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Insight
Introduction
Introduction
Faced with a series of enormous challenges, energy and water utilities are banking on digitalisation to deliver the augmented intelligence and automation they need to answer escalating service expectations from customers and keep costs under control.
For water, digitalisation offers a lifeline for surviving and thriving in the new paradigm of AMP8. In this new regulatory period, infrastructure investment is set to boom but scrutiny of operational efficiency and environmental stewardship will increase, answering public calls for improved performance and transparency. This will necessitate redoubled focus on automation, intelligent control, and enhanced network visibility, which can only be supported with digital tools.
Likewise, a looming threat of water scarcity and the need to support consumption reduction and enhanced leak detection mean far-reaching smart meter rollouts are needed. These will feed granular usage data into digital platforms which can support tariff innovation, behavioural prompts and an opportunity to move water company relationships with their customers into new territory.
Across in energy, a collective mission to deliver a net-zero system has also sparked an unprecedented investment spree. Digitalisation will provide the foundation for delivery, making it possible to build at pace with high efficiency and repeatability, to support fluid collaboration between stakeholders and to head off risks and delays to critical projects.
Beyond infrastructure delivery, digital innovation will be the life force of our future energy system. It will support dynamic network operations and system balancing at national and local levels and ensure we maintain best-in-class reliability and resilience standards with an affordable price tag for consumers.
But achieving all this relies on agile and enthusiastic uptake of digital technologies by utilities. And on the ability of companies to embrace and optimise changes to systems and ways of working which are deeply ingrained in the fabric and culture of the energy and water industries.
In this report, Utility Week Intelligence, in association with Salesforce, asks the industry’s regulators for their views on sector progress with digital transformation and whether current attitudes or strategies will deliver the results we need.
We also speak to digital leaders at four utilities to glean insights into the breakthroughs they have made and the challenges they face as they strive to turn digital promise into practice.
For water, there needs to be a redoubled focus on automation, intelligent control, and enhanced network visibility
In energy, digitalisation will provide the foundation for net-zero delivery
“Beyond infrastructure delivery, digital innovation will be the life force of our future energy system.”
What the regulators say about digital transformation in utilities
Widespread reporting on water sector challenges means we are all well aware the sector needs to play catch-up following years of underinvestment in infrastructure and technology.
In recent years, Ofwat has been clear that it expects water companies to do more to embrace digital potential. It has identified digitalisation and adoption of open data standards as foundations for improving service standards and delivering societal benefits.
But improvements in underlying data quality are holding the sector back in the view of Ofwat chief executive David Black. In the regulator’s latest Water Company Performance Report he wrote that companies “often lack the high-quality data and analysis required to understand their assets and how they impact performance”.
He added that assertive action here would support “more effective and efficient operation and maintenance of assets and could significantly improve performance”.
Building on this view, an Ofwat spokesperson told Utility Week: ''Companies are making progress in these areas but there is still a long way to go. They must build on improvements already made and show wider progress on open data and digitalisation so they can deliver for customers and the environment.''
While the regulator is clear it expects more, it has also highlighted examples in the sector who are making digital breakthroughs. Severn Trent, for example, was was singled out in the 2023-24 Water Company Performance Report for its use of dark fibre technology, exploiting unused fibre strands in existing cable networks, to monitor physical characteristics and identify leaks, as a form of early warning system.
Th regulator also noted Welsh Water’s use of “hot-spot analysis” to better understand sewer collapse risks and “facilitate data-driven decision making. And more broadly, the regulator acknowledged widespread pro-activeness on the use of data to improve priority services for vulnerable customers. Northumbrian Water’s analysis of inbound calls from customers to spot missed opportunities to provide better support was noted.
The emphatic “could do better” report card from Ofwat is echoed, to a slightly lesser degree by the energy regulator.
The emphatic “could do better” report card from Ofwat is echoed, to a slightly lesser degree by the energy regulator.
“More effective and efficient operation and maintenance of assets and could significantly improve performance.”
David Black, chief executive, Ofwat
Digitalisation investment in the current regulatory period from energy networks has been strong. National Grid’s Electricity Transmission business has pushed forward with over £150m of investment in upgrades and replacements to core IT systems as well as new customer-centric solutions. Further funding was provided for the development of future-looking digital innovations to help meet and exceed customer expectations.
Meanwhile, in electricity distribution core spend on digitalisation initiatives is slated at around £45million per network. Similar investment is expected to continue into RIIO3 alongside upgrades and extensions to existing infrastructure and assets.
A particularly vibrant corner of the energy industry for advances in digitalisation can be seen in the Distribution System Operator space. These new entities, set up by power distribution networks at the start of the ED2 period to support dynamic balancing of local networks better planning for the energy transition, have received upbeat feedback from Ofgem for their use of digitally enabled demand forecasting and use of flexible alternatives to network reinforcement.
Ofgem has been clear that advances like these are crucial to the delivery of an affordable energy transition in which customers are empowered to bring their demand side potential to bear.
Looking at the distribution industry more broadly, Liam Bennett, head of energy system digitalisation at Ofgem tells UW: “The message has been heard by DNOs to make improvements to their arrangements, a lot of that is being driven by digital products and consumer engagement platforms.”
Examples of where digitalisation and network data are helping drive better outcomes, include work on digital representations of constraints within distribution networks, which says Bennett, is “really helping developers understand where and when they should be engaging with DNOs in terms of connections and flexibility.” Furthermore, positive work is underway “publishing low voltage network data from smart meters and direct from substations.”
But there’s still quite a long way to go, adds Bennett. A number of reforms across ED2 will aim to ensure that organisations “are building with a coherent picture, for example, in how they operate flexibility markets, monitor low voltage networks, and share that data with the industry.” Looking forward to RIIO3, Bennet says there will be a focus on “ how digitalisation can further support key DNO roles.”
Backing up Bennet’s message, Marzia Zafar, deputy director for data and digitalisation at Ofgem tells Utility Week: “The networks are making some notable efforts to embrace digital opportunity and help accelerate our energy transition. Some important milestones have also recently been achieved in advancing data best practice and establishing data sharing infrastructure for energy system.
“But we are still really only scraping the surface of what is possible. Deeper and more ambitious digitalisation is an absolute must to deliver a cheaper, more sustainable energy system in which the power of consumers as demand side participants is fully valued and recognised.”
Utilities know that expectations for further digital transformation are high. But as we hear from industry leaders in this report, moving faster holds challenges. For example, while many sit on rich data assets, insufficient data quality and a lack of standards and governance make data difficult to discover, interrogate and share. Tackling this, and resolving tensions between industry ambitions and data protection regulation are a priority issue.
Aside from these kinds of technical and policy challenges, however, the most common and overriding concern for industry leaders with big ambitions to leverage digital transformation to deliver strategic wins for their organisations, is people. The availability of utilities to attract and retain digital talent hangs heavy on the minds of many in the sector.
Learn more about this in our interviews with digital leaders at SSEN Transmission, UK Power Networks, Northumbrian Water and Severn Trent. Other insights cover:
- Foundational system investments
- Experience and ambition in the use of AI
- Cyber security investment
- Use of digital twins
- Cultural considerations
- And more…
Amount National Grid Electricity Transmission has invested in upgrading and replacing core IT systems in the current regulatory period
Amount each distribution network is investing in It initiatives in the current regulatory period
“We are still really only scraping the surface of what is possible. Deeper and more ambitious digitalisation is an absolute must.”
Marzia Zafar, deputy director for data and digitalisation, Ofgem
