On the face of it, the energy market is perfectly placed to widely exploit digital technology and business models.
From domestic microgeneration to produce as well as consume energy; smart meters to record and communicate real-time consumption; smart homes to give greater control over energy usage; and the ease to not only switch providers but also decide where and what type of energy sources you use.
Despite these advances, combined a highly competitive market and volatile pricing, energy firms have been falling short on digital. What have they been missing and why is now the time to turn up the heat on digital?
Choice put consumers in charge
It never used to matter who provided your electricity and gas. You got your energy from the company that served your area, your meter got read on a regular basis and you got your bill every month or quarter.
That changed when deregulation opened up the market. Consumers were no longer limited to a single provider. It became easy to search for comparisons and switch providers. Control was put into the hands of consumers.
There are now 72 energy suppliers in the UK. In 2010 there were just 12 (source: Ofgem).
To compete, energy firms have to up their game. Price is the overriding reason people consider switching. Ofgem reports that 91% of people say saving money is a priority.
A price cap is expected to be announced this week that will force energy companies to lower the cost of their standard tariffs. A win for consumers, you may think, but it could mean higher costs for those who shop around. Firms are likely to be seeking efficiencies in any case as their margins will be squeezed. npower and SSE, for example, expect to reduce costs as part of their planned merger.
Customer service is the second most cited factor for switching. Despite a steady shift from the ‘Big 6’ energy firms, they still command the lion’s share of the market with 79% for electricity and 78% for gas in December 2017, according to Ofgem. Customer service ratings for the Big 6 are shockingly low, averaging a Trustpilot score of just 1.2 out of 10. Many of the smaller, newer firms have much higher ratings.
The ‘green’ energy credentials and ethics of the business are also increasingly important to consumers. Renewables account for over 30% of electricity generated in the UK but people increasingly opt for providers and tariffs that use 100% renewable sources even if they’re not the cheapest.
For all these factors (price, customer service, environment and ethical transparency), digital can play a significant role to create competitive advantage.
New relationships with energy
Domestic energy consumption by household is showing a downward trend as fuel efficiency in homes and appliances improves. Yet, our increasing demand for connected products could turn this around.
As Electric Vehicles (EVs) grow market share (potentially 25% of new registrations by 2025), our domestic energy provider becomes a key player in the automotive industry.
More and more of us are now generating our own electricity to offset what we consume. There are now over 820,000 UK installations in the Feed-in Tariffs (FIT) scheme designed to promote the uptake of renewable and low-carbon electricity generation technologies (Ofgem).
Digital technology can enable individuals to record and control every watt of power being consumed or generated, literally giving power to the people.
From commodity to experience
Digital is enabling us to enjoy a more fulfilling experience with energy rather than simply see it as a commodity.
Smart meters and connected appliances open up extensive opportunities for gamification and the peer-to-peer sharing of best practice energy management. Automation and machine learning will play an increasing role, synchronising devices around the home and improving energy efficiency. Services like Flipper already exist to auto switch too.
Last month, Google reported that it gave control over its data centre cooling to AI, leading to energy savings of at least 40%.
Energy firms that encourage innovation can discover new approaches to differentiate from the competition and lead the way on initiatives for their customers to generate or save electricity.
Charge up digital before it’s too late
There’s a bright future for the energy market. Yet it will continue to be highly competitive. Being the biggest is not a reason to sit comfortably. There’s plenty of room for smaller players to disrupt the market. However, only those who harness digital to move smartly and quickly will win out.
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