British business reaches sticking point on energy investment, new research warns

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  • Mandated roll out of smart meters will fundamentally change the energy market
  • Smart meters will require new innovations to help consumers maximise benefits of smart metering
  • Report shows consumers worldwide distrust energy firms to provide these technologies and would rather receive smart technology from trusted partners such as mobile phone operators or retailers
  • Research says energy companies need to reinvent relationship with customers

4 October 2011: The Government’s desire for smart meters to be installed in all consumer houses by 2020 means that energy companies 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 EY 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 EY shows that companies such as mobile phone operators, and leading consumer technology companies are poised to seize the opportunity more effectively than most energy companies.

The research comes in the wake of calls by Chris Huhne the minister for Energy and Climate Change who has stated he will seek to open the energy market up to new consumer friendly organisations.

Richard Postance Advisory Partner, EY, Power & Utilities said: “The roll out of smart meters in the UK provides a challenge to utility companies to transform their relationship with consumers. The desire of the UK Government to open the energy market to new entrants and the findings of this report should act as a wake up call to the UK’s leading energy firms. The report demonstrates the lack of trust the public worldwide has in energy companies, this combined with technological convergence means that firms with strong relationships with customers, expertise in managing their data and a heritage in supplying innovative technology have a unique opportunity to enter the energy market and provide high value services and products from adjacent markets.”

The report suggested that power and utility suppliers have an impersonal and transactional relationship with their consumers across the globe. This 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 demonstrates the opportunity for new market entrants to eat into market share of power and utility companies across the globe.

Power and utility companies’ precarious market position was exposed by the consumer research:

  • Interviewed in 13 countries, consumers categorised 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
  • Excited by the prospects that smart meters provide them but question the motives of energy firms involvement
  • 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.

Despite this threat from new market entrants, EY believes that there are still opportunities for power and utility companies to expand their business and maximise opportunities from the explosion in smart technologies, with power and utility companies needing to focus on developing a two way relationship with their customers.

EY urged companies thinking of entering the UK Energy retail market to be fully prepared. “The UK market place can be a hard market for new entrants, residential supply is a fiercely competitive area, companies looking to enter the market must differentiate themselves from existing players and be prepared for the long haul. Any market where you offer a nearly fixed price product at retail, backed up by a highly volatile wholesale market price, presents risks that are not for the faint hearted or poorly prepared.”

Richard Postance, called on the major UK Energy Suppliers to accelerate a move to a consumer focus, “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 now.”