Utility Week

26 | JULY 2021 | UTILITY WEEK Customers Analysis The remaking of energy retail A major new report on the future of energy retail has been published by Utility Week in association with the Energy Practice of Charles River Associates. Here, Denise Chevin presents some exclusive extracts. A remake? A transforma- tion? A reboot? Call it what you will, there is no doubt the energy retail sector is desperately in need of a new business model. In 2020, losses totalled more than £1 billion for the previous financial year, there has been a constant procession of companies going out of busi- ness and two of the big six have le• the market. Rising customer debt, together with loss of business sales wrought by the pandemic, will mean making a return to profitability in the short term is even more out of reach, as high- lighted in the results that have been reported in the early part of 2021. But while over the next few years we can expect to see continued consolidation and financial pain, the long-term outlook is an altogether different proposition. For those energy suppliers who can reinvent themselves on the back of the transition to net zero, the opportunities are huge – as Greg Jackson founder of Octopus Energy puts it, "as big as the internet". But this is no Klondike gold rush. Energy suppliers looking to refashion themselves need long- term vision and very deep pock- ets if they are to set their sights on strategies to capitalise on a move to low-carbon vehicles, decarbonisation of the home and generally act as agents for reduc- ing demand and balancing the system. Certainly, the likes of BP and Shell are in for the long game and perhaps a return to a more integrated model of generation, supply and electric vehicle (EV) charging infrastructure. Oth- ers could move with the leasing zeitgeist and provide "heat as a service" or run uber concierge services, but again this will be a slow burn. The Remaking Energy Retail report examines what the net zero transition means for energy retail, how companies see the market developing, and the regulatory and other obstacles that stand in the way of change. It is based on 16 in-depth interviews with leaders in the sector, including a number of senior figures from energy retailer companies. No-one thinks the next few years will be straightforward. In the coming years suppliers must navigate their evolution to be fighting fit for current operating conditions and at the same time lay the foundations for a very dif- ferent future. Technology must be lever- aged to maximum effect to drive efficiencies and improve cus- tomer service, that's a given. Ofgem believes that its tough love, in the form of the price Consumer first policy must prevail Will utilities be able to define themselves as the orchestrators of a range of services to consumers? The UK retail energy segment is reaching an interesting juncture. Within an industry paradigm that has largely been consistent since deregula- tion in the 1990s, customers have too o•en been approached as a problem to manage in what was – and still today remains – largely a commodity supply business. Companies have been trapped in an orthodoxy around operational excellence, new systems and ways of working to drive down cost-to-serve and improve customer centricity. Regulators have remained focused on cost and transparency in light of sub-par customer engage- ment in retail competition. Consequently, many of the larger players have been in a reactive – even defensive – mode, focused on reducing com- plaints and costs coming from less-than-optimal customer experiences rather than searching for value from their customer books. A lack of belief in the value of retail customers, relative to other parts of the energy value chain, has meant two of the "big six" no longer participate in the market. Going forward will utilities (as we know them) be confined to a corner of the market or will they be able to define themselves as the orchestrators of a range of services to consumers? The journey to net zero is blurring the lines between the consumption of molecules and electrons and the end-use services that they facilitate. Might suppliers of mobility, heating and cooling be better able to capture consumer value and could this mean, therefore, a greater variety of retail utility business models and utility business owners? We think there is value in the energy retail market. Much of the value from new decen- tralised energy, prosumption, and e-mobility segments can only be accessed through direct relationships with customers. Utilities, however, will have to better align their strategies and business models to what customers consider valuable, how they are willing to engage and, more importantly, what they are willing to pay for. With new generations of systems providing unprecedented access to customer data, there is little excuse to not do so. In an era of net zero, energy players have a once-in-a-lifetime opportunity to revive them- selves and their business models – and to pivot, crucially, to a sustainable position where the needs of the consumer come first. Simon Ede and Tilmann Hensel-Roth are both vice presidents in the Energy Practice, Charles River Associates continued on page 28

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