Getting smart: how do utilities survive and thrive in the new world?

Energy companies across Europe are under pressure – increasing costs, intervention from regulators, and doubts over the security of supply are all contributing to the current squeeze on growth and profits. Many industry commentators believe the advent of smart meters will be the saviour of the sector – but will deploying a piece of hardware in the home be enough to drive revenue and growth across the industry?

The decision to roll out 50 million smart meters across the UK by 2020 wasn’t without controversy. Critics quickly voiced concerns about the cost of the project and whether the £10.9 billion spend could be justified. One argument in particular centred on in-home displays (IHDs) and whether they are the most effective way of reducing energy usage in the home on a long term basis. Concern around IHDs is valid; a recent US Department of Energy report, one of the most comprehensive reports on smart metering ever conducted, said IHDs were of little value.

Smarter meters – key numbers

50 million smart meters across the UK by 2020
£6.2 billion net benefits to the UK
£10.9 billion – estimated cost of the smart meter programme
£214.50 – cost per household of installing smart meters
44% – the number of utility customer digitally engaged
9 minutes – the average time per year customers engage with their utilities

In order to get a return from smart meters, governments, utilities and customers need to have confidence they will deliver value. Defined through the business case (or impact assessment in government jargon), value from the UK smart meter rollout will be derived through operational savings, energy efficiency and better customer engagement.

The UK Government’s recent consultation on IHDs and change in direction to allow alternative technologies is perhaps one of the most important steps forward to ensure a successful rollout. The anticipated change to suppliers’ licence conditions at the end of the year governing the provision of IHDs suggests the energy efficiency savings can now be realised. Moreover, there is no denying energy companies will drive significant operational savings. However, the debate as to how best to engage customers continues – this is particularly pertinent to the survival and growth of utilities.

Bridging the gap between consumers and their energy providers is vital to retaining customers, reducing the cost of serving them, and increasing revenue from additional services. We know utilities don’t get the level of customer engagement they seek, particularly through digital channels. Research from Accenture shows that only 44 per cent of utility customers are digitally engaged. Moreover, energy customers interact with their utilities for just nine minutes a year.

A failure to communicate with customers costs energy companies significantly. Grumpy consumers are much more expensive to serve than those who are happy. Opower research found that nearly two thirds of UK customers who said they’ve received an unexpected high bill said they would be more likely to switch provider as a result. Another pillar of the smart meter rollout is intended to increase the ease of switching supplier; consequently, utilities will have to grasp every opportunity to retain customers. More so than ever before, better engagement is paramount.

However, customers don’t necessarily want yet more communication with their energy providers per se. Customers don’t want to be swamped by irrelevant communications they don’t seek, don’t want and don’t understand. The ‘up-sell’ call at 7pm on a Friday evening as you’re sitting down to a family dinner ahead of the weekend is about as welcome as root canal surgery. Yet home service companies all spend billions doing just that type of communication…with very limited return. Whilst there is a balance to be struck, more pressing is the need for utilities to maximise good communication and minimise bad communication.

In order to engage customers, companies must provide highly personalised insights, at the right time, through the right channel. Take Amazon as an example: the engagement begins with ‘customers like you that bought x also y & z’ – this highly personalised message fuses the critical trinity of ‘behavioural science’, ‘computer science’ and ‘big data analytics’. The right channel is the one they just used to make a purchase; and the right time is when they’ve already made the decision to use that exact moment to buy something. The additional few seconds it takes to click a few more buttons and upsell takes no time at all – and no resource.

The world of retail energy services is in flux – a consensus on the right path forward is yet to be defined. Wholesale splits between generation, transmission, and distribution and retail is a very realistic scenario. The thinking behind the new energy retail modelling is that in a game of low margin and high volume, growth and revenue will be delivered through bundled services. Crucially, new services are likely to span not just energy but also water, home security, telecommunications and media. The telco drive towards ‘quad play’ (fixed line, mobile, broadband and TV) was accelerated by Sky’s move into the sector and BT’s launch of its own television channel – Vodafone followed quickly. The decision by SSE to sell fixed line and broadband may very well speed up the long anticipated arrival of telcos into the energy sector – the field is set to expand dramatically. Undoubtedly, smart meters will be a key driver to enabling the new model. However, the real key is delivering world-class customer engagement. The utility, or telco, to get it right first will win the race.

Simon Hill – vice president EMEA, Opower