From pump to plug: the transformation of the energy and power sector and its implications for treasurers
The transformation of energy, natural resource, oil and gas firms is ramping up. With a host of new entrants, many of these markets will face convergence and the development of new ecosystems.
This is the decade of the electric car. Almost in the blink of an eye, the streets of most European cities have become awash with electric vehicles (EVs) as the continent, along with North America, begins to catch up with China’s rapid EV uptake. Like the indicator on a charging battery, change is evident, and the tipping point has been brought forward.
Market watchers are already forecasting the sale of EVs to overtake the internal combustion engine (ICE) within the next decade. Transformative innovation from the omnipresent Tesla has spurred most car manufacturers to produce desirable alternative EV options. In turn, consumer behavior is changing as range anxiety subsides and battery technology reaches price parity with the ICE. The environmental benefits of EVs are also becoming far clearer as countries shift their electric energy production to greener sources, and so regulation to drive EV uptake is quickly taking shape.
Cities in Europe and China have implemented zero-emission driving zones. Norway will end the sale of carbon-emitting passenger vehicles by 2025. At a recent UN Climate Change Conference, a host of countries declared that all new car sales should be zero-emitting by 2040, or 2035 for leading markets. In practice, many are going beyond this commitment, and targeting dates between 2030 and 2035. However, exactly how quickly developing markets will be willing and able to adjust is yet to be seen, and could lead to a two-tier global system.
Regardless, the transformation of energy, natural resource, oil and gas firms is ramping up. With a host of new entrants, many of these markets will face convergence and the development of new ecosystems. Holistic change focused on technology, new customer interactions, and ESG-aligned principles will require new business models and a change in thinking. As traditional businesses are re-imagined in the image of e-commerce, treasury departments will need to re-skill and restructure on flexible technology for speed and connectivity.
Reimagining the forecourt experience
Charging infrastructure is the immediate focus. In 2020 the EU and UK combined had approximately 250,000 charging points. The EU is well behind its “Green Deal” target of 1 million charging points by 2025. The UK has recently targeted a tenfold increase in charging points to 300,000 by 2030. As part of that, BP Pulse plans to spend £1 billion expanding its rapid charging network.
While major oil companies still hold prime locations for enroute charging, a lot of vehicle charging will happen at home. Power companies and other new market entrants are seeing dollar signs at the opportunity, and are moving quickly to compete. The opportunity for charging locations, from parking lots to train stations and commercial buildings is vast, and so is the investment needed. Tesla is incentivising small business and property owners to host charging stations. Bank of America has also partnered with Electrify America to double the number of charging points at financial centers in the U.S.
First and foremost, there is a financing element to this infrastructure investment and the mergers and acquisitions (M&A), and battery-focused joint-ventures, that will accompany it. For treasurers, that means having control over working capital and access to a full range of working capital financing options. It also means preparing for the digital integration that will come from acquiring technology-focused charging network providers or e-mobility service providers (e-MSP).
As traditional businesses are re-imagined in the image of e-commerce, treasury departments will need to re-skill and restructure on flexible technology for speed and connectivity.
Increasing competition will completely redefine the customer experience. Traditional cars take just a few minutes to fill up. On the other hand, EV charging can take anywhere from 15 minutes. With this customer time commitment increasing, competition will focus on making the charging experience attractive. Shopping, eating, viewing content, beauty treatments and exercising - the options are truly limitless and will be location or journey specific.
Differentiating the experience will require developing mobile applications, digital collaboration, and partnerships with an equally broad range of firms. In essence, the industry will rapidly transform into a highly interconnected form of e-commerce.
Transitioning from physical stores to interconnected e-commerce
The change in the physical forecourt is just one of the most visible elements of the business model realignment we are seeing. As filling-up moves from pipes to cables, customer interactions become more automated, digital, and mobile. Cars connected to the Internet of Things will allow consumers to buy goods and services while traveling. With interconnected experiences and purchases, both customer and supplier payments will flow through competing and collaborating platforms and treasury technology will need to keep up with the speed and interconnectivity of mobile e-commerce.
One of the most critical technology infrastructure requirements from treasury, and the broader business, will be the availability of, and reliance on, real-time data. Customer expectations are high for detail and simplicity of use in e-commerce. Consumers will expect applications to provide a detailed breakdown of usage, and costs, sources of electricity and their ESG credentials from various locations and different providers.
This same data will also have significant commercial value. Enriched data will support grid planning, new collaborations, and enhanced customer experience for cross-selling, retention, and loyalty.
Real-time payment data feeding user applications is just one element for treasury to consider. Paying at the pump has historically carried a fraud risk, which new market entrants will need to solve as the risk shifts to EV charging. More secure e-commerce methods of payment and new payment models like subscriptions will help. However, payment technology is increasingly disrupting e-commerce as a hindrance or enhancement to customer experience and loyalty. So, along with security comes the need to provide a much wider array of payment options.
Payment optionality may be built into the front-end of applications through the offer of subscriptions and payment plans for “connected car” purchases. On the back-end, integration with multiple payment technologies should allow payment with digital wallets, cards, direct-from-bank transfers, and foreign exchange solutions for international travelers and reconciliation data for corporate fleets.
Treasuries need to bridge between two worlds
Over the next decade, as the realities of various countries’ commitments to zero-emission targets become clear, the two worlds of the pump and the plug will operate side by side. On a global scale, some countries will move ahead, while others remain heavier users of carbon fuel. For some firms, and already evident in the automotive industry, the disparate infrastructure of these two worlds will necessitate running two treasury teams to ensure flexibility for new processes and systems.
Whatever the organisational and treasury structure, the industry is leaping forward and the potential is exponential. Treasury systems need to be digital, flexible and ready for real-time connectivity. From an e-commerce perspective, treasury needs to be engaged early in developing front-end consumer systems to support e-commerce objectives by ensuring the right payment rails are in place.