December 22, 2015

The Nordic hub is coming: Are you ready?

Carl Lidholm

Head of Strategy and New Business, Energy Utilities, Tieto

The Nordic hub will change the entire foundation of the energy industry for retail, distribution and consumers alike—and it is just around the corner. If you are running a business in the energy market, connecting to the hub will pose a big challenge - but also a tremendous opportunity to increase your customers base in the upcoming years.

By 2030, all the Nordic countries will be a part of a Nordic data hub that will link all energy market actors—distributors, retailers and consumers—providing them integrated access to all metering data. Norway will be the first to join the market in spring 2017. The data hub will be operational in Finland by 2019 and Sweden by 2020.

A hub solution will significantly improve data handling for your customers and thus their overall customer experience. But this convenience comes at a price. According to the first estimates, connecting to the hub will impose significant, upfront costs for energy businesses. These are however just costs for financing the hub - additional costs will be generated from changes in IT setups, migration labour, tests and organizational changes.

The challenge

If you are an energy retailer or distributor wanting to join the hub, this poses a challenging situation: How do you comply with current regulations given the currently low profit margins in the energy sector? How do you simultaneously focus on the end customer journey? The biggest challenge will be to drive digitalization and business development at the same—whilst handling regulatory changes.

If you are an energy retailer, compliance already consumes much of your investment capabilities. In addition to costs related to connecting to the hub, there are the costs of setting up hub processes, testing, migration, and establishing their own IT systems.

According to the pricing system, the lowest retail energy prices will be offered by those companies that most efficiently utilise economies of scale.  For small companies in particular, costs may aggregate quickly.

There is a big risk of needing to increase your price level above competitive market prices, whilst being unable to capitalise on new opportunities enabled by the changes. The number of hub-compliant companies may also drop quite significantly as a result of partnerships formed among companies in order to mitigate costs.

The solution

What could be the solution? How can you as an energy company connect to the hub, whilst complying with current regulations and focusing on the end customer journey?

It is important to note that the hub can also be seen as a tremendous opportunity to increase your customer base in the upcoming years. Most companies will be preoccupied with getting their systems to function properly; therefore, companies that are prepared for this change will have an opportunity to create compelling, innovative customer journeys.

Since the overall costs are likely to increase over the next several years, it will be necessary to improve efficiency by digitizing your business processes and lower the total costs of your IT investments. Ideally, the upfront IT investments need to be minimised. As such, you should consider a model for your IT services where you pay flexibly according to the volume or variety of services your business actually requires. The movement from license-based IT to Software as a Service will increase rapidly in the upcoming years.  

There is always a risk that market regulatory changes are implemented so quickly that you lose connections to current customers or will be unable to capitalise on new opportunities. Lowering overall costs will therefore be crucial to succeeding in this market. Retailers will need a partner that can assist them through these complicated times. Whether you are a retailer or a distributor, change is ahead. Therefore it is important to make sure that you have an IT supplier that can support you with a cost efficient, regulatory compliant solution, so you can focus on strengthening your business.

To learn more, visit our Recharge your enegy business site!

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