Germany: a glimpse into the future UK market

As the UK energy retail market undergoes radical change, what can the UK learn about its future from a country already experiencing many of the scenarios likely to emerge here?

If UK energy suppliers want a glimpse into what the future of the UK energy market could look like, the German energy market might be a good place to start. Three of the major themes in the UK are already in play in a big way in Germany; the connected homes market that will follow on from smart metering, the rise of independents and the move to a decentralised energy supply market.

A marketplace full of Independents

The UK energy supply market has reached 31 suppliers following a big push from government to encourage new entrants into the market to break up the oligopoly of the big six large suppliers. This has improved competition and helped lower prices as independents fight to build market share. But prices can only be beaten so low before they become unsustainable and independents must find other ways to stand out and be the supplier of choice. This could be through great customer service, offering green energy, or an innovative product like Flow Energy’s innovative boiler. The more independents enter the market, the tougher this will become.

New suppliers hoping to enter the German market already have to overcome this problem. Similar to the UK, Germany has a ‘big four’ – RWE, Eon, ENBW and Vattenfall – who hold an aggregate market share of 42 per cent. But the other 58 per cent is held by over 1,500 suppliers, of which 80 per cent supply fewer than 30,000 metering points.

Getting a foothold in this market is quite a challenge, but UK independent supplier First Utility plans to do just that. It has teamed up with energy giant Shell to supply in Germany under the Shell brand, in the hopes of distinguishing itself from the competition, chief executive Ian McCaig told Utility Week (see further below). He hopes that First Utility’s business model of fair transparent pricing will be attractive amongst a wealth of options.

The connected homes market

The ‘connected homes’ market is yet to really take off in the UK, but is set to explode following the mass rollout of smart meters by 2020. With such an ambitious programme the UK is one of the most attractive markets for connected homes businesses. Research firm Strategy Analysts have forecasted the UK market will stand at 7.7 million households, second only to Germany at 11.6 million.

But major European telecoms company Deutsche Telecoms has warned UK suppliers to start acting now because the smart meter rollout not only unlocks this market, but is also the deadline at which energy suppliers will lose their competitive advantage. When the DCC network goes live in 2016, third parties such as Google will get their hands on energy consumption data and could push energy suppliers out of the market, leaving them merely energy providers while major retailers clean up on the lucrative connected homes market.

Deutsche Telekom’s Qivicon platform – what Deutsche Telekoms calls a ‘CAD-plus’- could provide the answer for seeing off this threat. Deutsche Telekom’s UK head of business development Jon Carter said that the open nature of the platform “almost allows utilities to have a picklist of a real broad range of partnerships so that they can actually create some really innovative models around warranty, assistance services, insurance, retail and beyond.”

Deutsche Telekoms is currently working with six major energy suppliers, offering around 100 partnership opportunities in Germany. As Deutsche Telekoms is actively looking to bring the platform to the UK, this could provide the future business model for UK suppliers.

Community Energy

Last week at its party conference, Labour’s shadow energy secretary Lisa Nandy rowed back on the wish to renationalise energy in favour of what she called a “more radical option” – democratising it. “With the right support, community-based energy companies and cooperatives could be the new powerhouse, and a path to a more secure future. There should be nothing to stop every community in this country owning its own clean power station,” she told the conference.

Labour’s vision of the UK’s future energy market can again be glimpsed in Germany where more than 1000 cooperatives are in operation. Part of the reason for the high number in Germany is community energy projects can sell their energy directly to a third party, bypassing the national grid. In the UK this is not currently the case, but again last week Open Utility and Good Energy launched the trial of a trading service Piclo, allowing renewable generators to do just that.