between long-term structural deficit and potential business failure, and profitability throughout the crisis and beyond.

How can the Power Utilities industry improve project performance? The answer is simple: by investing in enterprise project performance.

Enterprise Project Performance (EPP) is the philosophy that you can only sustain high capital efficiency by considering how ALL projects and resources contribute to business objectives. This requires connecting business strategy with tactical project execution.

Download our eBook Energizing Power Utility Projects: Overcoming Today’s Challenges Through Digital Transformation to learn how an enterprise project performance solution as a part of a digital transformation strategy can help Power Utilities mitigate the current issues and build competitive advantages for the future.