The external circumstances for Nordic energy retailers are changing
The external circumstances for Nordic energy retailers are changing. In this post, I will highlight the most important factors that will have an impact on the energy retailers’ business.
Customers are changing, they will expect a personalized energy experience.
The major drivers for the changing behaviour of the customers are technical innovation (e.g. micro generation and electricity storage) and continued digitalization of services. Customers expect modern and sometimes complex technology solutions to be packaged and made available for them in an easy manner. And they want these services to be relevant for them as individuals. They want a personalized energy experience.
Anders H. Lier sums up the changing landscape nicely in his one-minute video “Successful organizations leverage digitalization to win the hearts and minds of energy consumers“. Stian Madsen has on the other hand elaborated the topic more in his recent posts:
See them for more in-depth discussion!
Another set of changes is initiated by the regulators, they are trying to make the energy market better.
With the vision of a common Nordic retailer centric market model, the series of changes starting with Nordic balance settlement (NBS) will be followed up by data hubs and a clearer split between DSO and retailer. You can read more about the effects of the data hub in “Case Finland” in our previous LinkedIn Pulse series “Towards Data hub centric electricity market” (currently in Finnish only).
At the same time, Denmark and Norway are rolling out their first set of smart meters, and Sweden will start replacing their monthly read meters to more modern meters. Finland already concluded the roll out of hourly measured meters, so the entire Nordic market will soon have a lot of new information available about the energy customers.
Last but not least, the Energy Union and Paris contract will also have an impact on the energy market. The effects could be harder to pinpoint precisely, but one thing is for sure: there will be consequences also in the Nordic countries. And even if we don’t all always agree on all the measures the regulators are taking, we share the same mission: Making energy market better.
Someone will leverage the higher expectations of the customers and the lower market entry barrier — make sure you are included.
Today, the energy retailers usually have limited chances to differentiate in the market. With electricity especially, today’s typical toolbox only contains price, customer service quality and branding. And unfortunately for the energy retailer, the price is the most important criteria for the customer in the commoditized market.
To make matters worse, the changing dynamics on the market with a lot more weather dependent production (e.g. solar and wind) and high peak consumption devices (e.g. electric vehicle chargers and heat pumps) suggest an even more volatile price in the future wholesale market. Combining this with the price competition to attract new customers means that the energy retailers are taking a double risk: lower margin in a higher risk environment.
As a cherry on top of the cake, the regulator’s drive for lowering market entry barriers will attract non-traditional players to the energy market. Most probable entrants will be companies who already have access to a large customer base and a digital sales channels in place. These include e.g. online retailers, super market chains and technology vendors.
I will take you further in my upcoming three articles, focusing on elaborating how the energy retailers can work in the changing environment and turn the change into a positive impact on their business.
Sami
