Why network businesses don't innovate

There is an urgent need for electricity networks to innovate in order meet future customer requirements, confirms the Innovation in Electricity Networks report by consulting firm Deloitte.

The report, developed with support from Energy Networks Australia, is based on a survey of 114 people from 17 electricity network businesses on the state of innovation within Australian electricity networks.

“Most survey respondents recognise the need to take advantage of changes in technology; however, over half of them acknowledged they lack the capability to act upon their innovation ambitions,” said power sector specialist and Deloitte National Leader, Energy and Resources Michael Rath.

The report has identified a need for greater investment in transformational innovation, including distributed energy resources, battery storage, multiflow networks, demand and energy management, and advanced data analytics and automation.

Energy Networks Australia Interim Chief Executive Officer Andrew Dillon said, “The best outcomes for Australian electricity consumers will come from a regulatory framework which fosters innovation — not only in new energy markets, but within network services.

“Nobody knows exactly what the grid of the future will look like. We need our regulatory framework to encourage trials and pilots of various technologies to determine what we can deliver for the consumers of tomorrow,” said Dillon.

The study finds that today network businesses focus on the improvement of core business processes and assets, but the most important innovation is in channels to market, brand and consumer engagement.

The survey results suggest few businesses are putting in effort to innovate in these areas, accounting for some of the lowest levels of innovation taking place — only 8% of the innovation budget.

“Businesses need to have a bold, clear innovation strategy with tangible targets and expected outcomes, freeing people up to innovate in a disciplined way that embraces risk, and accepting potential failure in the pursuit of positive and sustainable results,” said Rath.

Other key findings from the study include:

• Electricity networks have big ambitions for innovation in their businesses. They see the need to direct a greater proportion of investment to transformational innovation in new products and markets. Today, 17% of networks’ innovation investment is directed towards game-changing, transformational innovations. In five years, networks want 24% of innovation investments to have a transformational ambition.
• Network businesses need to create the right environment for innovation to deliver on their ambitions. 61% say they do not effectively measure innovation progress or outcomes to identify when they’ve done it successfully or poorly. Only 11% of businesses think they are effectively recognising and rewarding staff contribution to innovation.
• Networks’ ability to innovate is constrained by their appetite for risk and the regulatory environment in which they operate. Australia’s regulatory framework defines areas in which regulated network activity can occur, including the types of activities that can be undertaken. In addition to regulatory requirements, businesses acknowledge a lack of appetite for risky investments. Many of the more innovative network businesses are more motivated to pursue higher risk opportunities where and when needed.
• Network businesses are highly specialised and focus their innovation investment on core assets and business processes. 63% of networks’ innovation investment is in core business. The challenge is to expand innovation effort into areas they find less comfortable in order to overcome the difficult structural changes needed and access opportunities to create value for consumers.
• Some network businesses have well-defined and -understood innovation strategies, but many also identify issues within their strategy or their ability to execute. Strategies may articulate the networks’ ambition, but many are not clearly laying out the actions, roles and responsibilities needed to deliver. Our analysis found no correlation between businesses’ innovation ambitions and their ability to execute. The barriers to innovate may be significant enough to prevent the delivery of new ideas and value creation.