Empowered customers are finding it increasingly feasible to pull the plug on traditional energy companies in favor of generating, storing and selling their own power.
According to the International Renewable Energy Agency (IRENA), solar photovoltaic (PV) prices declined by 90% between 2009 and 2018. And, between 2015 and 2017, the cost of installing small-scale battery storage systems fell by 60% in some regions. These trends are expected to continue over the next decade, with self-generating power reaching cost parity with grid-delivered electricity as early as 2021. This puts the possibility of grid independence within reach of even more consumers.
Community energy schemes are taking off too. US Government-run community choice aggregation programs (CCAs) give communities control over their local energy needs. They allow communities to set their own rates, reduce carbon emissions thanks to renewable energy and save millions of dollars in energy bills. Nearly eight million households in California are now served by CCAs, taking a considerable chunk out of incumbent energy companies’ market share.
Meanwhile, businesses are showing keenness for power purchase agreements (PPAs). These change the relationship between the energy company and the customer from one of direct supply, to one which tops up the renewable electricity if needed. Led by the US and the Nordics, a record 7.2 GW of PPAs were signed between January and July 2018, a third more than during the whole of 2017.
Digital technologies are also improving customer engagement. Accustomed to the level of service they experience in other industries, customers are demanding more from their energy companies. This is particularly true for the millennial generation who, compared with other age groups, indicate a higher preference for interactions by smartphone and are more influenced by online reviews, peer recommendations and price/product comparisons. With millennials entering their prime spending years, this will have a profound impact on the way energy companies interact with customers.
Five ways for energy companies to seize opportunities and mitigate threats
Over time, energy companies will need to morph from energy providers to energy service providers; taking the data available from smart meters and digital technologies to inform new products, services and customer experiences to deepen their own value pool.
The key for energy companies is to understand key customer drivers and develop business models that provide a win-win on customer experience and better business outcomes. Energy companies therefore need to focus on the following to seize the opportunities and manage the threats:
- Build trust. With the expansion of digital and the Internet of Things, energy companies are finding it harder to monitor their entire ecosystems. They need to build trust by implementing risk-informed layers of defense, protecting data privacy, implementing security by design and improving accessibility to customers as key components of their digital transformation strategy.
- Maximize the value of the digital ecosystem. Energy companies need to further engage customers through mobile apps and social media platforms, as well as self-service portals and chatbots. As the digital energy marketplace matures, emerging technologies such as blockchain, will enable peer-to-peer network transactions, including electric vehicle (EV) charging and more complex energy-trading solutions to benefit customers.
- Integrate distributed energy resources (DER). Modernizing the grid and integrating more renewables and DER (solar plus storage, demand response and EV charging) into the system make it harder to deliver affordable service to customers. Energy companies should focus on the coordinated control and strategic management of DER, in collaboration with customers or third parties that supply DER to the grid.
- Future-proof business models. Energy companies should model different scenarios and design responses that will facilitate decision-making. The scenarios must be stress tested and alternatives considered so that when markets shift, they have the agility to address evolving customer needs.
- Embrace continuous reinvention and innovation. Energy companies need a dual strategy that focuses on the day-to-day needs of the current business, while innovating for the future. To thrive in an increasingly competitive environment, embedding a culture of innovation will be critical. As will hiring or acquiring the right skills, capabilities, technologies and talent, and forming new commercial partnerships.
Knowing what drives customers will help energy companies meet their expectations
Energy companies are on the road to transformation, and, in many ways, customers are in the driving seat. Increasingly, customers will have control over how they generate, use, store and sell their energy.
Energy companies need to make it their business to understand what drives their customers, develop business models that match, and embed the flexibility and agility needed to consistently deliver on evolving expectations.
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Summary
The proportion of energy customers that have the power to control how they use, store and sell their energy is accelerating at an alarming rate. Energy companies looking to thrive in a future energy world will need to identify what drives their customers, build business models that match, and develop the flexibility to consistently deliver against evolving customer expectations.
