1. Centrica chief Iain Conn went a step further than the CMA last week, effectively calling time on vertical integration with his announcement of a £1.5 billion strategy swing towards retail services. Centrica hasn’t formally split out its fossil fuel generation yet, as Eon plans to do, but this can be read as a signal of intent. The split between the two functions of the traditional integrated energy business is likely to widen.
2. Indeed, the whole linear value chain is breaking down right across utilities. In energy, the potential for demand-side storage and aggregation is just beginning to be realised, with the market for domestic power storage exploding.
3. The same is true in the water sector, where Ofwat has opened a discussion about water trading and upstream reform that could begin the disaggregation of the wholesale value chain as early as 2020. With pressure building on incumbent water companies to legally separate, the notion of water retailers and water wholesalers will be commonplace by 2020.
4. Energy networks too must find their place in this brave new world. Gas and power networks can either embrace distributed energy, demand-side aggregation and battery storage, and use it for their own objectives, or get left behind by more agile market entrants. Increasingly, the networks are realising this, and by 2020 the pace-setters will be seeing the benefits.
5. Not every utility will survive. As the old value chains break down, business models will follow suit. Winners will emerge, having adapted to the new environment and absorbed their rivals in so doing. Pan-utility models are likely to have a role, as the old distinctions between energy and water become less important to retail-focused businesses. There will be losers too, with disruptive market forces coming from several angles.
It’s going to be an interesting five years!