The Utilities 2019 Imperative: It’s Now or Never

Reading Time: 7:10 minutes

The tipping point

Southeast Asian energy utilities are bracing for the winds of change. They should be.

Indeed, while utilities have been exposed to volatile conditions in the past, never before has the market experienced the confluence of so many shifts – and fundamental ones too.

2 big change factors: Technology, customer sentiment

Already, utilities are grappling with the changes driven by 2 huge factors – technology and customer sentiment. Technology has been reducing the cost of alternative energy, distributed generation, and battery storage. Owing to lower costs it is becoming increasingly financially viable for industrial customers and even households to generate power and store it for later rather than drawing 100% from the grid. These costs are dropping far too quickly for inefficient players to hide.

Everything is becoming more connected. With the rise of smart meters, home area network systems, and mobility connected devices such as smart air-conditioners, consumers – now used to daily conveniences offered by mobile banking and voice-activated retailing – are looking at how utilities can harness this connectivity to satisfy their need for more convenience, more value, and more choice.

There is no doubt customer engagement dynamics are transforming with the rise of the prosumer.

Consumers want access to their data. John wants to know how his household is doing with energy consumption the instant he needs the information. Just like how he can check his bank statement when he wants to. Jane wants faster and more efficient service when she chooses to interact with her electricity provider. She prefers the experience to be automated when there’s no need for her to engage with a call center staff. Or if there is, the experience should be seamless.

The critical force: Deregulation

But there’s more.

Today, we have a mix of state-owned and corporatised energy operators. Most operate in a non-contestable market for the majority of their customers. But that is changing with government deregulation.

This massive change, already seen in some markets, is affecting (or will affect) the very core of how business is conducted. By opening the markets to new players, long held market monopolies are eradicated. The consumer now has choices.

And what that means is inefficiencies that were previously endured as a result of a single market operator will no longer be tolerated.

smart utilitiesAs the energy industry becomes more deregulated, consumers are also gaining the freedom to choose power providers that give them the highest service levels.

The new reality: Get ready or get left behind

Staying in play in a deregulated market goes beyond eliminating efficiencies. Energy utilities need to innovate and transform to remain relevant. And it’s crucial to get ready even before the markets are open.

Why?

With market liberalisation, regulatory authorities are introducing competition from international players. These players have been operating in ultra-competitive markets. They are well-adapted to carving out market share for themselves and thriving in those markets.

Existing power producers and energy retailers need to use their resources more efficiently, enhance productive efficiency, and create tariffs that reflect the true cost of electricity for consumers. Otherwise, consumers will choose the tariffs and operators that align with their needs when they have choice. And existing players may be left standing on the kerbside.

Staying competitive: What it entails

The liberalisation will begin with the commercial and industrial customers, and the larger consumers. Then the entry bar to contestable customers will be reduced – until the smallest consumers and households get the choice to exercise the flexibility of provider choice- and the market is fully open.

To stay competitive when that happens, it is imperative energy utility companies review existing systems and processes. Clearly, technologies and processes that were built to handle 200 commercial and industrial customers will not be able to manage 200,000+ customers.

The Fundamentals  

What then, does it entail, to stay competitive? At the very least, retailers need to get these fundamentals right:

  • Know the market/customers
  • Highly relevant products and services
  • Improved levels of service
  • Convenience: In engagement with the customer, and in conduct of business with the retailer
  • Cost reduction: To serve, and to acquire and transact with the customer

New Revenue Streams  

Beyond that, it is also vital for retailers to identify new revenue streams. This is because margins in energy sales typically get squeezed very quickly as the market opens. However, this is not merely about what else the retailer can sell the customer. Instead, it is also about knowing the customer to understand precisely what type of upsell works, and what kind of package the retailer can deliver to lock-in the customer and improve “stickiness”.

For example, the retailer could offer additional hard products, such as solar panels, air-conditioner, water heaters, ovens and so on. Or it could be in the form of additional services, such as data, energy audits, or back-up power to commercial customers.

So, the retailer may want to offer a new energy-efficient air-conditioner to Peter’s household as his power bill is way higher than average. Along with that, the retailer could also offer a 12-month payment plan with zero interest to lock-in the customer. Now, imagine Peter’s scenario successfully across 20% of the customer base. Not only does it translate to new revenue streams and higher margins per customer, it’s also revenue assurance in that segment for the next 12 months.

But how can this be done? Essentially, you need to know the customer.

smart utilitiesPutting the smart in the energy industry

Understand the Data

It cannot be over-emphasised: The power provider that understands the data and executes efficiently wins. And that understanding should extend to these areas:

  1. Understand the customer: What they want (or what they may not even know they need)
  2. Understand how/when the customer consumes their energy (forecast demand)
  3. Understand how the energy delivery network is performing (for the distributors)
  4. Understand how to optimize operational costs
  5. Understand the customer’s buying behaviors
  6. Understand the customer’s potential purchase value

This intelligence really is the backbone in the fight for relevancy and success. It is the essence that will allow energy players to maintain their  position, and even forge ahead, as the market opens and seasoned, ultra-competitive players flood in.

But it’s not about implementing a fancy solution in 2021 or 2023 when the market liberalises. Energy companies need to work on this now: You need to smoothen the processes, to work on new revenue streams and business models. You need the prep to be ready.

Becoming the Intelligent Utility Enterprise, smartly

Yes, there is so much innovative technology today to help enable these goals. However, with such a dynamic environment, traditional ownership models of support systems and software solution purchases are becoming difficult to justify.

This makes flexible service-based solutions a smart alternative – or even the answer – to enable growth at a pace aligned with market success.

These include billing solutions that are deployed on a per-customer-per-month basis, energy analytics intelligence rolled out on a per-customer-connection model, and smart device monitoring and analysis that are adopted as devices come online.

It makes sense. If one of the major KPI’s is the cost-per-customer to serve, it is only sensible for the supporting business systems to be costed in the same way. The wonderful thing is all the data can be coordinated, integrated and interrogated through a single easily accessible platform.

Existing power producers and energy retailers need to create tariffs that reflect the true cost of electricity for consumers. Otherwise, consumers will choose the tariffs and operators that align with their needs when they have choice.

Acting now: This is the 2019 imperative

There is no doubt. Technology, consumer and market liberalisation; these forces of change will shake up the Southeast Asian energy market. Some energy utility players will continue to forge on strongly, while others lose market share. Some will eventually go out of play.

The winners in this market are those that are prepared for the coming changes. The ones that will be under pressure are the operators that stay dormant now, for indeed, the only failure is the failure to act.

So, start now. Invest the time and effort to ask the right questions on how you should innovate and transform. Find the right partners to work with so they can help you ask the right questions to use your resources more efficiently. Then blaze on!

As an energy utility company with a large customer base and large numbers of employees, you impact a vast number of lives. So, staying relevant and successful is not only a goal, it is also a corporate responsibility.

And becoming the Intelligent Utility Enterprise is not only possible; it is very much within reach.

Download our “Digital Transformation in the Utilities Industry” white paper now to get an even greater look at the importance of innovating and digitising in this high paced industry. And learn how SAP Leonardo can help your company make the move to digital.

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