Power supply: new systems or die!

But first let us have a look at a few figures, taking as an example the English market, the first market to be liberalized more than twenty years ago. For nearly fifteen years, the opening of the market had led to a certain churn of customers, but this was limited to competition between the six major incumbents. New entrants accounted for only 2% of the market in 2012. In 7 years, the market has completely evolved. The share of incumbent operators fell below 85% in 2016, 78% in 2017 and should not exceed 50% in 2020 according to most analysts. New entrants gained more than 300,000 customers each month and they will likely be over 100 in the coming months. They have already forced SSE and Npower to envisage a merge. The analysis of the French market shows similar signs with the losses by the historical operator EDF of more than 1 million customers each year, most of the customers joining new players. Four basic trends can explain this phenomenon.

First, it should be noted that electricity supply, even so the margins are limited, attracts more and more companies. The oil majors see it as a natural sector of conversion to their historic hydrocarbon production business, an area even more interesting as the electric vehicle is booming. Shell or TOTAL have recently had very clear ambitions in this regard. Automakers are also interested in this market. Following the impetus of TESLA, BMW and VW have announced in turn that they are embarking on the retail of electricity. They will probably be imitated in the years to come by several others. Supermarkets, such as LECLERC or CASINO on the French market, are also interested, either to compensate for the current erosion of their turnover on their historic market, or to use energy as a product of appeal for their classical goods supply business.

In addition to this multiplication of competitors, it should be noted that the historical players must deal with a multiplication of marketing offers. One of the first offers was the supply of renewable electricity. This offer is now available in a multitude of sub-offers, such as the supply of wind-generated electricity or the supply of electricity generated by newly connected plants. Recently, some retailers have even offered guaranteed electricity from nuclear or coal plants. The arrival of smart meters also made it possible to launch offers adapted to specific consumption profiles, such as customers consuming during the summer months or during the weekend. Some retailers like Wekiwi in Italy and France, also target young people with prepaid offers which the customer can manage for his mobile phones. Others, wishing to attract customers with low levels of consumption, offer discounts on the fixed subscription part rather than energy.

Taking advantage of the drastic drop in the costs of photovoltaic and wind power, many players now offer electricity supply either directly produced on the consumption site or in the form of PPA (Power Purchase Agreement). In doing so, they capture part of the historical supplier market.

The latest trend is technical but still essential. The retail of electricity remains a business where critical size is essential, and several English companies have gone bankrupt in recent years for underestimating this crucial point. Nevertheless, the possibility of having a software as a service billing or customer relationship platform (such as powercloud, Zuora, Opinum or SalesForce) allowed to drastically reduce the critical size needed to reach the breakeven point that was historically several million customers.

Recently powercloud, who delivers a modern utility running on AWS, convinced EnBW and then E.ON, to move from SAP/ISU to their platform to cut drastically on cost.

Faced with this new competitive environment, historical players can react in two ways. First, they must ensure that they can launch quickly and manage at an affordable cost more than fifty differentiated offers .... where today they usually do not offer more than ten. This is a real challenge in terms of pricing and billing engine, but it is a pre-requisite condition for survival. In addition, they must develop as soon as possible micro-marketing databases and customer relationship systems enabling a dedicated and specific customer journey for each micro-segment. These systems will also have to be particularly open to collaboration as many offers may require exchanges with partners.

The difficulty for the historical players to achieve these essential developments explains the market share losses they currently face throughout Europe. Remedy is not only essential but their only chance of survival in the long run.

DXC Technology has teamed with powercloud to offer energy and utility companies a sustainable, long-term alternative to existing IT support systems: a powerful new solution that is flexible, platform-based M2C system with enhanced utilities features and integration into the cloud. The platform digitizes sales, processing and billing of commodity and non-commodity products.