New Game and New Rules in Energy Markets

The energy markets are moving towards an open, increasingly competitive market model. Utilities are now facing the question:

How do we adapt to the needs of the new generation?

There is a new game, and it has new rules.

This model goes hand in hand with an emerging new generation of active Energy Citizens, supported by the rise of renewable energy sources and technology that is easily available. The increasing number of active energy citizens carefully consider the environmental impact of their energy consumption. In addition to the environmental impact, customers want to reduce their energy bill. According to research conducted by Ernst & Young in 2015 (1), price was the single most important factor to consider for 78% of UK consumers when switching their energy retailer.

This leads us to the first new rule of the new game:

The New Rule #1: Really know your customer

Utilities can only succeed by knowing their customers’ needs and preferences.

Some of the customers want environmentally clean choices. You need to let them choose their energy source and reduce their consumption.

Some of the customers appreciate the smallest possible energy bills. You need to help them reduce their bills.

If you can provide customers with both — reduced energy consumption and smaller invoices — you will become their preferred supplier.

In Engerati’s panel discussion, José Quieros Almeida, representing a Portuguese retailer EDP Distribution, said that “utilities are not here to sell electricity anymore, we’re here for a bigger mission.” That sums up the state of the most advanced markets in an excellent way. The role of the utilities is changing:

The New Rule #2: Decide and act on your new role

Right now you might still be selling electricity, but what about tomorrow? What is your business strategy? Is it to be a Retailer or a Distribution System Operator? How do you differentiate from other retailers? What is your value proposition?

Utilities need to find smart solutions to integrate the future customers, many of whom will both produce and consume renewable energy. The prosumers. Eventually this means new and profitable service-oriented business models, serving customers through lower costs and increased reliability, and the environment through greatly reduced emissions.

Following rule #1, rework your business plan for tomorrow’s market, and focus on the goals of your business.

In many markets, implementing an open market model involves implementing a national data hub. Data hubs change how utilities need to run their business. Change provides opportunities to create new business. Data hubs are not just another regulation to be met, they are a kick-off for the whole market to rethink our future.

At the same time, digitalization and other major technological trends are changing the way customers behave and what they demand. To cope with data hubs and similar major transformations in the market, every utility will need software solutions that are standardized and compatible through open interfaces:

The new rule #3: Choose innovative partners

To enable and support the change, choose software partners that are continuously innovating and focus on the needs of the future market. Make sure your partners can deliver solutions that are compatible with all the upcoming changes, and give you the tools to develop your business. Prioritize automating the business to reduce your operational expenses.

The whole energy industry raises questions about how IT solutions and choices can contribute to cost reduction and cost control, and at same time leverage innovation towards energy customers. Over the years, large utilities have challenged me and my colleagues with the question: Will standardization limit the competitive edge for utilities? It has been a tough call to convince the utilities about standardization. Together with our customers, we have demonstrated in practice that standardization and competitive edge have clear synergies, and are not contradictory when played out wisely.

For us software vendors, the new rules simply mean one thing: We’re here to change the way utilities conduct business with their customers. To accomplish that, we need to work with the front-runners. With them we innovate. With them we create solutions that enable a new way of running the business.

In my next piece I will give some examples of innovative utility companies.

Stian

(1) Empowering energy customers: Consumer attitudes towards switching gas and electricity suppliers. 2015 EYGM Limited.