Prepare for pay-as-you-go in a smart-enabled world

Suppliers with the right approach to smart meter technology will be able to secure a large slice of the prepayment market as consumers start to realise the benefits of paying in this way, says Jack Coxeter.

With the advent of smart metering set to level the playing field for the utilities industry, a culture shift is also on the horizon around how users not only consume but pay for their energy.

With direct debit agreements seen as the most effective way to pay for utilities, smart metering opens up the options for both suppliers and consumers by paving the way for prepayment methods to become mainstream. But while this is certainly great news for the consumer, experience in smart prepay in the UK is low, with only a few suppliers having made the switch successfully.

Unless the upgrade challenge is tackled in the right way, energy suppliers could find themselves in hot water, with unresolved data issues and holes in their underlying IT infrastructure coming to light fast.

Traditionally perceived as something for those on a low income, the method of prepayment for utility services is set to rise up the ranks, as both suppliers and consumers realise the benefits it can bring in the smart meter age.

An estimated 13 per cent of customers in the UK currently pay for their energy by prepayment, but that is expected to increase substantially, with research suggesting that it could rise to 30 per cent once smart meters are fully rolled out.

Instead of pay-as-you-go offering a short-term solution that could cost you more in the long term, smart metering has the potential to reduce the cost difference between credit and prepayment methods, creating opportunities for suppliers to charge for prepayment at virtually the same price as standard credit. With energy suppliers using a meter built to a common standard, the difference in capital cost between prepayment and credit meters will all but disappear, making prepayment a more attractive option for consumers who might not have previously considered it. This could take it out of the low-income user market into a broader population of people who like the attributes of pay-as-you-go.

As well as the cost management aspect, prepayment meters offer an additional layer of functionality to help consumers better manage credit and energy usage. This will give both the consumer and energy supplier more detailed data on how they are using their balances but also presents one of the main challenges for utility companies.

Big billing, the upgrade of billing and customer information systems to turn the increasing volume of data from smart metering into revenue, will see suppliers collecting increased levels of data associated with prepayment, with many struggling to manage it and reap the opportunities it presents.

A data deluge is expected to come with the increased amount of meter read data. The upgraded payment and metering options will have a huge impact on the existing technology infrastructure designed to manage usage data and customer information. There is also potentially more to go wrong, with additional prepayment interface devices and tariffs to test and an increased amount of end-to-end integration testing for prepay channels.

Despite these risks, the advent of Smets (smart metering equipment technical specifications) requires that all suppliers make the change and provide meters that can handle both credit and prepay.

However, consumers are not likely to give suppliers any grace during the transition. They will simply expect new systems to “just work”. Information needs to be accurate and up to date and, if basic functions fail, consumers are more likely to switch supplier. We have already seen some suppliers roll out smart meters to customers which need firmware upgrades to make them work in prepay mode, which could represent a big risk if they fail to ensure the software works end-to-end.

Add to this new market entrants who come without the baggage of legacy systems and the large energy suppliers could find themselves out of favour if they can’t provide a slick and reliable prepayment service.

Those suppliers that approach the pending technology upgrade in the right way will put themselves in prime position to secure a large slice of the prepayment market as consumers start to realise the benefits of paying for their utilities in this way. Instead of a knee-jerk reaction, any overhaul should be seen as the start of the next chapter in the evolution of the market, with due diligence at its heart.

Technology is now a game changer for all industries and although smart metering marks one of the biggest technology changes within the utilities industry, suppliers must be ready to cope with the next change and use this as an opportunity to future-proof their processes. Although the full rollout of smart meters isn’t scheduled to complete until 2020, 62 per cent of consumers are sceptical that it will go smoothly, as many previous big IT projects have faced delays or gone over budget.

However, by putting quality standards and thorough testing milestones in place to ensure that when this and future upgrades happen, risks and potential glitches will be minimised, consumer confidence will be assured.

Smart metering prepayment is a huge opportunity to re-engage consumers with their energy use, giving a more direct way of showing energy usage and additional flexibility over how and when they pay their bills.

Jack Coxeter, lead consultant of power and communications, SQS