Energy wars about to be fought inside the home

Ever had to ring up your energy provider to complain about a bill, a power outage or a failure to provide a connection? Most of us have. Been happy with the result? Nope, neither are most people.

Australians spend just about every minute of every day plugged into the grid (barring the occasional outage), but our connection with our energy providers is fleeting – only around 6-9 minutes a year. And it seems that it is rarely a positive experience.

That may be just the way things are, or have been. But the dynamics between customers and their energy providers is about to change dramatically. Instead of delivering to your connection at the front of the house, the energy producer wants to be inside the walls, connecting in real time, sharing information, buying and selling power and even taking control of some of your devices.

In short, the energy industry is about to morph from a commodity-based business to a service-based industry – recognising the ability of the individual consumer to produce their own energy, store it, and tailor their needs to their own demands. The energy market is about to experience as fundamental a change as the telecommunications and the media industry. The question for the current energy businesses that dominate the industry is what share of the market will they be able to retain?

It’s a topic that is fascinating business consultants and analysts around the world, who can probably see that there is a dollar or two to be made from guiding these service industry innocents through the maze of consumer choice.

Ernst & Young produced an analysis two years ago that warned the global energy industry would need to be proactive if they were to face an “evolution” rather than a more painful “revolution” in the industry. McKinsey & Co released a report last week noting the dramatic changes – physical and cultural – that would occur as solar became cost-competitive across the spectrum of consumer classes, and numerous other studies have noted the emergence of the solar driven “pro-sumer”.

Now Accenture have produced their own report, which confirms that the more interactions consumers have with their energy providers, the less satisfied they are and the more likely they are to “churn” – i.e. find another provider. Accenture says energy providers need to find new strategies to “redefine the value proposition for consumers” – before someone else comes long and does it for them.

Greg Guthridge, the managing director of Accenture’s utility customer care practice, says this is already happening in the US, where cable companies such as Verizon and Comcast are already entering the market with home energy management services, and other industries with experience in delivering a service rather than a commodity, such as home security firms, are considering doing the same.

“They are doing this to differentiate,” Guthridge told RenewEconomy in an interview. “If utilities and energy providers don’t hurry and provide some of those capabilities, they could be disintermediated out of the picture.”

Not only does that sound painful, it would also mean continuing to be a mere commodity provider and losing the value component that has become possible because of new technologies (such as smart appliances, smart meters, energy storage and rooftop PV) and desirable because of the rise in costs of conventional energy.

“Utilities and energy providers risk getting caught in the middle between aggressive new entrants n the home – cable providers, retailers, home security. They are entering the market very aggressively in North America and Europe.”

The Accenture study suggests that Australia is ripe to follow suit. Its survey found that 90 per cent of consumers would switch providers if it meant a reduction in their bill and 93 per cent would be interested in energy and home service bundles that provide potential savings.

Guthridge says that utilities are best advised to find a partner that consumers can trust, and loyalty schemes, such as those offered by retailers and petrol stations, could be one avenue.

“They need to hurry because they are starting to get caught between much larger and bigger-scaled players,” Guthridge says, noting that if  Telstra entered the home energy management market as its peers had done in the US, then this could emerge as a major threat to the established energy retailers.

“The utilities have a choice – be a low-cost commodity provider – or try to create value beyond the meter and earn higher revenues,” he says.