The global consulting firm Accenture has recently completed two fascinating surveys. The first is how game-changing technologies such as smart meters, smart appliances and electric vehicles will tip the global energy industry towards smart grids, and sometime soon.
The second is on how prepared Australian energy retailers are to meet this transformation. The answer might be a little unsettling for the incumbents, because there is no shortage of new competitors keen on grabbing a share of their lunch.
The good news for Australian energy retailers is that the value point of the energy business is expected to move gradually downstream to their end of the business, according to the Accenture report. That’s because of the fundamental changes that will be created by smart technologies; if the utilities can wrap their minds around the concept, the big dollars will be made inside the home rather than outside.
Accenture’s US office recently delivered some interesting predictions when attempting to identifying the technologies that would create the “tipping points” towards smart grids, and so change the game of the energy business that has remained virtually unmoved for more than a century.
The first is that, in the US, there will be 50 million residential smart meters by 2017, and in China there will be 700 million by 2022. Accenture predicts all new domestic appliances will have smart functions by 2015, residential solar PV will reach grid parity by 2017, and subsidised electric vehicles will reach price parity that same year.
EVs without subsidies will reach price parity by 2022 (electric network provider Better Place may argue they are already there). Accenture also predicts advance storage will reach grid parity for renewable generation by 2021, and grid scale storage will reach grid parity by 2032.
These are just predictions, and the timing is problematic. But the underlying point of Accenture’s work is that the current utility model will be severely disrupted by these technologies, as distributed generation, storage and micro-grids challenge the dominance of conventional transmission and distribution networks.
The industry tipping point could be reached within a decade and this will create significant opportunities for new revenue streams, new services, as well as for new entrants acting as intermediaries — be they retail-focused software companies such as Google, international brand retailers such as Amazon.com, or local retailers such as Marks & Spencer and Harvey Norman.
This makes Accenture’s other survey particularly relevant for Australian utilities and consumers. If utilities are going to have to find value inside the home, and fend off new entrants, they will have to develop a better relationship with their customers than they have now.
The survey (10,200 globally, including 500 in Australia) found only 23% of customers trusted their energy providers. This was partly due to the fact that they had little cause to interact — only 3-6 minutes a year. And most of this was a negative experience — hassling over new connections, outages, and bill payments.
This is a problem, given that utilities will need to interact more with customers over the introduction of smart meters, visual displays, smart appliances and energy efficiency measures.
The other significant finding was that 69% of Australian surveyed said they would consider buying an energy efficiency program — with, for example, a Google or an Amazon.
Consumers would also be open to buying their electricity service from new entrants. Google was given a licence to sell electricity to consumers in the US last year, Marks & Spencer has entered the energy market in the UK, bundling products and services for local utilities and basically emerging as their shop-front window. Appliance manufacturers and internet service providers are others attracted to this new “beyond-the-meter” value opportunity.
Greg Guthridge, Accenture’s global head of utilities customer care at Accenture, says outlets such as Myer and Harvey Norman could do the same as M&S. “It’s a real opportunity,” he says. Just pop down to the department store, buy a smart appliance and sign up for an energy supply deal at the same time.
“One of the things that is really important here is the convergence of traditional and non-traditional providers,” says Guthridge. Data privacy and protection is an issue, but according to the Accenture survey, two thirds of customers would be happy for their information to be shared, given the appropriate protections.
More than half, however, wanted a set-and-forgot-system. Only 40% were interested in actively monitoring the data as a spur to change their behaviour. It seems Australians are lazier on that point than elsewhere. It also seems we have a particular attachment to loyalty points.
Nevertheless, the emergence of electric vehicles, renewables such as rooftop solar PV, and other “beyond-the-meter” products and services will redefine not just the consumer, but who the consumer interacts with. “Every utility and energy provider must understand this … if they do not, others will — and utilities may lose their traditional role as trusted energy advisers,” Guthridge says.
“In many markets, small changes may not be sufficient,” he says. In short, utilities are going to have to replace a relationship traditionally considered by both sides as “low value” (hence the massive churn rates) and replace it with a value-added service. Guthrie says there are significant upsides for the customer and the utilities — for the latter, not just in protecting its market, but also in avoiding the cost of turning over nearly one fifth of their customer base each year.
*This article first appeared on Climate Spectator