Disrupting the Electricity Industry

October 28, 2019

Author: Tony Archibald

Disrupting the Energy Industry

A few weeks ago, I received a telephone call on my landline. I know, weird right? I have a landline. I only have it, so my thirteen-year-old son can call me at work, to tell me he has set fire to the kitchen and ask for my advice...ahh, parenthood!

But anyway, since I do have a landline, I knew it was going to be one of three people calling: My mum; the guy who wants to fix the problem I have with my computer or someone from an electricity retailer wanting me to switch to their brand of electricity. I usually only answer hoping it’s the guy who wants to fix my computer, he is often hours of free entertainment. Sadly, this time, it was the electricity retailer, so the conversation was the standard: “Yes…no…no…none of your business…no, thanks for calling.” Hang up the phone.

This last call did, however, get me thinking. In this age of big data, social media, targeted advertising, influencers and micro-influencers, these cold call and door knock campaigns seemed remarkably old fashioned, even quaint. I started to think more about the electricity retail industry and its engagement strategy and customer experience model, and how this sector fits into the broader transformations happening across other industries.

Having just finished a digital project at one of Australia’s "Big 4" banks and witnessing firsthand the challenges that the banking industry is facing: competition and disruption from fintech startups, systemic and generational changes in customer expectations, and a scathing Royal Commission that identified an endemic lack of consumer trust in these institutions. I began to wonder if there might be some parallels between these two industries? Both are very traditional proprietary business models, based on monetising access to a network system. Both industries have seen a lot of deregulation over the last decade, but rather than improving customer outcomes; if anything things seem to be getting worse. So, what’s happening in the electricity retail sector?

The annual AEMC Annual Retail Competition Review from 2018 certainly points to a deteriorating consumer experience. For instance, it found that consumer trust in energy retailers had fallen from 50% in 2017 to 39% in 2018. Amazingly, only 25% of consumers were confident the National Electricity Market was working in their long-term interest; this was down 10% on the previous year.

Not only was consumer trust at an all-time low, but there is also growing recognition that there is something off with pricing in the market. The Federal Government in outlining its energy strategy is set on lowering power prices. Scott Morrison even referred to Energy Minister Angus Taylor as his Minister “for getting electricity prices down”. Despite deregulation and the plethora of “competitive” company’s offering Retail Electricity (33 according to the AEMC): there is a perception that generally consumers are paying too much for electricity. An understanding that is certainly reflected in a retailer by retailer basis, where the annual electricity bill can vary as much as $832 between the median-priced supplier and the best available price.

All of this has led to a push for a Royal Commission into energy pricing in Australia. This idea has been floated by some Coalition MP’s and would likely be supported by Labor, The Greens and the crossbench.

The similarities with banking were beginning to stack up: traditional business models, lack of consumer trust, real and perceived over-pricing, and; finally; the spectre of their very own shiny new Royal Commission looming on the horizon. So what about the challengers and the disruptors? Where are the Afterpays, the ME Banks, and the Ups; coming along to disrupt this status quo with their innovation, customer-first focus and digital business models. Well, it turns out they are not too far away, if not here already.

Several new entrants in the energy sector are doing things differently. They are leveraging new technologies and customer-led thinking to reimagine the way energy is produced and even consumed. Ironically (or maybe not) a lot of the innovation in the Australian market has been consumer-led. The AEMC noted in its annual report that in the absence of retailer-led innovation “consumers are taking matters into their own hands, investing in solar PV systems or batteries to reduce their energy bills”.

Powerledger is one startup taking advantage of this consumer-led innovation by enabling peer to peer trading of consumer-produced electricity. Powerledger enables this peer to peer electricity market on the most bleeding edge of technology - blockchain. Providing an App to producers and consumers, allowing them in real-time to efficiently buy and sell electricity. To quote from their white paper: “The booming market in Distributed Energy Resources (DER) like solar photovoltaic systems (PV), batteries, microgrids and embedded networks has moved the power balance from central authorities to the edges of the grid, to where citizens have control.”

Powerledger intends to be the market place that overlays that decentralised production and storage by taking control of energy trading out of the hands of the existing central players.

Crowdfunded Play DC Power Co is also innovating in the Solar Photovoltaic (PV) space. While they retail electricity from the national grid, their value proposition is to provide a higher price for feed-in power. More importantly, they are helping prosumers (producers/consumers) maximise the benefit they get from their solar panel investment. This is through a mix of tech solutions, like alerts to your phone when your installation is not working and on-site inspections to assure users they are getting the best out of their set up.

Flow Power, Brighte, Watt Watchers and Bright Power Co are all new players who are looking at novel ways of selling electricity. Ways that by-pass traditional retailers or provide consumers with more information and control over how and when they are using electricity.

Aside from the startups, some successful players in adjacent sectors are making moves into energy retail. Dodo and Amaysim who resell mobile services have recently added electricity to their offering. While new to the industry, these companies are used to competitive environments, thin margins and a rapidly changing marketplace.

So how is the retail industry responding to these new innovators and market entrants? Sadly, this is where the similarities between the banking industry and the Electricity Industry end. The banking industry is moving quickly to modernise: by digitising its offering and pivoting towards their customers with new tools to track spending, automate savings, and support customers goals and budgets.

On the other hand, it is hard to detect much in the way of any innovation from the traditional players in the retail energy sector. A quick survey of 25 electricity retailers turned up a total of five players who are even offering mobile apps to support their customers. Of these, it is only relative newcomer Powershop that is putting their app at the front and centre of their go-to-market strategy. Yes, an app isn’t particularly innovative these days - it is almost expected - as people manage more and more of their lives on the go and via their mobiles. A mobile app does at least demonstrate an intent to play in the digital space. More importantly, it provides a platform on which to launch innovation.

Smart Meters, which are being rolled out to more and more homes in Australia, provide an almost real-time view of household electricity usage. They are arguably the most significant change to consumer energy since connecting homes to the grid in the early part of last century.

The five energy apps in the marketplace allow users to collect this data and view their current usage in near real-time. In some cases, this can be compared to expected usage for the current month.

There is also some innovation around pricing, allowing for blocks of energy to be purchased, like data block pricing for mobile. Beyond these examples, there seems to be very little active innovation.

In a crowded commodity marketplace where new disruptors and adjacent businesses are competing for your slice of the pie, it is almost a platitude to say that innovation could become the key to survival. The companies that will likely survive and thrive are the ones that can innovate fast and provide real addon value to their customers.

Two technology themes seem ideal candidates for Energy retailers to innovate against:

  • Data: Using data to predict bill spikes. Primary data feeds from households combined with other sources such as weather data, production data, and network data could help consumers understand usage and control their bills.

  • Smart Homes: Smart devices are changing how we control the source of our electricity consumption in our homes. Beyond this, the much talked about the internet of things (IoT) promises a plethora of connected electronics publishing data and control to remote devices. Could there be hooks here for energy retailers to innovate against?

Whatever the future holds, it seems clear that customers are demanding more transparency and control from their providers. The retail electricity sector will be no different. The likely winners will be the businesses that recognise these demands and act decisively.

 


 

Tony Archibald is a Digital Business Analyst at Arq Group

 


 

References

2018 Retail Energy Competition Review: www.aemc.gov.au/markets-reviews-advice/2018-retail-energy-competition-review

Push for Energy Royal Commission: www.sbs.com.au/news/push-for-energy-royal-commission

Angus Taylor Minister for Energy: www.pm.gov.au/media/press-conference-minister-energy