Utilities market overview: consolidation and specialisation
Recent years have seen unprecedented activity in the utilities market, with more electricity and gas retailers than ever before and an opening up of the water market. Yet just as the emergence of the so-called ‘big six’ was driven by the need for companies to make economies of scale, so too will the next wave of consolidation. What’s different this time is the impact of digital technologies.
Gaining share of this dynamic market requires a strong brand, an efficient operating model and a clear price proposition – particularly with the degree of choice now available both to business and domestic customers. In the electricity and gas markets, we’re likely to see a swing back to a smaller number of suppliers, with new kinds of specialist related services such as energy efficiency, for example. For water, the same kind of consolidation and specialisation is likely to occur in the business-to-business space.
In terms of variation between the different segments of each industry – generation, transmission, distribution and retail – most of the consolidation and specialisation will be in retail. New services are likely to emerge targeted at larger businesses; a supplier of electricity, gas and water, for example, could offer bundled services for multi-site business customers.
New role of digital
So, what is the role of digital technologies in shaping and supporting these changes? With the Industrial Internet of Things, the business of utilities transmission and distribution will be smarter and more data-driven. In the retail space, digital technologies will enable the creation of completely new services, such as sets of services built around electric vehicle ownership, or home energy management, or property services management.
For domestic water customers, we’ll see the evolution of simple, dynamic, digital customer experiences, just as we have seen in the power markets in recent years. Across all markets, the digital transformation of service delivery using cloud, automation and artificial intelligence will enable a shift of more customers to digitally enabled self-service for checking bills, monitoring usage, arranging callouts and so on. While many customers will be receptive to this, others, such as those not comfortable with online interactions, may not – in which case different business models, or operating companies, will be needed for different customer segments.
According to industry analysis that drove consolidation utilities retailers need, in general, to target a minimum of five million customers in order to be viable. The use of digital technologies could lower that figure; smaller, digitally enabled companies may be agile and specialist enough to sustain businesses with far fewer customers, just as smart new digitalised businesses have been able to do in the telecoms, banking and insurance sectors.
When it comes to customer choice, utilities is a market in which customers are willing, to some extent, to shop around. What may change is that even more information will be visible to enable people to make choices and the reasons to switch may well become more compelling. This on top of switching which is becoming ever easier. The ability to receive one consolidated bill across gas, electricity and water, for example, plus all the related services that become possible based on all that data, may well attract more customers. And it’s these kinds of combined, added-value services that will enhance customer experience and build brand loyalty based on utility companies’ ability to demonstrate to their customers that they understand them and their needs.
Differentiating through value
Responding to these challenges requires utilities companies now to understand and develop clear and robust value propositions, make decisions about which customers to target, and balance these decisions against a portfolio of risk in terms of profitability of particular segments.
They need to identify the specialisms they want to offer and the value that these will bring across different and multiple customer segments and understand where others will be more competitive. Critically, this is about transformation to enhance customer services while maximising operational efficiencies. And enabling that transformation will be revolutionary digital technologies that offer companies new ways to differentiate themselves.
Digital Vision for Energy and Utilities
This article is part of the Atos Digital Vision for Energy and Utilities opinion paper. We explore the potential of digital transformation to help energy and utilities companies power a new era for UK businesses and homes, amid profound and rapid change across the industry.