In many privatised national markets, utility companies are required to perform a balancing act, responding to their customers’ and society’s expectations and concerns while operating within the regulations that dictate how their market operates. For example, customers demand affordability while regulators demand lower environmental impacts and improved service.
Many utility companies have begun to develop clear models and decision-making processes to show how they have considered different types of business risk and opportunity, and elements of sustainability.
Key challenges and opportunities
Reducing emissions – at source and through reduced demand
Utility companies can be both large generators and large users of energy, and most produce high levels of atmospheric emissions. When normalised by, for example, amount of energy generated, these emissions have reduced significantly over the last 10 years. This has come about as a result of legislation (for example in Europe, the Large Combustion Plant Directive), higher water treatment standards, and technologies such as fuel gas desulphurisation. Also, perhaps because they are so visible to the general public, utility companies have been subject to strong stakeholder pressure to cut emissions.
Looking forward, many governments are setting legally binding frameworks for reducing absolute CO2 emissions, and utility companies will play a large part in efforts to meet these targets. However, there remains an underlying problem that modern lifestyles mean we are using more and more energy and other natural resources. Utility companies need to take a lead in influencing stakeholders and customers to create the required shift towards lower carbon lifestyles – for example, through the way we heat our homes and the way businesses use water.
Part of the solution may also lie with new technologies such as carbon capture and storage, which have the potential to mitigate the impact of fossil fuel-based generation and other large sources of carbon emissions – but only if it can be proved that they work on a large scale.
Lower-carbon energy generation
In many countries, as older fossil fuel power stations are closed and volatility in wholesale commodity prices increases, there is a powerful case for building new nuclear power facilities to secure a spread of generation sources. Yet there is grave concern among environmental NGOs and the general public. Many argue that issues such as radioactive waste storage and decommissioning have not been fully accounted for in decision making.
Meanwhile, in some markets the long-term economic case for renewable energy generation is unclear, with electricity grid networks first needing to be upgraded. The impact of the investment required on cost is a major factor; the fact remains that many customers care more about the price of their energy than where it comes from.
Protecting vulnerable consumers
Customers on low incomes, the elderly, disabled and those requiring medical care are some of the types of people classed by utility companies as ‘vulnerable consumers’. These groups are particularly sensitive to changes in prices, and yet are among the least able to voice their opinion or take action.
Many utility companies have introduced special ‘social’ tariffs that provide these customers with lower prices, but a common issue for companies is knowing which customers should be included on these tariffs. Government have so far been reluctant to make available data on incomes and benefits that would assist utility companies in targeting these services more effectively.
Providing essential services to customers
Customer service for utility companies involves so much more than keeping the lights on, the gas or water flowing. It is about timely and accurate billing so customers do not get into debt unexpectedly, product innovation to increase customer choice and encourage responsible behaviour, and demonstrating value for money.
Amid increasing uncertainty in financial and commodity markets, the impact on customers of changes in prices for essential utility services can be severe. Helping them understand more about what causes prices to change and how utility companies use their revenues is an increasingly important challenge.
Our extensive experience and knowledge of sustainability issues in the utilities sector has been built up over more than a decade. In that time, we have worked with many major utilities worldwide. For example, we:
- provide independent assurance of the annual CR or sustainability reports produced by leading players including Scottish Power, EDF Energy, RWE npower and United Utilities
- have worked with GDF Suez, Tokyo Electric Power Corporation (TEPCO), RWE and RWE npower to provide detailed benchmarking reports on their accountability
- helped E.ON to develop its 2006 corporate responsibility report
- have carried out a range of other assignments for utility companies including Budapest Power, United Utilities, National Grid, Thames Water and Northumbrian Water.