April 27, 2017

Have you already updated your business plan for the updated energy market?

Carl Lidholm

Head of Strategy and New Business, Energy Utilities, Tieto

Since last year, some interesting developments have taken place in the Nordic energy market.

Urbanization is seldom mentioned as a megatrend in energy. Growth, however, largely comes from new housing in urban areas. New connections are at an all-time high due to large construction projects. Private housing and apartments in large cities are increasing the most. Urbanization increases the requirement to atomize the process for new connections in metropolitan areas.

In Norway and Finland, spot contracts have been the norm for years. This year, for the first time ever, more than half of the Swedish energy consumers have a spot-based contract with their retailers (51%). This means lower volumes in the retailers’ financial trading and, resultantly, that the larger retailers get a smaller volume on which to make a trading profit. This development also lowers the market threshold for new actors and increases supplier switches.

Indeed, 36% of the Swedish customers say that they have changed suppliers because of not feeling appreciated as loyal customers by their previous supplier. This is the highest rate of volatility in the Nordics, and increasing. Last year, a little more than 10% of the total consumer base switched suppliers.

Move in & move out still account for close to 15% of the total number of Points of Delivery. Together with consumers switching suppliers, roughly 25% of the market actively engages with a supplier every year, a figure that has stayed fairly stable over the years.

What do these market changes mean to the energy companies’ business plans?

Energy consumer 2.0

A big change is taking place in consumer characteristics. Devices, the Internet of Things and sensors are creating a whole new type of customer.

Solar panels are becoming mass market goods, and viable home storage of energy is just around the corner. This means a shift from one-way energy supply to a new two-way model, where the prosumer with her intelligent devices also becomes an energy supplier.

This customer needs to be met by a new set of services. At the same time, a new way of interacting with the energy company and the market is required. We now have a new type of energy service providers! This requires a rewrite of the market rules, as we discussed earlier.

Diversified mass market offerings

New players in the game are doing interesting things. We have one who focuses on brand value. Another sells a flat rate. A third one introduces energy accounts. These are three different ways of diversifying. If everyone is selling spot contracts with an environmental element added, the margins will continue to decline.

Fix your B2B segment

Big customers have been spoiled by the time, knowledge and high attention of energy sales reps. This has led to customized contracts, low margins, big volumes and large administrational costs. A large B2B operation can´t be a win-lose relationship. As an energy retailer, you need to quickly fix your processes, atomize and reduce cost, create new offerings and offer fair pricing. If not, it might be wise to leave the B2B segment altogether…

Customer experience and personalization

Buzzwords as they are, you need to work on both. The battle will be won or lost by your customer service, recommendations and digital channels. If you think of selling additional devices, services and offerings, it makes zero sense to spend money on business development without fixing the basics.

Soon we will, hopefully, see more customers choosing between diversified retailers who know what they are, what they are selling and who are courageous enough not to sell anything that is not within their brand profile. The more diversified your operation, the more you lose. When you create a mix of services with focus, efficiency and profitability, you are well prepared to go out and grab some market share!




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