Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government
Issue link: https://fhpublishing.uberflip.com/i/723894
26 | 9TH - 15TH SEPTEMBER 2016 | UTILITY WEEK Customers Market view S ince its privatisation in 1989, the water industry in England and Wales has functioned as a non-competitive market in which regionally regulated busi- nesses operate as both network provider and retailer – managing storage, treatment, supply, billing and customer experience. Customers, as a result, have not been able to switch provider to get a better deal or better customer service. This is about to change for business cus- tomers: competition is being introduced for the first time for all business users in April 2017 in one of the most transformational changes to hit the water industry in decades. As participants and the interested public wait to see how this will materialise, it looks likely that domestic market competition will not be far off. As water companies prepare for further retail competition, many – particularly in the South and South East of England – have also begun universal smart metering programmes for domestic customers to future-proof water supplies in areas that the environment secre- tary has deemed severely water stressed. These companies can learn lessons from the competitive energy retail sector, where the adoption of smart meters is transforming the ways in which consumers interact with companies. Energy retailers are focusing on richer, data-driven customer experiences and are expanding their presence in the digi- tally enabled 'connected home'. Smart meters can bring significant oppor- tunities to both customers and suppliers. Being conscious of this is critically important to the strategic decisions and direction taken by each organisation. As a result, water com- panies that are not in water-stressed areas may still opt to roll out smart meters (albeit not on a compulsory basis), so that they too can reap the benefits, some of which are cov- ered below. Reducing water use. Smart water meters can help reduce water use by making cus- tomers more aware of what they use, helping customers reduce their water bills and com- panies better manage peaks and troughs in demand. There have been some successes: customers with smart water meters have cut consumption by 10-15 per cent com- pared with a reduction of only 2-5 per cent in energy. There have also been challenges: some households are more susceptible than others to bill increases compared with their historic rateable value charge, so are less willing to engage with companies trying to install them. Southern Water has been something of a flagbearer for smart water meter trials in the UK. A five-year scheme to install meters across the UK's water-stressed south-east region saved 27 million litres of water every day, according to the provider. Transforming the organisation. Energy retailers have used new metering technol- ogy as a mechanism to deliver large-scale transformational change. Water companies could follow suit, using the opportunity to lower operational costs by investing in people, process, technology; or leveraging smart water meters as a proactive customer positioning vehicle ahead of likely future domestic competition. Companies with data-rich customer service and an ability to offer various tariffs, bundling utility or extra services together, may find this a valuable competitive advantage. Improving the network. Smart water meters allow utilities to better understand water use and identify where consumption is abnormal. They can act as extra sensors on the network, identifying leaks and providing information to enable better decision-mak- ing for capital investment. Better decisions translate to better allocation of large cash- intensive network replacement programmes, ultimately providing water to customers at a lower cost. In conclusion, Great Britain's smart metering programme has been transforma- tive and placed pressure on all market par- ticipants. Companies first off the mark, as well as fast adopters, are competing for a dif- ferentiated position in the market while bal- ancing the inevitable risks associated with large-scale rollouts of new technology. With smart water meters and the impact of competition, it is likely that new chal- lenger brands will emerge in the water industry and eat into market share. 'Hori- zontal growth' is a key area – where market players can offer extra services related to the core product or a range of different prod- uct options. A different strategy is based on being 'lean and simple' – targeting opera- tional efficiencies, and products and propo- sitions that reduce the effort of the customer to understand, purchase and transact. Smart meters are important components of evolving smart networks. Electricity and gas companies are increasingly able to predict and meet demand more effectively through smart meters. For water companies, they are – and will be – a key enabler to opti- mise the water resource itself and to spend money in the optimum way to produce and deliver this essential resource into custom- ers' homes. Stephen Haw, partner, Steve Airey, senior manager, and Hayley Speller, manager, Baringa What energy can teach water The water industry can learn a lot from the energy sector about how best to manage competition, not least by adopting smart meters, say Stephen Haw, Steve Airey and Hayley Speller. Case study: Thames Water Thames Water began its industry-first rollout of smart meters in February 2014, with the aim of metering all 3.3 million properties it supplies. The large programme of work will take years to complete, with a smart meter for every Thames customer delivered over three AMP periods at a cost of £300 million. Beginning in London – where water resources are tightest – the company is cur- rently working borough-by-borough, before starting work in the Thames Valley from 2020. Thames has said its metered customers generally use 12 per cent less water than those who are unmetered. The meters con- nect to a wireless networks so customers can view their water consumption online at any time. The meters also provide Thames with a more detailed understanding of where water is being used – and in what quantities – across its network, improving its ability to find and fix leaks.