The digital revolution is all around us but as an energy buyer, I have not seen any change in the way my utility interacts with me, and this is despite every utility executive telling me that they are digitalising their businesses. My interaction with my energy retailer and my local distribution grid operator are still as impersonal as they ever were. What I see is the once a year letter from my local grid operator asking me to read my meter and send the reading back to them. Then there is my retail electricity bill which is based on an annual estimate which is reconciled every year, again via post. There is no upselling of any energy or mobility services to me, even though any quick look in Google would tell them that I am a likely customer for such services. And to make matters worse my local energy retailer is considered one of the most progressive in Europe!
What I want is to experience what a next generation utility should offer, which is why I am moving to German energy services company Sonnen. Not only do they provide me with a solar and battery solution to supply a large part of my own power needs but they are also offering me a host of services such as a flat rate for any additional power I need to buy from the grid. Whatsmore they integrate into Amazon’s new home controller Alexa which I am also going to buy and try out! Now of course, you may argue why energy retailers even have to change?
First and foremost, the business models of energy retailers are under pressure from regulators and digital technologies and new businesses which are increasing competition and price pressure in the market. A simple example of this are price comparison sites such as Verivox in Germany or USwitch in the UK, which make it very easy to compare utility offerings and to change retailer at the touch of the button.
Another issue is that electricity demand in developed countries is not rising. This is largely because of technology change particularly around how we use energy. A good example is in lighting. The typical conventional lightbulb is a 60 watt bulb. Today, an LED can produce the same amount of light using only 6 watts of electricity.
To make matters more difficult, retail utilities are increasingly under pressure from households and businesses who are generating increasing amounts of electricity themselves. We are also likely to see new entrants into the energy market such as telecom providers who see energy as something they can upsell into their customer base. What all this means is that the margin that a utility makes by selling energy to its customers is likely to shrink in the next years. This begs the question, what should the retailer do?
The answer is easy: get closer to the customer and upsell services to them beyond selling kWhs of electricity. Practically speaking the utilities need to integrate the customer data they have into one platform which can be enriched with the aid of external information on customer finances, energy usage patterns, customer interest, etc. Doing so can help them begin to learn about their existing customer base so that new products and services can be launched which bring benefit to different customer groups as well as the utility itself. And there is lots that can be done.
But change is not easy for the incumbent retail utility and maybe the biggest challenge is the lack of data that a utility has about a customer and even longstanding ones! Sometimes, all they have is an address, a name, a bank detail and a number saying how much power was used during the year. They have no idea what the customer does with the energy they buy. They have no idea when the energy is actually used. In fact, they don’t even have my email address.…Interesting times ahead.