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Utility Week 10 07 15

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UTILITY WEEK | 10TH - 16TH JULY 2015 | 19 Operations & Assets use or dynamic tariffing or grid integration, which will be needed to balance renewables on the grid, and at least in the UK the data wouldn't be permissible for the contractual bill. However, the pseudo smart approach is also more than a gimmick. There is no reason why, in principle, such data can't be used to reduce bill shock and bill dispute, and there- fore reduce customer service enquiries, bad debt and churn – three of the benefits usu- ally claimed of engagement based on smart meters. So, while we wait for smart meters there is an opportunity for some innovative com- panies to alter energy competitive dynamics profitability using pseudo smart solutions at relatively low cost. Eneco added engaging insight and advice to the thermostat data and electricity and gas consumption data through a living room screen and apps. On average, Eneco says consumers engage with it daily via its con- nected home offering – a plausible claim because another pure European thermostat platform (with no pseudo smart meter com- ponent in the offering) says 60 per cent of its customers interact daily in winter. Eneco customers save an average of 10 per cent of their total energy gas and elec- tricity bill, which is good when compared with other smart thermostat providers and adjusted for widely differing definition of "saving". By 2017, Eneco's penetration of thermo- stats (with pseudo smart meters) will be at sufficient scale to make an impact on its mar- ket share of retail energy contracts. At that point, half its energy customer base will stay with the company longer (since precedent shows that first-year churn halves), while new customers will be easier to acquire (again, precedent shows that net promoter score and willingness to recommend the sup- plier improve). The benefits don't stop there. By provid- ing boiler remote diagnostics and integra- tion with solar photovoltaics, Eneco is able to look at models to upsell energy services and to create innovative new models. With economies of scope and scale it will presum- ably be able afford to roll out the thermostat to a wider and wider audience in and beyond the energy customer base – subsidising it if it needs to. British Gas's Alert Me-based solution isn't yet on the same penetration trajectory of its (much larger) customer base as Eneco, but it is the European leader by volume and was rolling out 4,000 Hive thermostats sales a week by the end of 2014. Many people in the smart world claim that most sales leads for BG's Hive smart thermostat come from the boiler sales and boiler cover part of the business. Like Eneco, it has been trialling boiler diagnostics too. What if British Gas figured out a business case like Eneco to get to 50 per cent of its cus- tomer base using synergies from the energy services business? Given the impact of the thermostat on energy churn and acquisition, if British Gas could reach high penetration of thermostats, it would change energy com- petition and be difficult for other utilities to copy because they lack a large energy ser- vices division. For now, the biggest barrier separating market leaders like Eneco and British Gas from the rest of the pack is that although most utilities have partnered to provide a smart home solution, usually starting with the smart thermostat, they don't have scale. According to Delta-ee's Connected Home research service there are just 700,000 smart heat devices installed in Europe, and this includes the large skewed German market for radiator valves. The conundrum for most utilities is that the business case for smart products is not straightforward. If you start with the costs, add some margin, and test how many users will take it at the resulting price, the answer is not many. If you provide the device free with fixed- price energy tariffs, take-up improves but you still can't get to 50 per cent of the cus- tomer base. So the boardroom loses inter- est, perked up occasionally by a story such as Google buying Nest for £2.7 billion, but unable to see the bottom line impact for their utility. To respond to the opportunities demon- strated by Eneco and the threats looming from outside the industry, the business case needs to be written the other way round, with a mindset of "out of the box". I recently collaborated with specialist European energy and smart home consul- tancy Delta-ee to come up with 20 profit drivers that utilities can leverage in a smart energy and heat business case which we have used as the basis of a methodology to help a number of clients. Eneco and British Gas both demon- strate the importance of leadership from the boardroom so that siloed departments work together on creative solutions, which makes possible so new culture (British Gas launched a start-up-like separate division), new brands such as Eneco's "Toon" and Brit- ish Gas's "Hive", and above-the-line TV cam- paign promotions. Innovative solutions also benefit from innovative partners. Players like GEO (whose Cosy thermostat is promoted by First Util- ity), Alert-me and Quby pride themselves on their partnership approach. In GEO's case this might include building upsell engines or making the gateway double as a smart meter consumer access device or a host of other things. Vision is also needed to decide whether to pursue a self-learning thermostat like Nest or Tado that seeks to reduce engagement with customers or to pursue a utility-branded engagement strategy – or a mixture. The vision of the wider connected home has to be decided too with Netatmo, Google/Nest, RWE, Quivicon, Quby and many others all offering very differing roadmaps. Eneco has shown it is possible for a utility to reach meaningful scale in the connected home space, but it requires boardroom vision and leadership, an innovative business case, supplier partnership and a new approach to culture and brand. About the author Susan Furnell is a freelance consultant. She specialises in smart home energy. Smart Meter Quarterly Trend Report The Smart Meter Quarterly Trend Report is available in full, right now, from the Utility Week Intelligence platform. Published quarterly, these high-level Intelligence reports focus on a key industry trend or development analysing the very latest regulatory and market data to create actionable insight and business intelligence. To see the power of Intelligence for yourself, simply contact Paul Tweedale on PaulTweed- ale@fav-house.com or 01342 332099 to arrange your completely FREE trial. The next article in Sue Furnell's series for Utility Week will focus on disruption of the heating market using smart tech.

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