Rise of the new energy retailer
Utilities Unbundled - Issue 14
New entrants to competitive energy markets could change the sector landscape in the next decade, says Ian McCaig, CEO of UK energy company First Utility.
“In 10 years' time, some of today's incumbent retailers will have disappeared. Over the same period, I believe some independent providers will take their market share into double digits.”
— Ian McCaig, CEO, First Utility
Keen, agile new entrants to energy retailing pose a threat to incumbent energy retailers. These new entrants see opportunities to create dynamic, responsive services that win them serious market share by combining:
- Smart meters
- New technology
- The desire for energy efficiency
- The increasing popularity of distributed generation
We're on a journey that could see a totally different landscape for competitive energy retail in the next five to ten years.
Barriers to entry are shifting
The UK is an interesting case study. At present traditional utilities still dominate, with a handful of independent energy providers accounting for just 2% of the market.
But pressure for change is building. The regulator has proposed forcing utilities to sell 25% of their generated power. Independent providers are lobbying strongly for self-supply restrictions (SSR) for incumbent UK utilities, to force them to trade more on the open market. We are watching to see how the regulator might shift these barriers to entry.
Price shock will change behavior
Consumers are only just starting to grasp the link between our massive need for investment in energy, bigger energy bills and how they need to change their behavior. For example, many people still think it's fine to keep the heating high enough to walk around in a T-shirt when it's freezing outside. This is not sustainable.
It is absolutely possible that the required investment, commodity cost increases and energy inefficiency of housing stock could push energy bills higher than mortgage payments for some of us.
This will thrust energy to the fore for consumers and voters. Five to ten years hence, energy providers that help customers deliver the best value from the least, or greatly reduced, consumption will stand above the rest.
New entrants' advantage – agility and trust
Incumbents tend to look from the inside out, based on what they have historically done. New entrants tend to look at things first from the customer's point of view, making them more agile, innovative and hungry to foster change.
New entrants will also aim to be seen as fair, providing value for money and adding value to consumers' financial lives. Free from the legacy of mistrust that burdens today's traditional utilities, they will have a clear branding advantage.
All this leads me to the conclusion that, in 10 years' time, some of today's incumbent retailers will have disappeared. Hand on heart, several of the big utilities would probably prefer not to be in retailing: it's the toughest end of the energy business.
Over the same period, I believe some independent providers will take their market share into double digits. Life for the utility will never be the same again.
This article is an abridged version of Ian McCaig's 'Comment' in Utilities Unbundled. Contributor, Keith Harrison.