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Powering into a new reality for energy suppliers

Post COVID-19, what will the shape of demand look like for energy suppliers? What will the new ’ideal‘ supply portfolio shape look like? Will previously desirable portfolios even be achievable anymore? How will energy suppliers reflect and reforecast when the future is so uncertain?

The COVID-19 pandemic is having a massive impact on everyone’s lives and we’re uncertain about how long it will last. What is certain is that we’re living through a period unparalleled in our lifetime. We don’t really find ourselves in a new normal, because it is ever evolving, it’s more of a ’new reality‘ that we’re having to face up to. As a business community, we all seem to be embracing this new reality with great aplomb – homeworking, video conferencing, webinars, podcasts… But what will this mean for the future of how businesses operate, how consumer behaviour changes and, specifically, how energy suppliers cope with such a shift in consumption, from businesses to homes and vastly different peak demands?

Like a lot of sectors, energy suppliers are going through tough operating times and have had the shape of their supply turned on its head. While demand from the residential sector has increased, they have seen a sharp dip in demand from the commercial and industrial sectors, and residential will in no way offset the demand from C&I. Post COVID-19, what will the shape of demand look like for energy suppliers? What will the new ’ideal‘ supply portfolio shape look like? Will previously desirable portfolios even be achievable anymore? How will energy suppliers reflect and reforecast when the future is so uncertain?

Customer services

What is certain is that suppliers aren’t going to want to be hit by any additional costs, fines or charges owing to poor operations or sub-standard customer service levels (this is especially true of the challenger brands who are setting their stalls out to differentiate with superior support for their customers). Efficient ’back office‘ systems that manage customer data to ensure smooth operations are a must whatever the chosen operating model.

There are concerns around cash flow and suppliers’ ability to continue collecting from customers who are struggling to stay afloat in these unusual times. With a scattered workforce having to handle sensitive conversations with these accounts, remote training and support is high on their agenda. Also key is being able to maintain the business while supporting vulnerable consumers, including ensuring prepayment and pay-as-you-go customers remain supplied with energy and supporting all customers in financial distress.

Unintentional environmental benefits

Through the impact that a global lockdown has had on emissions levels, nature seems to be making a comeback…

  • air pollution is down by as much as 50% (1)
  • data from the ESA Copernicus Sentinel-5P satellite show that nitrogen dioxide levels across Europe have dropped, as people have been forced to stay at home(2)
  • India’s strict lockdown means the Himalayas are now visible from the Punjab for the first time in 30 years(3)
  • dolphins have been seen playing in Cagliari port and the canals of Venice(4).

Even as far back as 2012 the World Health Organisation associated poor air quality with seven million deaths annually(5). Consequently, our actions over the past few weeks may result in a significantly greater impact on protecting life than just those associated with the Coronavirus outbreak.

What could the reduced environmental impact mean for the future of our world? Will humanity learn from this and stop bullying the natural world? These are thoughts echoed by Dale Vince, the founder of Ecotricity: “The virus crisis is causing big changes to the way we live. I hope some of them endure, that we question what normal life was and can be, and we see options for another way to live.”(6)

In the third quarter of 2019, the UK’s windfarms, solar panels, biomass and hydro plants generated more electricity than the combined output from power stations fired by coal, oil and gas(7). McKinsey has predicted that global energy-related emissions will peak in 2024(8), but could the current crisis be the trigger to act more quickly in a joined-up way? These are thoughts that were echoed by Juliet Davenport, founder and CEO of Good Energy, in a recent interview. She emphasised the need for a better energy system and a greater supply from renewable energy sources, stating: “We need a better system approach to this. We can actually deliver low carbon, more resilient Britain, more security of supply, and this is a real opportunity to take that leadership now.”(9)

The virus crisis is causing big changes to the way we live. I hope some of them endure, that we question what normal life was and can be, and we see options for another way to live.

Smart meter opportunities

Does the Coronavirus pandemic present energy retailers with an opportunity around the faltering smart meter rollout? At the time of writing, Ofgem hadn’t budged on its timelines, but COVID-19 is slowing installation numbers down due to the effect of lockdown on the smart meter installers. However, with householders being home more often, wouldn’t now be a good time for the industry to accelerate the meter installation programme? While ensuring social distancing measures are followed, there are tools that could enable installation guidelines to be met while still being able to offer a strong customer experience (enhanced even because of the reduced inconvenience caused) – for example, targeting properties with external meter boxes or offering video training materials for the In-Home Display.

There has been an apparent increase in focus on energy at the current time, with almost 600,000 residential switches in March taking the end of Q1 2020 year to date figure to 1.6 million, up 10% compared to the same point last year(10). This might mean that customers have a heightened interest in their energy consumption. With a greater interest in energy usage, now could be an appropriate time to engage householders with the benefits of having a smart meter installed and potentially accelerate the rollout programme.

The increased residential demand from those furloughed or working from home will create a very different demand pattern. At a macro level, the move from I&C to residential usage patterns will open up opportunities for a more granular knowledge of the customer – a customer with an increased interest in their energy consumption and storage / purchase options. This accelerated change in our usage(s) profile, coupled with the implementation of smart meters, means that we need to bring forward plans for how Artificial Intelligence (AI) can help to provide the optimal solution for energy customers.

Energy suppliers currently differentiate based on high-level value propositions – renewable energy, lowest-cost energy, transparent pricing, customer first etc. Their value proposition helps to win customers, and an AI-based knowledge of those customers, alongside effective data stewardship systems, can help to retain them. Knowing your customer and understanding their needs has always been the key to customer longevity; what better way to know them individually than by combining the power of AI with the data from smart meters?

Greater commercial opportunities will present themselves to suppliers, for example working from home smart tariffs, or enabling commercial customers to extend a business tariff to their home-based workers, or businesses covering a proportion of their home-based employees’ energy bills.

What next?

So, once we are through this reality, what will the new normal look like for the energy sector?

  • Buying shorter, less long-term hedging?
  • Requiring faster reconciliations between customer and billing system
  • A more flexible demand from businesses
  • Some suppliers may not survive the changed industry profile and new demand patterns
  • More flexibility required in contract pricing
  • Reduced impact on the grid owing to a smoothed-out demand curve
  • Greater levels of outsourcing to ensure expertise, reduced risk and lower operating costs
  • Could chat-bots triage the first line of customer service?
  • A renewed customer demand for renewable energy tariffs
  • Greater incentives for renewable generation.

Shaping tomorrow together

The way businesses have adapted their operations over the past few weeks should signpost the basis of a new normal. What we must ensure that we all do is learn from what has happened over this difficult period, how technology has helped us to cope and adapt quickly , and that the world should not look the same as it did before. Embracing technology to build a more flexible workforce and to better serve customer needs should not be something we ignore and neither should the environmental benefits of not having all staff commuting to work (even if we will, naturally, still need to meet face-to-face occasionally).

This should be an opportunity for businesses, not just in the energy sector, to take stock and construct a ’new reality‘ operating model with reduced costs, better flexibility, improved work-life balance, minimised environmental impacts and one that will set them up for whatever the future brings.