Energy companies must reinvent themselves to compete
- Report reveals consumers lack of trust for energy companies
- Roll out of smart meters leaves energy market open to new competitors
- Technology companies, retailers and mobile phone operators set to benefit from consumers’ lack of trust for energy suppliers
- Just 16% of power and utility companies believe that consumers expect products and services to be provided digitally
London, 4 October 2011 - The introduction of smart technology in the energy market means that utility companies around the world need to fundamentally reinvent their relationship with their customer if they are to see off competition from potential new entrants such as retailers, technology companies and banks, a new report from Ernst & Young has warned.
According to the report, smart technology means that energy companies will need to evolve into providing innovative services which enable consumers to manage their energy consumption. However, consumer research by Ernst & Young shows that companies such as mobile phone operators and leading consumer technology companies are seizing this opportunity more effectively than most energy companies. At the same time, technological convergence means that such firms have a unique opportunity to enter the energy market and provide high value services.
Helmut Edelmann, Ernst & Young Director Utilities, Global Power & Utilities, says, “The competitive challenge that utility companies face is that technological convergence means that new entrants, such as mobile phone operators, are well placed to move into the provision of high value energy services. Utilities are seen at best as competent commodity suppliers, but increasingly smart technology and climate change means that part of the business will shrink”.
The report suggested that power and utility suppliers across the globe have a poor relationship with their consumers. This poor relationship contrasts with companies in the technology and telecoms industry who have built a strong rapport with their customer base. Consumers are used to receiving innovative lifestyle technologies from these companies and therefore are more willing to receive new smart technologies from them than power and utility companies. This difference in trust levels means that as smart technologies and meters become routine features of consumer lifestyles, power and utility companies will face a growing threat from new market entrants to provide the services that can maximize the opportunities of smart metering.
Power and utility companies’ precarious market position was exposed by the consumer research:
- Interviewed in 13 countries, consumers categorized their relationship with their energy suppliers at best distant and at worst negative
- Consumers were critical of energy companies for operating solely to provide energy and bill customers for the service
- Consumers were excited by the prospects that smart meters provide them but question the motives of energy firms involvement
- Consumers failed to understand why power and utility firms would want to provide them with tools to reduce their energy bills
Highlighting the gap between consumer views and perceptions held in power and utility board rooms, the report also interviewed executives at 75 power and utility companies across the globe. According to the research, the energy executives believe they have a healthy relationship with their consumers, and that consumers will be happy to receive services from them whilst they can purchase cheap energy.
- Only 4% of power and utility companies believe that other smart technologies will significantly change the relationship between them and their customers
- 8% believe that smart metering will change customers from passive to active consumers
- Just 16% of power and utility companies believe that consumers expect products and services to be provided digitally
Despite this gloomy outlook, Ernst & Young believes that there are still opportunities for power and utility companies to expand their business and utilize opportunities from the explosion in smart technologies, with power and utility companies needing to focus on developing a two way relationship with their customers.
Edelmann concludes, “Smart technology puts unprecedented power in the hands of consumers to manage and control their energy use. In time, this will fundamentally shift the balance of utility customer relations. It seems the era of a one-way relationship — where a utility delivers energy to domestic consumers, end of story — is over, power and utility companies need to adapt and now”.
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