UK utilities sector needs to embrace innovation more than ever
The UK government’s autumn budget saw significant changes to tax, spending and benefits. Coy Wright, vice president for energy, utilities and resources industry solutions at Rimini Street, assesses the impact on an already stretched utilities sector, and explains how technological innovation could better support operations and drive efficiency businesses in the sector.
To say that the UK utilities sector has had a challenging few years would be an understatement. The sector has experienced an ongoing energy crisis, regulatory changes as a result of Brexit, spiraling costs stemming from dependence on gas and oil imports, a growing threat of blackouts, and low levels of trust from consumers.
It was anticipated that the Energy Profits Levy, more commonly referred to as the Windfall Tax, would increase to 38% from 1 November 2024 until 31 March 2030, which was confirmed in the highly anticipated autumn budget. In addition, the 29% investment allowance was removed. This is said to ensure that the oil and gas industry can protect jobs and support the UK's energy security. However, the 100% first-year allowance and the decarbonisation allowance will be maintained.
Following what the treasury has outlined in its plans, energy sector enterprises will need to understand the broader impact on their profit margins as the government adheres to its election manifesto. The clear ambition is to make Britain a ‘Clean Energy Superpower,’ and energy enterprises should be hopeful of supportive measures in their collective pursuit of net zero.
The utilities sector faces numerous challenges, only exacerbated by the encroaching Paris Agreement deadline and the urgent need to modernise its technology and infrastructure. This, plus the growing need for robust security, transparency, and data management systems, strains utilities staff and budgets.
Future gazing for innovation
Tech priorities include the adoption of AI and generative AI, and budgets will have to align with this focus. To do so, utility leaders must review budgets and projects, focusing on investing in the most strategic priorities. People power, time and money are all critical resources driving digital transformation efforts. For utility companies aiming to do more than just keep the lights on, optimising these resources presents a powerful opportunity for enhanced efficiency, profitability and regaining customer trust.
Organisations with inflexible financial and IT roadmaps may find themselves diverting funds away from crucial areas such as digital transformation. Those who have leveraged solutions such as third-party software support to unlock critical resources can be in a much more advantageous position to stay on course with their growth and profitability plans.
Three steps to optimising limited resources
There are three key steps to help maximise the value and potential of utility companies’ limited resources, and the impact is far-reaching:
Extend the life of existing ERP systems: Utilities looking to reallocate budget towards forward-thinking digital transformation strategies should start by evaluating the value they’re receiving from current software vendor investments – one of the most financially burdensome cost to the business. By maximising the value and extending the useful life of existing software, systems and infrastructure, utility companies can divert resources towards much higher value projects that help move the business forward while being watchful of the top and bottom line. It’s no surprise that third-party support options are growing a following in the utility industry, offering more cost-effective and often improved service.
Take control over your IT roadmap: The dangers of not having full control of your IT roadmap can be reflected in inflated costs and inefficiencies. Instead of focusing on growth, you may be busy on an upgrade treadmill, slowing draining your time and resources away from where it is most needed. The benefits of taking ownership of your IT roadmap also allows you to stabilise your systems, which is critical to innovation. More control and smarter decisions can be made on your terms and timeline.
Honour your customer, not your vendor: For utility companies, the primary focus should be on serving customers who expect uninterrupted service and fair pricing. Not every technology is relevant for every utility enterprise, so choose wisely to avoid passing the financial burden of poor investments to your customers.
Embracing the autumn budget as a catalyst for innovation
The autumn budget is an opportunity to initiate innovation, but perhaps on a more modest scale. With confirmation that corporation tax will remain frozen at 25%, this should give UK businesses confidence in their operational and technology budgets and long-term growth strategies.
Another piece of positive news was the allocation of £20.4billion in R&D funding for 2025-2026, essential for enterprises prioritising technical innovation. Sustainability and emerging technologies are firmly on the agenda for UK utilities, but achieving these goals - from solar and wind energy to leveraging AI – will require significant resources.
