Innovation in the energy utilities sector

23 May 2016

The unprecedented pace of change in the energy utility sector makes innovation more important than ever – but also creates a new challenge to understand what innovation means today. Truly innovative companies are using disruptive thinking, cutting-edge technologies and modern ways of working to create new products and services, develop new business models and transform customer relations. PwC and Energy UK are jointly hosting a breakfast briefing ‘Innovating to win’ that will explore this issue and how energy companies can bring about lasting change.

This blog will touch on some of the key aspects that will be covered but first let’s look at why current conditions in the retail energy market make the innovation imperative so vital.

Competitive differentiation amid a growing crowd

Clearly, technological change is opening up countless opportunities, whether it is using big data to identify market trends, the Internet of Things (IoT) to support energy efficiency or ‘gamification’ to inspire behavioural change. Beyond that, several other recent events have highlighted the need for innovation as a means of differentiation.

One is the decision by the Competition and Markets Authority (CMA) to repeal the four-tariff limit introduced in January 2014 by Ofgem. This will stimulate innovation as companies seek to stand out amid a growing crowd. Secondly, the rise of collective switching on a national basis through the marketing power of Price Comparison Sites makes the loyalty of existing customers increasingly doubtful.

Domestic switching increased by 40% last year – with information campaigns led by the Department of Energy & Climate Change (DECC) also having an impact - and Energy UK statistics suggest that trend will continue in 2016. Collective switching tariffs have regularly become the cheapest available, so suppliers must respond with their own innovative products, services or marketing campaigns.

Then there is the CMA’s proposal to give competitors access to a database of standard variable rate (SVR) customers, which will incentivize innovation in two ways: to maintain long-standing customers who become targets for rivals and to pick up new business.

In a multi-channel digital world, a standard letter will surely be thrown away. All these factors mean innovation must be a priority not only for new entrants but also for the larger suppliers.

Doing things differently: innovation in action

The financial benefit to a Standard Variable Tariff (SVR) customer who switches to a one-year fixed deal has increased as competition heats up, but the benefit of continued switching may be marginal.

Fresh thinking is needed to entice new customers and a number of companies are offering original solutions that give us a glimpse of the future retail energy market.

Tempus Energy offers an automated flexible demand system to take remote control of some appliances and save money by modifying usage in response to fluctuating wholesale electricity prices.

Flipper is a personal energy shopper that promises to find the cheapest available deal for customers and take care of switching.

Unlike PCWs, it does not take commission from suppliers but charges £25 per year (after a saving of at least £50 per year is found for the customer).

Upside Energy uses cloud technology to aggregate energy stored in systems like solar panels and domestic heating systems owned by people and small businesses.

Add to this the rapid development in home storage solutions and - in the connected home market - we are starting to see innovative customer propositions being developed in other countries. Vivint, an energy management company operating in the US, Canada and New Zealand, is great example. In response to consumer concerns about the complexity of smart home solutions, it is offering an integrated smart home solution on a subscription service with free installation and maintenance.

Embedding innovation across your organisation

Energy companies need innovation in their business models, in their products and services, in their marketing and in the way they interact directly with customers.

The challenge is to embed innovation across an organisation, so as to stand out – and continue to stand out - in a crowded and constantly evolving marketplace.

PwC’s Innovation Jumpstart programme can drive rapid innovation with tangible results such as faster product delivery, cost reductions through productivity gains and better customer service driven by a proactive social media presence.

It consists of six dimensions:

Discover: assess existing strategies and capabilities; identify opportunities

Inspire: understand the art of the possible

Create: test and realise ideas rapidly

Enable: identify and acquire the right skills

Accelerate: establish delivery tools, methods and processes

Sustain: define governance to sustain the capability

Companies today have access to growing amounts of data. But they need to show they can convert that into making more informed and faster decisions that benefit the bottom line.

Consumer demand for innovation

Consumers today can increasingly educate themselves about their many energy choices. But many are time poor, so suppliers must demonstrate understanding of their lifestyles and priorities – whether financial, technological or environmental. This means that smart home technology has the potential to be a major disruptor for energy utilities.

Our recent research shows that 72% of people are unlikely to introduce smart energy technology in the next two to five years, however, of those who already own a smart device, the impact in the day to day running of their homes is clear. 81% of people noticed a positive impact from smart heating with over 95% already seeing the benefits from their smart appliances.

We believe that, much like the adoption of smart phones and other smart technology -momentum will build at an accelerating pace. Companies need to change this lack of knowledge into profitable opportunity.

Information is everywhere. Innovation in how it is used will determine which energy utilities have a competitive edge.

Steve Jennings | UK Power & Utilities Leader
Email | 44 (0)20 721 21449

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