Meanwhile, utilities continue to wrestle with the challenge of harnessing the power of technology to make their operations more efficient and drive innovation. Gas and electricity retailers — and a growing number of water utilities — are working hard to deploy smart meter infrastructure. However, big questions remain about where the value lies in their investment, and whether it will serve as a stepping stone to building closer, more dynamic customer relationships.
Some big decisions need to be taken. Should utilities “stick” and focus on delivering a better service to their existing customer base? Or should they “twist” and diversify into potentially more lucrative areas, which may include products and services from way outside the traditional utilities domain?
We worked with PAC on a research study and webcast to explore the directions that major European utilities are planning to take in order to ensure lasting relevance and growth.
- New customer acquisition is the biggest issue facing European utility retailers, with 73% of participants citing it as a major challenge to the business.
- Competition is coming from all sides. Traditional utilities are still viewed as the biggest threat, but new utility start-ups are seen as the main competition by more than a quarter of participants.
- The quality of customer service (66%) and the launch of new energy-related products and services (60%) are viewed as the two most important strategies for driving differentiation from the competition.
- Most utilities (78%) expect their customer base to expand by up to 20% over the next three years (with M&A activity a likely driver). However, 10% expect current levels to either stay flat or decline — with electricity retailers the least optimistic.
- Utilities identify three major battlegrounds that will be critical to gaining or losing customers: quality of customer service (30%); client satisfaction with products and services (27%); and the impact of new competitors (27%).
- Increased pricing transparency is seen as the area where digital technology can deliver the greatest value (62%).
- Utilities are investing in new billing platforms, self-service functionality and underlying data management and analytics tools to tackle this issue.
- More than half of European utilities have already invested in artificial intelligence (AI) agents, and expect them to deliver the greatest value in improving service responsiveness (53%) and taking cost out of contact center processes (30%).
- Eighty-two percent plan to invest in connected home propositions in the next three years. This is a clear sign that utility retail organizations are looking to fundamentally redefine their relationship with the customer by getting “beyond the meter.”
- Fifty-nine percent describe their smart metering rollouts as being at a mature or advanced stage. Consumer acceptance and security concerns are viewed as the biggest obstacles on the path to full and successful deployment.
- Less than half are currently analyzing interval data generated by smart meters, with two-thirds saying that building the business case for data analytics is a major challenge.
Key trends by subsector
Electricity retail: More than two-thirds see the quality of customer service as a way to differentiate from the competition. They are the most ambitious groups in terms of profitability, with 53% expecting to grow their bottom line by more than 10% over the next three years.
Gas retail: 66% see lowering the cost of operations as a highly important way to differentiate from the competition. Seventeen percent expect their customer bases to stay at current levels over the next three years.
Water retail: 76% plan investment in nonhuman voice interfaces and chatbots in the next 12 months. They see profitability analysis as a highly important element of their customer data analytics strategy.
Key trends by region
Benelux. 44% see new utility start-ups as a major competitive threat. Seventy-seven percent have invested in a connected home proposition. Sixty-five percent see identification of unbilled revenue as a major opportunity for smart metering.
Germany, Austria and Switzerland (DACH): 72% see the evolving security threat as a major challenge. Thirty-eight percent see taking cost out of contact center processes as an area where machine learning and AI will have the greatest impact on their customer engagement.
Eastern Europe: 78% see customer retention as a major challenge. Sixty-two percent see tariff innovation as highly important to differentiating from the competition. Twenty-two percent see security concerns as a major barrier to gaining full value from smart metering.
France: 86% see new customer acquisition as a major business challenge. Fifty percent believe that they already have “partnerships” with their customers. Twenty-two percent say they are at an advanced stage with their smart metering programs.
Nordics: 48% see themselves as digital innovators. Just 19% see operational issues, such as accurate billing, as a major business challenge. Eighty-one percent see operational efficiency as a highly important element of their future strategy.
Southern Europe: More than two-thirds expect their customer base to increase by more than 10% over the next three years. Twenty-five percent see new entrants from other sectors as a major competitive threat. Just 18% believe that they have “partnerships” with their customers.
UK and Ireland: 15% expect their customer base to stay at the current level or decline over the next three years. Utilities in this region lead the way in viewing nonutility products and services as a way to differentiate from the competition (48%). More than one-third see foreign utilities as a major competitive threat.
For today’s utility retailers, standing still is not an option as the traditional utility retail model comes under increasing threat. Distributed renewable generation and storage, new digital technologies and changing customer expectations mean utilities will need to reshape themselves in readiness for this vastly different energy world, with digital capabilities at the core of change.
Differentiating their customer services capabilities from the competition is key, but this is not an area where the sector has historically excelled and rapid change is required. Technology will play a major role in this process. Partnerships and the ability to harness the innovation provided by start-ups will be crucial to making their offerings stand out.
Energy and water retailers must decide on how they can balance their investments between improving core operations, such as billing accuracy and price transparency, and building new capabilities that provide a seamless experience in line with their customers’ expectations and preferences. And they must implement these changes with an eye on the future to spot the next wave of change. Making the right decisions now is going to be key to not just surviving, but thriving in the new energy landscape.