Building an environment for new business models

Martin Dunlea explains how digital technologies need to dovetail with the development of new service-based business models in the utility sector.

In his 1930 State of the Union address, Herbert Hoover said: “Competition is not only the basis of protection to the consumer, but is the incentive to progress.” This certainly holds true in the UK’s utilities market, where growing competition and a more engaged user-base has seen energy providers develop smarter business models to help them better engage with their customers and operate more efficiently.

While changes to regulation like the Electricity Market Reform (EMR) have been instrumental in disrupting the status quo, the growth and adoption of digital technologies will have more significant and enduring consequences for the energy industry. The value of data-driven insight has been well-established, and today near real-time data is becoming the cornerstone of the industry’s digital transformation – underpinning utilities’ ability to successfully carve out new business opportunities and remain competitive.

There are several factors behind this shift that are forcing utilities to rethink their traditional business models.

For one, consumer demand for renewable energy is rising, requiring utilities to manage both stable and unstable energy sources efficiently on a network that wasn’t originally designed for the task. Integrating a near real-time view of flow conditions into their network management operations will allow these companies to address fast-shifting supply and demand conditions more proactively. This will in turn help them optimise the balance between traditional and alternative energy sources so they can deliver a more consistent service for customers and reduce the risk of outages.

A similar impetus comes from the rise of distributed generation and microgrids, and of green energy prosumers who have taken sustainable energy generation into their own hands. Again, utilities will need to work a much more granular view of network behaviour into their operations across the board to accommodate these trends.

A major driver behind the utility industry’s digital transformation is the impending roll-out of over 50 million smart meters in UK homes and businesses. Both consumers and business owners will expect utilities to add value to these devices, something they can only achieve if they are equipped to collect, analyse, and process consumption data, and feed the insights they uncover back to their customers.

These insights will also allow them to develop more customer-centric services. For example, by analysing household usage profiles, energy providers can develop specific programmes that align with the individual preferences of each of their customers, and assist in helping them to optimise energy use on their own terms.

This also extends to billing. According to the chief of the Ombudsman services, Lewis Shand Smith, roughly 75 per cent of complaints to utilities concern inaccurate bills. The collective pressure that both consumers and the government are placing on the retail market is pushing utilities towards giving customers greater control over their choice of provider, and how they pay for energy.

Consumers also expect more choice. Some want the certainty of a constant, fixed price for their energy; others prefer the lowest possible price in the market; others rather pay a premium for green energy. For their part, customers in dual fuel homes may choose to source gas and electricity from different providers.

Utilities must begin using the data at their disposal to deliver a more flexible billing approach that takes into account customers’ consumption habits and payment preferences. This is becoming increasingly important as the price of energy becomes less of a differentiator than the range of services and payment options that a provider can offer.

For utilities, the biggest leap that comes from ingraining near real-time data access across their organisation is an evolution from simply reporting on a network or customer issues after the fact to using data to act more proactively. This allows them to develop business models which help avoid many network or service problems before they even materialise.

When a home meter begins showing signs of ageing, for example, a utility can act swiftly by sending a service team to replace it before the issue has any effect on the customer’s energy bill.  

This data is just as valuable for customer-facing teams. Having an up-to-the-minute view of a consumer’s account history and usage profile while on a call inevitably leads to a more informed and effective service.

As the generation of digital-natives comes of age, the way customers and utilities communicate with each other is also changing. Phone calls and emails have given way to self-service and a more public dialogue between both parties on social media.

To ensure they can effectively engage with customers on Twitter and LinkedIn, utilities will begin embedding social media sentiment data into their customer-service models. This way they will be able to assess customer satisfaction in light of service conditions across the network, and address individual concerns in a matter of minutes. By segmenting customer sentiment by geography, utilities will also be able to monitor and reconcile localised pockets of heightened social media activity with flow conditions in a particular sector and begin attending to the situation much more quickly. 

Extending social sentiment into the customer service function will ensure that when a customer calls regarding an outage or service issue, the representative they speak with will instantly have this information displayed in front of them and be better placed to address the caller’s concerns.

Utilities in the UK must navigate an increasingly demanding and competitive market, and the need to adapt business models to the digital age has become an absolute priority. From smarter operations strategies, to improved customer service to lower operating costs, the success of this transformation will hinge upon a shift away from the reactive approach that has governed the industry to-date and towards more proactive strategies built on the near-real time analysis of data.

Ultimately, utilities’ ability to meet the demands of the industry’s digital transformation will depend on their ability to better manage their data and drive new service-based business opportunities. Or as Herbert Hoover neatly put it: “Wisdom of times consists of knowing what to do next”.