May 15, 2018

Staying relevant in energy retail may mean cannibalising your own business

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Timo Karpola

Head of New Energy Services, ICS, Tieto

A changing business environment, new competition and leaps in technology are turning business-as-usual into a survival game for many energy retailers. An open mind and being prepared to think differently can be the life-saving kit.

European energy retail trends are reshaping the market fast. With constantly improving connections to the Baltics and Central Europe, the market will expand a lot.

Changes are taking place in consumption and generation. Electric cars are gaining ground. The prices of solar panels and home energy storage are plummeting, proliferating prosumers who generate their own energy. District heating is being challenged by alternative heating solutions.

New market actors are entering the scene. According to Gartner, the world’s biggest energy company in 2020 will be someone who has no generation and no grid. Energy service providers are compiling service packages that attract customers better than the traditional electricity contract. A recent survey in the UK concluded that half of the participants find the idea of buying energy alongside other home services appealing.

Metering and the energy market will become increasingly real-time, which will require new kind of data-driven thinking and business models.

Retailers must embrace transformation and ecosystems

Retailers will find it increasingly difficult to keep the entire value chain in their own hands and survive on a single value proposition. They will have to cope with duality: protecting their existing business while creating new business models.

A successful strategy includes multibranding, for example selling new services under one brand while providing bulk services through partners. Multichannel presence is a given. Customers must be met in whichever channel they prefer with consistent service levels.

Partnerships and ecosystem participation is important, not least with a view to creating attractive, value-added offerings. The ecosystem could include partners from totally different industries.

The future is data-driven, distributed and service-minded

As distributors’ metering data is unavailable to energy retailers for customer profiling, they can obtain real-time consumption data from service packages through IoT connections. Conversely, better service packages can be created looking at collected data, providing a cost benefit to both the consumer and the energy retailer.

Besides value-added packages, the retailer benefits from optimising its business through DES, Distributed Energy Services. Reserve capacity is available from prosumers feeding the grid and controlling their consumption. Electric cars and home batteries create a virtual power plant, which helps eliminate peaks further. This demand response allows the retailer to optimise energy trading and participate in reserve markets.

Few energy retailers position themselves as service providers. Customer experience, however, is key to customer loyalty. When a retailer sells an as-a-service package with a clear value proposition and tailored to the consumer’s specific needs, the consumer enjoys its benefits with minimum trouble.

Pilot underway in Finland

Many energy consultants talk about high-level visions, but Tieto put theory into practice in a pilot project with an east-central Finland energy company.

The pilot connects a company’s head office building automation, an energy management system, solar panels, battery storage and electric vehicle charging to Tieto’s distributed energy management platform. This centralises the management of the physical assets for energy optimisation and uses those assets as a virtual power plant that provides demand-side flexibility for the national energy system.

Start preparing – now

The entire energy market is changing, and its value-adding mechanisms will change radically over time. Value will no longer be in the amount of energy but in the point in time when it is used.

Therefore, you should start creating your vision and strategy now, at least for the midterm. Position yourself geographically, with relevant brands, in selected channels and with suitable partners in your ecosystem. And don’t be afraid to cannibalise the bulk part of your business. If you won’t, somebody else will, sooner than you think.

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