Kilo-what? Innovation in retail energy
The retail energy market remains too focused on delivering products and services rather than serving the underlying outcomes consumers are looking for.
Its simple to demonstrate the disconnect.
In the home, we set our thermostats to heat or cool the air to a specific temperature. We demonstrate our desire for a comfortable environment for us and our family to enjoy.
But when we get out bills, we’re charged for consumption, typically in kilowatt hours (Kwh) of energy consumed.
These units of consumption are obscure to most consumers, and relate in no way to our desire for a warm (or cool) and comfortable home — the reason why we use energy.
Interpreting bills presented in this way requires significant mental agility. So does calculating the most cost effective energy tariff, as demonstrated by the fact that around two thirds of UK consumers are on standard variable tariffs* — the tariff most customers default to if they don’t pick a most cost effective fixed rate or special deal.
A shift in focus away from price is needed to support innovation in the retail energy market.
For suppliers, price as a point of differentiation cannot be sustainable in a market where — according to the UK regulator, Ofgem — 95% and up of a suppliers costs are external**, such as the wholesales costs of the energy they supply, the cost of transmitting the energy to end users, taxes, and government levies.
What’s needed is a market where energy users and energy retailers can exchange value (read “spend and receive money”) on a fairer basis.
Instead of selling energy, a supplier that sold the outcome consumers want — a warm and comfortable home — might find they can exchange more value with happier customers.
Instead of kilowatt hours as the unit of measure, “degrees Celsius hours” — i.e. how long your home is kept at a specific temperature — makes more sense.
Real time data from customers’ smart meters and connected thermostats combined with real time weather data would give this new wave of “home management companies” some of the data they need to meet these kind of contracted obligations.
Periodic location data from your households’ mobile devices could be augmented to map typical occupancy, ensuring your home is always at your preferred temperature when you’re home without wasting energy when you’re not.
This approach enables current energy suppliers to expand the scope of their involvement in consumers’ lives.
If they know when I’m home and when I typically leave for work, they can involve themselves in notifying me of weather that will likely impact my walk to work.
And as electric cars become more prevalent, managing when the car is charged and pre-heated or cooled based on my usual commute as well as any traffic or appointments in my calendar that require me to leave earlier adds enormous value to me as a consumer.
For energy suppliers, this level of insight into consumers lives also provides scope to balance increasing demand on power distribution networks increasingly powered by often less predictable renewable energy sources, such as wind and solar.
These are maybe big ideas requiring a combination of innovation in energy suppliers and the regulators as well as acceptance of the increase in data sharing by consumers.
But in the short term there is much retail energy companies can do in order to more directly address the actual things consumers want, moving them away from price towards the experience they stage for their customers as a competitive advantage.
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Stuart Lambert is Founder and Principal Consultant at TwistCX, a consultancy and technology business focused on helping brands stage high quality, low effort customer experiences.
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*Ofgem, 14th December 2016 https://www.ofgem.gov.uk/publications-and-updates/ofgem-publishes-new-information-standard-variable-tariffs
**Ofgem, 31st July 2017. https://www.ofgem.gov.uk/publications-and-updates/infographic-bills-prices-and-profits
