In the first two months of 2020, the utilities sector outperformed the S&P 500. However, since COVID-19 changed the world, the sector has been distinctly underperforming.
It’s clear that the pandemic served as a catalyst for many industries, accelerating trends that were already underway or in their infancy. The energy sector is no different, and it’s reached a tipping point. No matter your company’s position in this market, you should take note of these clear trends that just might change the very fabric of your business.
Public Demand for Sustainability
Each day, it seems that a new climate change report or documentary comes out. That’s because today’s society is invested in the environment more than the generations who came before. People are “woke” to what’s in their food, the types of materials they put on their bodies, and where their goods are constructed. This mentality extends to energy consumption and how their actions can have a negative or positive impact on the environment.
Consumers want to be empowered when it comes to their environmental impact (as well as their spending), and that’s why the smart home market estimated to be worth nearly $140 billion in the next two years. People are monitoring their energy consumption in real-time, managing their usage directly from their smartphones. Armed with this knowledge, consumers are rewarding the companies with missions that reflect their own. The businesses that lean into sustainability and show how they’re leaving as small a footprint on the environment as possible are those gaining customers.
EY (formerly Ernst & Young) reports that the focus on clean investments is clearly accelerating as more corporations, even those outside of the energy industry, are open with their environmental, social, and governance (ESG) reporting. Successful businesses in the energy sector are waking up and catering to how their customers want to consume energy in their lives. It’s certainly a challenge, but it’s also a great opportunity.
Decarbonization and Shifting Energy Demands
In every industry, COVID-19 thrust people into remote-work environments and businesses into remote operations. This trend is here to stay, and it’s leading to lower energy consumption. While that can be a good thing since there’s less waste powering unnecessary parts of office buildings, it is a distinct shift that requires adaptation.
Simultaneously, there is a push toward decarbonization in the energy sector. For example, look at the MidAmerican Energy Company that is seeking to turn all its production into 100% renewable energy. In 2004 the company’s energy production was 70% coal-based; today that number has plummeted to 30% while wind energy represents 40% of their output. This is just one example, but it’s happening across the board.
In fact, oil production has been declining and will continue to do so during 2021. Even if production ticks back up later in the year as COVID restrictions loosen, it will not be a long-term rise given all these other 2021 energy trends at play. The lowered demand for coal is partly due to low-cost energy storage of electricity from renewable sources. Considering that the global demand for electricity will rise by 60% through 2040, there’s no question that the electric revolution is upon us. After all, when a company like GM promises to phase out gas engines and sell only zero-emission vehicles by 2035, there’s no denying the future.
New Regulations and Legislation
A significant factor for the energy industry in 2021 is the fact that there’s a new administration in power in our nation’s government coupled with a seemingly united Congress. Even this early in the year, we’ve already seen a slew of changes impacting the industry: the U.S. rejoined the Paris Agreement, halted permission to drill on certain lands, pledged to invest $2 trillion in clean energy, and promised to decarbonize the power sector by 2035 while reaching zero carbon emissions by 2050.
The key takeaway of this trend is that’s it’s only the beginning. New, more detailed laws are surely on the way throughout the year as the government eventually turns its focus from a pandemic to climate change. While this can seem frightening for those afraid of change in the energy industry, it represents an opportunity for many in the sector. The government is adapting to a changing world, and if businesses do as well, they should be able to thrive within new laws rather than feel damage to their operations.
Decentralization and Digitalization
As energy consumption shifts toward renewable sources, there is a parallel shift away from traditional utility distribution models. Whereas before a few huge companies would distribute energy, a trend is emerging that enables a network model where consumers have more control over their energy consumption. This nimbler model helps energy production ebb and flow with usage peaks and valleys and limits waste, but it does rely on digital transformation to operate smoothly.
For that reason, expect more and more businesses in the industry to invest in technology, IT talent, and IT strategy. AI, machine learning, data analytics, IoT, and blockchain are all important technologies to the modern energy market. EY points out that time is running out on current utility business models while Deloitte backs up that sentiment, stating that the pandemic has accelerated the reliance on technology to improve the monitoring of operations and safety. Of course, all this attention to digitalization will require increased investment in cybersecurity as well, which is a further consideration.
Successful companies in the energy sector are refocusing their attention on what matters. If a company’s purpose is to provide energy to people who need it, then it must cater to what types of energy those people want and how they want it delivered. With so many impactful trends changing the market, ask yourself this: if you were starting your company today, how would you shape it? You wouldn’t invest in a model from 30 years ago, right? You’d invest in a technology-based model.
2021 Energy Industry Trends
Any business operating within or connected to the energy industry will be impacted by the above activities. You may have refrained from making big changes during the pandemic just to try and keep some stability, but a choice needs to be made quickly. The time to adapt to these trends isn’t right now; it was yesterday. Waiting any longer to change with the market will only put you further behind your competitors. Now that vaccines are rolling out and the light at the end of the pandemic tunnel is visible, do what it takes to ensure you emerge on the other side transformed for the better.
Want to hire professionals who will help you succeed in the future of the energy industry? Reach out to ATR and let’s take your company to the next level.