Utility Week

Utility Week 13th February 2015

Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government

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Page 26 of 31

UTILITY WEEK | 13TH - 19TH FEBRUARY 2015 | 27 Customers Market view I t is said that Jeremiah Colman made his millions not from the mustard people ate, but from the stuff they le on the side of their plates. Each dab of sauce le uneaten can oen represent a half of the total actu- ally consumed. Wasteful consumption has not tradi- tionally worried most companies, includ- ing energy retailers. Yet paradoxical as it may sound, the key to future profit in the energy industry is to empower customers to reduce the amount of energy they consume unnecessarily. The traditional reasons for sticking with a provider – the time-consuming and com- plex switching process, the perceived lack of difference between providers – are fast disappearing. High energy prices have seen fuel bills jump to the top of the household agenda, while market reforms are set to make it quicker and easier for customers to engage with new-generation energy retailers, which advertise their prices on an increasing range of cost-comparison websites. A growing challenge facing these com- panies – along with incumbent players – is how to win new business and maximise the loyalty of customers. This will depend on traditional factors such as cost and customer service, but if there is little differentiation between such providers then people will instead switch to those perceived to help cus- tomers to reduce their energy bills. This requires a revolution in the way energy firms regard their customers. Rather than the old buyer-seller model, energy retailers must re-imagine the relationship as a partnership where they do not simply deliver kilowatts, but provide the means to improve energy efficiency and lower bills. Technology has a central part to play in such a strategy. The roll out of smart meters will enable suppliers to build a highly detailed and up-to-date picture of individu- als' energy usage, allowing them to feed this information back to customers who can then make well-informed choices. Smart meters are no immediate solu- tion. They will take time to become ubiqui- tous while national installation and public understanding around the costs and poten- tial value of new metering technology are achieved. That is why it is so important that energy utilities develop more meaningful relationships with their customers. Rebuild- ing trust is central to successfully engaging with their customer base. Transformational as smart metering will be to the energy industry, it is just one example of how technology can improve the relationship between provider and customer. Having information on customers' energy usage is of little benefit if it cannot be used to answer individuals' different needs and tailor services accordingly. Utilities must therefore ensure they have technologies that enable consumers to man- age both their energy usage and steer the services they receive. As the price of energy becomes less of a market differentiator, the range of services and payment options offered will become more important. Some may want the certainty of a regu- lar, fixed price for their energy; others may want the lowest possible price in the market. Some may be prepared to pay a premium for green energy. Dual fuel homes may benefit from sourcing gas and electricity from dif- ferent providers. As it becomes simpler to switch provider, it is increasingly important that energy retailers are not only transparent about the different services and tariffs they offer, but also give their customers the great- est possible control over the way they use and pay for their energy. New technologies will be central to such a strategy. The rich insights derived from smart metering and data analytics will enable energy retailers to deliver a range of unique, personalised service offerings to every cus- tomer, and provide the opportunity to deliver truly innovative new services and concepts. For example, one likely outcome of the technology revolution is the end of kilowatt- per-hour pricing. Instead of paying per unit of energy, households could be charged depending on what temperature they'd like their homes to be. By managing and monitor- ing every aspect of their customers' energy consumption – from boilers to thermostats, meters to insulation – energy retailers will be well placed to design bespoke energy plans for their customers, and allowing them to better control usage and bills. With recent innovations in home energy management technologies and their increas- ing affordability, customers are starting to take matters into their own hands. To avoid being le behind, utilities need to exploit their decades of experience in the sector to help customers get the most out of these technologies, whether they are mandated smart meters or discretionary technologies chosen by the customer. The customer of the future will not be a passive consumer, a socket at the end of a long line of energy infrastructure. Instead, the customer will be plugged directly into the heart of the energy market and central to each provider's strategy. Mike Ballard, senior director utilities strategy, Oracle Build trust by cutting waste Partnership-based energy service provision is the future, says Mike Ballard. Energy firms need to adjust their strategies and potentially accept lower margins in exchange for longer-term relationships. Key points Cost, while still important, is no longer the only factor in a customer's choice of energy supplier. Suppliers need to develop partnerships with customers to make new service- based supply propositions work. Proving an ability to reduce energy waste and increase efficiency will be a primary step to gaining consumer trust in energy partnerships. Technology, including but not limited to smart meters, will be essential in enabling partnership-based business models to emerge. Partnership-based energy services could bring a number of changes to basic assumptions about the way energy is retailed – for instance it might see the demise of kilowatt-per-hour pricing.

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