The energy market is changing at a pace few could ever have imagined. We are on the verge of a technological revolution that will transfer power away from traditional energy and utilities providers, placing it firmly into the hands of millions of householders across the UK.
Already the energy sector is facing challenge. In the UK alone, we have seen six providers cease trading this year and that's before a new energy price cap comes into effect in 2019. How the remaining sector players adapt their business models to meet the emerging needs of technologically-informed consumers will be critical to the industry’s future success.
Smart technology is driving this shift change. The drive to make it easier to switch energy providers is well underway, as well as the launch of intelligent home devices into the mainstream. Together, these developments are creating a new breed of empowered consumers.
Smart meters and ‘better switching’
Smart metering is being implemented with the concerted desire by the regulator, Ofgem, and the industry to generate a clearer, real-time view of energy consumption that helps consumers to make better-informed decisions.
While the roll-out has had its challenges, one of its impacts is likely to be a shift away from fixed energy tariffs towards much more dynamic pricing that incentivises consumption at particular times of the day or month depending on availability – with obvious implications for competition in the market.
In parallel, Ofgem has established a programme to improve the process of switching energy providers for consumers. This programme involves several technical and commercial components, improving the quality and accuracy of the data and reducing potential for errors and creating a central switching service that will strengthen competition by empowering householders who want to save money or receive enhanced service.
With much of this new processing automated, within a couple of years, lead times for switching providers could fall from 21 days down to next-day switching – and potentially, even next hour or next minute. In future, it will include a facility whereby independent brokers will manage the supply of energy on behalf of consumers.
Meanwhile, connected home technologies are advancing fast, with some energy companies now embedding devices such as intelligent plugs, thermostats and security systems that enhance the adjustment of energy around a household.
In four or five years’ time, and with competition from the digital giants, these kinds of intelligent technologies will give consumers everyday real-time control of their energy via their smartphones and car dashboards.
Until now, the technological infrastructures for these three inter-related changes have been discrete. In the coming years, however, we’re likely to see a coalescence between them as they mature, with profound implications for the industry.
If there is more movement between suppliers and greater flexibility with pricing, the balance between the demand for and the generation of energy becomes more complex. Contracts and charging mechanisms for energy generation are based on relatively long-term planning, infrastructure and capital investment lifecycles. In contrast, if consumers want to switch from one supplier, to another, to another, within a short timeframe based on cost, this will require changes to the way in which demand versus capacity to supply is brokered.
All of this means that the whole relationship between demand and supply could be turned on its head. Instead of resting with the largest organisations with the most capacity, the advantage will tip towards companies who are great at customer relationship management and data analytics to predict consumption and deliver more responsive services.
New value chains
In essence, these converging technologies will create a vast new network of energy demand and supply, all at the consumer’s fingertips. Add battery-powered cars into the mix, for example, and it’s easy to see potential for new market entrants, such as car manufacturers or fleet owners, to take advantage of such a connected infrastructure and become part of a new value chain.
Soon consumers could hear from their connected home management system that they’ve moved their energy supply from supplier X to supplier Y based on a saving of 3% for the next year.
So, challenges ahead there may be but opportunity knocks for those who can stay close to the consumer while keeping pace with a total transformation of the utilities market.
This article is taken from Digital Vision for Energy and Utilities which explores the potential of digital transformation to help energy and utilities companies power a new era for the industry, and for UK businesses and homes.