Goldsmiths: Smart technology will threaten Ofgem and big suppliers

“Dramatic upheaval” by emerging smart home technology could leave Ofgem and the big six energy suppliers behind, Goldsmiths and the Energy Savings Trust (EST) has warned.

Ahead of the launch of a report on how consumers will interact with smart technology by Goldsmiths, and commissioned by the EST, the EST’s director of operations Duncan McCombie said emerging technology would result in businesses being completely differently by the time the next pricing settlement occurs.

McCombie said: “With RIIO and the regulator funding mechanism going to eight years within the energy sector the regulator isn’t ready for that fundamental change that is happening, businesses will be completely different by the time it comes to the next settlement and the next negotiation of prices.”

Goldsmith’s innovation research director Dr Chris Brauer said ‘digitisation’ would cause “significant disruption” in the market place, and the short expected timescale of five years also calls into question large suppliers’ ability to adapt in time.

“In the next five years we will see dramatic upheaval within the energy marketplace, based on the emerging possibilities on the digitisation and smart layer of technology that functions within that.

“Beginning the adaption process now is fairly critical, there has been a lot of resistance from the existing energy suppliers around these transitions, they are preparing by making acquisitions, but they have been on top of a very profitable marketplace in a relatively monopolised position for a very long time, and it’s going to take a little while before that grip is loosened.”

The report’s main finding is that consumers will increasingly turn to automated ‘Home Operating Systems’ to manage their energy use, and that to reduce consumption the focus must be on collective consumption, resulting in a customer centric energy market place structure with lower costs.

McCombie said this offers large suppliers the opportunity to improve customer engagement, and that early adaptation meant “some of the ones not so good at it could probably leap ahead very quickly.”

To do this McCombie expects large suppliers to acquire data and analytics specialists, such Eon’s recent part-acquisition of Enervee, rather than try and “reinvent the wheel” and develop the skills in house.

McCombie said suppliers would also need to change by adopting a new approach to customers to integrate the increasing influx of new smart home technology into their business models.  He said that suppliers should not wait until the smart meter rollout to “stop calling them consumers”. 

Instead he said they should use data from dumb meters now to do segmented analysis and treat them as individuals “if suppliers wish to survive going forward in a federated energy sector in the future.”

But Brauer is also warning that supportive regulation will be necessary to enable automated energy management systems to create real energy savings.

“People are beginning to realise it’s not enough just to put start technologies in the home and start saving energy. You can’t just ask consumers to start changing their behaviour and expect to see widespread savings in energy. It has to work all through the market.”