An industry on the edge

The energy industry in Australia is currently facing a crisis. Australians are acutely aware that they pay among the highest prices for electricity in the world, and across the ecosystem, players are sandwiched between two threats. Increasing regulation from the government trying to address electricity affordability from above, and new market entrants with unique service-based offerings from below.

Price is a hot topic and the disruption in the industry has had a huge knock-on effect to providers, retailers and distributers combined. Gone are the days where customers had little choice if they were dissatisfied with their providers, now in 15 minutes customers can compare providers online and get a better deal. This increase in customer choice is coupled with a change in customer behaviour. Australians expect energy providers to offer sustainability, affordability and reliability. Energy has always been a service, but now customers are treating it like one.

Australians pay 44% more for electricity than we did ten years ago. This creates a downward spiral for the industry where customers reduce their reliance on the grid, or remove themselves from it entirely, which drives up prices, and so on. This cycle leaves the Australian energy sector in a precarious position. What is the value of energy distributors and retailers in a rapidly decentralising, decarbonising and digital market?

That is the million dollar question that has allowed smaller, digitally-focused alternatives to enter the market and draw market share away from the so called ‘big 3’, AGL, Energy Australia and Origin Energy, whose market share has steadily fallen over the last decade. It is also the question traditional energy generators, distributors and retailers will have to answer to stay alive as we move into a future where distributed and community energy becomes more and more common, and Australians take a more considered role in their energy usage and where they spend their money.

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Set and forget? Not quite.

When we think about utilities, we prefer not to think. In fact, on average - consumers spend only 10 minutes a year interacting with energy companies. While this disengagement is dissolving, it means that the energy sector only has a thin slice of our lives within which it must deliver value. Given that most of these interactions are concerned with power outages, bill shock or trying to understand unclear terms, is it any wonder that utility companies rank below telcos and government for customer service?

With few opportunities to impress customers, deliver outstanding service and win trust, consumer faith in the system is at an all time low. Incumbents in the energy industry have been content to rely on the 'lazy tax' disengaged consumers paying more for services because they are unable or unwilling to shop around. This kind of reliance on business as usual has meant that utility companies have had a lightbulb moment on the importance of customer experience, but they're late to the party.

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Survival strategies

Like the banking and telecommunications industries before it, the energy industry has a choice. It can remain stagnant and hope for the best, or they can lead from the front by innovating new business models and engaging with customers to create an energy industry that balances supply, affordability and sustainability for Australia. But how?

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1. Develop a customer focus

Customer centricity is no longer a buzzword in today's business circles, it is a requirement to stay relevant. Aligning your service to the needs of your customers, hopefully before they realise it, has become a competitive advantage in today’s marketplace. Companies that lead on customer experience know that CX is more than skin deep, it’s imperative to be aware of how your customers understand energy.

Organisations need to acknowledge that customers have different perspectives and needs. Some want a high degree of control and will need to be given as much information as possible. Others will be relatively disengaged and just want to be secure that they're not paying too much for their electricity. Others still will be vulnerable customers who need support to understand their bills and what options they have available. If you don't know who is who, you should begin here.

Companies need to consider providing tailored service that leverages personalisation, behavioural economics and digital technology to allow customers to engage at the level they want to. This builds customer advocacy and restores trust. Simply copying models akin to Airbnb or Uber is a mistake, customers want simple, easy to understand information that allows them to make the most suitable choice for them. A retailer in the US recognised the importance of choice and allowed customers to choose their own due dates, offered instalment billing and flat rate billing options and in return, realised measurable improvements in cost and revenue, and increased customer satisfaction.

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2. Collaborate to innovate

The future of the energy industry is already projected to be one that shifts the view of customers purchasing energy from retailers and generators, to a decentralised market where customers buy and sell energy to the grid. To take advantage of this shift, energy companies need to not be afraid to experiment with new business models and ways of collaborating with customers. Ask your customers what they want, and then experiment with new ways of engaging your customers. Ergon electricity in Queensland see themselves as enablers of an effective energy market that benefits everyone, whether they're using grid or distributed energy. Energy companies that are acting to move into this space now are the most likely to be winners in the future.

Taking this idea further, energy companies have opportunities to facilitate the transfer of energy during peak times, when some users are generating but not using energy, and others are using energy from the grid when it is most expensive. With battery storage and the proliferation of solar, shifting from a one way energy provider to a collaborative energy facilitator in cooperation with customers becomes possible.

Another way to collaborate with your customers is to help them save money on their electricity bills. The current model for energy companies is to charge customers for their loyalty by raising prices. Energy Australia has done the opposite, by giving customers more information and control over their electricity usage, and giving them ways to reduce it. While this reduces revenue in the short term, the trust that it builds with customers has significant long term benefits. For Energy Australia, they've seen year on year reductions in customer churn since making the change.

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3. Energy is no longer seen as a commodity, it’s a service

To survive in the future, utilities will need new ways to make money by switching their value proposition from being hardware owners to service providers. The continuing uptake of distributed energy sources will be a key driver of this point, with $27B projected to be spent on new rooftop solar generation in the next 15 years in Australia.

The best chance of success lies in reorienting existing business models to take advantage of this change. The emerging practice of demand response is one way of doing this. Incentivising customers to engage with and change the way they use electricity during peak times to realise a cost saving is something that seems like a lot of effort, but it works. Mojo Power piloted a trial of demand response in 2017 and 40% of their customers agreed to participate within 30 minutes of being notified. Those customers reduced their energy use by 30-40% and saved $25.

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The customer is key

The thread that links these innovations is the customer. To be viable, let alone competitive in the rapidly approaching future of energy, companies need to get closer to their customers now. Asking them what they want, and then coming up with innovative new ways that redefine what it means to be an energy generator, distributor or retailer in Australia is critical.

We’ve worked with some of Australia’s leaders in the energy and government sectors and we specialise in helping organisations define and design services that collaborate with their customers to deliver real value. In our experience, the decentralised, decarbonised and digital grid of the future is bright, but only for those with the smarts to keep the lights on.