Energy retail in 2021: How can energy suppliers prepare?

What digital transformation goals should energy retailers set? Engerati asks Peter Warren of CGI for his view.
Published: Wed 25 Jan 2017

A few years ago, an energy supplier could look at a batch of data, identify what had been done well and set a target to do 10% more in the following year. Not any more, says Peter Warren, Director of Consulting Services in global utilities at CGI.

“The pace of change is growing exponentially. It’s getting to the point where companies are struggling to keep up with this rapid change. Utilities will need to transform by digitalising the way they operate and do business to keep up.”

“The traditional model of ‘I supply, you consume’ is also evolving,” explains Warren. Customers are looking to energy companies as a “partner”, rather than just a service supplier of the lowest-priced energy. And as more energy markets become deregulated, competition in the retail space will only intensify, he says.

“Today, consumers expect the same digital experience from their utilities providers as they do from online retailers and their telecom providers. Real-time updates and personalised customer service are now basic requirements.”

In response to this shift, CGI forecasts how the energy retail market will change by 2021 and lists what energy suppliers can do over the next four years to prepare for it. 

Energy retail and digital strategy

An obvious but crucial starting point in achieving a successful digital transformation is to create a digital strategy and roadmap, says CGI’s Warren. He advises energy companies to assess where they are, envisage where they want to be and clearly define their digital vision and customer offering to get there.

He cautions against giving in to quick and easy fixes, suggesting instead that organisations adopt a holistic and value-led enterprise-wide approach to identify target areas for digital investment.

Warren also points out that digitalising infrastructure is not just about spending new money on technology, but about optimising the planned spend and adapting business models and employee mindsets.

Energy companies should invest time to build a digital transformation vision and strategy and ensure they only follow procedures that align with their strategic priorities, freeing themselves of expenditure from procedures that do not.

There are ways of reducing traditional cost that free up capital to invest in the digital systems they need, including a plan to retire their high cost legacy systems. He concedes that “some utilities have a daunting task ahead because they are not fully equipped for the digital change, whereas others are well on their way to fulfilling their digital journey.”

Switching to a real-time data environment

Digitalising an energy company is not so much about collecting more data, says Warren. In fact, he believes that most organisations have sufficient data sources. The challenge lies in “using the right tools to empower data users and switching to a more ‘real-time’ environment.”

Warren explains how energy companies can prepare: “We’re beginning to see leading energy companies install real-time systems, such as transactional databases that are used in the financial industry for real-time stock market trading. There are some great tools that are starting to trickle into the utility industry, to modernise the legacy systems, from other real-time environments, and having a strategy in place to leverage these tools is important.”

Over the next four years, Warren expects to see more energy suppliers mimicking telecommunication companies and internet service providers by offering creative and more personalised products and services to their customers, such as demand-response systems. He sees this as a “win-win” for energy retailers.

Even though conservation pressures are driving consumers to conserve more, and therefore spend less, he says retailers can improve their profit margins by understanding buying and consumption patterns. “By identifying what consumers are spending their money on and when, the utility can buy in bulk at those predicted times and improve its margins,” he explains.

Energy customer choice - complexity and simplicity

By 2021, the energy consumer could face a vastly increased array of suppliers and packages. So what role should suppliers play in simplifying a potentially complex energy retail market? Again, Warren, who has a background in the telecommunications industry, advises looking outside the energy sector to more mature digitalised sectors.

CGI’s energy clients are spending time talking to cable companies and telecoms to see how to address this challenge. The best approach? Refrain from imposing complicated rules that consumers are forced to figure out for themselves. “A confused mind defaults to – no”, therefore to be successful, the future suppliers will need to simplify the market for their customers, advises Warren.

Energy retailers and social media

Although energy companies in North America, where Warren is based, are improving their social media presence and feedback loop into outage resolution, how will they manage this shift to a potentially new platform by 2021?

Warren is confident that they are well placed to meet the challenge of quickly adopting new ways to communicate with customers. Recruiting millennials in customer service areas is one example. In doing so, companies have staff that represent and understand a new generation of consumers and how they want to be communicated with.

Social media is enabling energy suppliers to have a more dynamic relationship with their customers, says Warren. He suggests that companies use platforms like Twitter to build strong customer relationships. “For instance, you can provide information on government programmes, such as subsidised energy efficiency equipment, offer customers coupons for LED lights, and provide tips to better manage their utility spend. They will feel that the utility cares about them. You are building loyalty via a more personalised relationship.”

Dynamic customer relationships

Customer centricity is one of the key pillars of an energy retailer’s digital transformation strategy, but how active and flexible will consumers be by 2021? Warren splits end users into two groups. The first are bargain shoppers who are constantly switching suppliers to find the best price. He cites the emergence of energy comparison websites in the deregulated UK energy market.

Warren says that these third parties are “disenfranchising the retailer from their process and that it is a commodity play. They have pared down energy to the best price. This is similar to what hotel price comparison websites are doing to the hospitality industry.”

But while a supplier may lose out on the sale of electrons, CGI believes that there is an opportunity to become involved in peer-to-peer energy trading and still add value as a trusted partner. Could blockchain be the enabler? Potentially, says Warren, adding that there is a lot of talk about how cryptocurrencies could play a role in consumer supply and demand.

The other group of consumers that Warren identifies are those seeking value from their relationship with a supplier. They are happy “to give to get,” potentially through bonus point plans or something that is “of other intrinsic value, such as better quality service with minimal downtime”.

In the commercial and industrial prosumer space, Warren says CGI is seeing a lot of “creative things happening”. He gives the example of a manufacturer in Barrie, a municipal region of Ontario, Canada, that has brokered a deal with a local utility, PowerStream. On hot days when the energy supplier is expecting increased demand and excessive load on the grid, the manufacturer may agree with the utility to load shed by closing its factory and sending employees home on full pay.

The result? The factory realises an increase in productivity through better staff morale when production resumes, and the utility has relief on its infrastructure. Warren concludes: “This is the kind of dynamic relationship we can expect to see in the future between customers and suppliers. It’s the new pull and push taking place in the utility industry.”

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