Customer Service, DER-Grid Edge, Electric Vehicles, Energy Efficiency, Energy Storage, Executive Insight, Metering, Renewable Energy, Smart Grid, Solar

A shift in business models could help utilities compete for customer loyalty

Customers want choice, and utilities could be left behind if they aren’t listening. Developing a consumer-focused mindset will be critical to success.

The desire for electricity choice among US energy consumers and corporate customers poses considerable risk for utilities. How can they hold market share – and retain the financial strength for necessary infrastructure maintenance – in a world where nimble, low-cost competitors abound?

The recent EY survey, US Fuels of the Future — an in-depth study of 1,500 consumers and 102 corporate energy decision-makers (EDMs) across America — clearly demonstrates the approaching wave that threatens to swamp utilities. The survey found that 68% of respondents who currently don’t live in competitive regions want electricity choice. Interest was even higher among EDMs, 90% believe having a choice would make a difference for their company.

Not surprisingly, consumers and EDMs alike prefer choice because they believe it will save them money. But at the same time, they also see it as a path to renewable energy access. For example, the survey found that given the option, 35% of consumers would switch to a provider that offered renewable power.

Choice is here to stay

Despite energy users’ strong preference for choice, consumers and EDMs are actually both very satisfied with their current utilities. Yet utilities that rest on their high customer satisfaction ratings are more likely to lose those customers to choice. Forward-thinking utilities must begin planning — and acting — for a future where retail competition and independent power generation are the norms. What will the market look like in 10 years, when there is less revenue from the utility’s traditional business? And what steps are needed to prepare?

The answer lies in understanding and adapting to customer needs and expectations. Successful utilities will adopt a more consumer-focused mindset that delivers value to create “stickiness” — reducing the likelihood that a customer will look elsewhere for a provider.

Many utilities today simply buy renewable energy from an independent provider to meet state renewable standards. Given consumer preferences, a customer-focused approach might be able to offer more renewable energy options by directly owning the renewable assets. Though this can be challenging today due to current tax laws, forward-thinking utilities are exploring how they can directly compete on price, and some are working directly with public utility commissions to identify solutions.

Data goes beyond the meter

The biggest competitive advantage that utilities have is the enormous depth of energy usage data that smart meters provide. These insights can lead to powerful behind-the-meter services that will deliver the stickiness that utilities need to maintain market share.

By helping consumers and EDMs understand their consumption profiles and better manage their energy usage, utilities can move beyond a mere provider role and become a valuable energy partner. At the same time, these services can create new revenue streams that will replace those lost via competition and independent generation.

For example, our survey found that just 22% of consumers had installed a smart thermostat in their home to better control their energy usage, even though a large majority had no privacy concerns. And just 6% had installed solar panels.

Further, while 54% said they hoped to have some form of alternative vehicle – all electric or plug-in hybrid – or standard hybrid in the future, most thought it would be 10 years or more before they could own an all-electric vehicle.

These types of energy-saving enhancements are generally seen as important, but self-adoption is limited. Inertia and lack of information often prevent consumers from acting, along with concerns about cost and return on investment.

Still, the survey found that consumers are eager to make changes that can reduce their energy consumption. For example, four in five said they were interested in installing more efficient appliances and air-conditioning units, and 64% said they would like to install solar panels.

Utilities’ roles are changing from provider to consultant

Progressive utilities — backed by solid usage data — will assume the role of energy consultant and guide consumers through these efficiency decisions.

Imagine a utility that helps homeowners understand their efficiency options, including solar installation, using real-time usage data and in-depth expertise. That type of hands-on assistance would help create a stronger, market-oriented connection with consumers. The utility could move from being an invisible supplier to a trusted partner.

There are plenty of other ways that utilities can use data to help consumers. A simple example is creating customized plans that reflect a customer’s actual usage patterns, much like retail mobile services do with plans that offer free nights or weekends.

Corporate users are more likely to have already made some energy-saving improvements to facilities. But they, too, are eager for assistance. For example, 25% said they haven’t made certain efficiency changes to their facilities because their utility doesn’t offer them, and 21% said they didn’t know enough to make these choices.

Understanding customer usage data — and monetizing it in creative ways while protecting customer privacy — requires a completely different business model than the one most traditional utilities follow, along with skill sets and thinking that don’t necessarily reside in current utility workforces.

But for utilities that have deployed smart meters already, the data is there. Successful utilities will build an organization, quickly, that can make good use of it.

The views reflected in this article are those of the author and do not necessarily reflect the views of the global EY organization or its member firms.

Lead image by Gerd Altmann from Pixabay