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Beware the energy services upstarts

1 September 2010

Mass market energy services - energy efficiency and low-carbon investments on the customer side of the meter - may transform the energy retail market.
The potential is enormous, and utilities should be the early favourites to scoop the rewards. But they must act decisively if they want to stop new entrants stealing the market - and, ultimately, owning the customer relationship.
According to the International Energy Agency's European "450ppm" scenario, more money will be spent on energy assets in buildings than on large-scale power plants over the next 20 years. Is this pie in the sky? Yes, based on today's markets, but the trend is already evident across Europe, with a strengthening mix of obligations and incentives, growing consumer interest, and improving technology.
In the UK, the ramping up of Cert, the CRC Energy Efficiency Scheme, the Green Deal, feed-in tariffs, some kind of support for renewable heat, and tightening Building Regulations will drive massive growth in low-carbon energy investments on the customer side of the meter. Bottom line - these markets will be worth billions of pounds a year by 2020.
For utilities, another incentive to participate in this market is the growing pressure to balance supply and demand as more renewable - and eventually nuclear - generation comes on stream. On the customer side of the meter, control of demand through smart appliances, dispatching of micro-CHP output and controlling heat pump operation will become important in managing wholesale market risk.
Some utilities are moving quickly to build competitive advantage, including Centrica in the UK, Nuon and Essent in the Netherlands, and SEAS-NVE in Denmark. But new entrants, attracted by the potential rewards, are already feeling their way into the energy services market.
Tesco now offers photovoltaic systems to homeowners. B&Q is leading one of the "pay as you save" trials. BSkyB is exploring opportunities in the energy services space. Several new entrants are offering "photovoltaics for free". Outside the UK, Google and Microsoft are teaming up with utilities in Europe and North America. In Germany, Kofler Energies was formed by the dominant players in the satellite TV market to exploit future energy efficiency growth. It is targeting more than a million customers for its energy club over the next three years.
Some of these new entrants will fail - but some will succeed. If energy suppliers want to win in these markets, there are some key ingredients for success:
l Develop a trusted energy efficiency brand. Winners will offer a fair deal, have the best advice and energy-related products and services, and be trusted to enter customers' homes.
l Offer a portfolio of low-carbon products and services so customers can tailor the solutions for their own circumstances and preferences - from micro-CHP to heat pumps, home energy management systems to insulation.
l Develop a consumer mindset. Be flexible enough to react to changing "fashions", deliver fantastic customer service, Tesco-like use of customer data and iPhone-like consumer interfaces.
l Generate innovative customer propositions, giving people what they want rather than just what they need. Learn from the telecoms sector and bundle commodity and other products and services. Develop packages that are simple on the outside but complex on the inside.
I am not saying that every utility should be playing in this market. Each will have its own strengths and weaknesses, but success will depend more on their capacity to innovate than on their record. There are opportunities to partner with companies that are better placed to succeed in these markets, with the utility effectively retreating to a wholesale supplier position.
The worst option would be to ignore energy services, or not to have a coherent strategy that is flexible enough to respond to changes in policy, technology and customer attitudes. Trying to play in the energy services market without securing the above ingredients would be the worst of all worlds - in which case the answer to "who" would probably be "not your utility".
Jon Slowe, director, Delta Energy & Environment
Source: Disconnector

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