Can my colleague Jon Slowe see in to the future?
During our weekly brainstorm that looks at innovative business models emerging in the energy space, Jon voiced the likelihood of a “budget airline” proposition entering the market. Little did he or I know that the brand who own easyJet would do just that, only days later!
At its core, this proposition is giving customers more choice over the way in which they can procure their energy. The offer may come with unfamiliar risks or caveats, but it is for the customer to decide whether they are prepared to accept them or not.
easyEnergy, part of the easy brand family, will provide domestic customers access to wholesale energy prices, for a fixed monthly fee.
In other words, they’ll pass through the real-time cost of energy to end users with a smart meter, without applying a margin (further than the fixed subscription/connection fee). This certainly equates to a radically different energy supply tariff compared to those domestic customers are used to.
Why is this intriguing us?
It is not so much the fact that the easy brand is entering the energy space, although this is incredibly interesting in itself (we have already coined the concept of telenergy: telecom companies moving into energy – perhaps we may have to create another concept or coin another phrase), rather it is the unusual structure of the proposition that easyEnergy are offering.
While commercial & industrial (C&I) customers have, for a long time, been offered the option to opt for “time-of-use” (ToU) energy supply tariffs, it is an entirely different story at the domestic level. Consumers are used to paying a fixed fee per kWh of electricity consumed – no matter the time of day or the need they are meeting. The associated peace of mind and bill security/financial planning that this relatively predictable pricing arrangement delivers, is central to how most residential customers expect to pay for energy.
Now I am certainly not saying that things do not change – they surely do, and definitely will, especially in the energy space as we transition from moving at a glacial pace. It is however undeniable that this represents a fundamental shift in the way in which customers are used to procuring their energy.
No hidden fees, are quite different from no surprise fees
easyEnergy’s proposition could hardly be more transparent – passing through the wholesale cost of energy directly to customers without applying any margin, simply for a fixed subscription or connection fee (€5/month per fuel). No confusing introductory offers or termination penalties? Happy days.
However, with this transparency comes risk. It is all very well focusing on the opportunity of very low or even negative prices, but with the increased price volatility that we are set to see across Europe over the coming years, we will almost certainly see very high price spikes. The graph below shows precisely this, over the last ~48 hrs.
UK System Buy Price; variability between 12am Monday 3rd April and 8pm Tuesday 4th April (Elexon)
Inevitability, this volatility raises the following questions:
- Will any caps or limits have to be put in place, to manage extremely high prices, as we have seen in UK & German trials of dynamic pricing or the tariffs available in France?
- Or will customers have to equip themselves with products that automatically respond to price signals? A year ago we were already seeing increasingly numbers of “smart ready” heat pumps on the market, from e.g. IVT/Bosch.
- Or will we see software platforms that manage this for customers become the norm – a super home energy management platform – as per aWattar, There Corporation & Dezera to name a few.
These kinds of questions are precisely what we are asking ourselves, when looking at the ToU optimisation pillar of our Business Models Research Service, and the companies listed above are examples of some of those that we feature in our extensive case study library.
Expect to see more ToU energy business models – but be aware of knock-on consequences and reactions from other industry stakeholders
With smart meters, appliances & controls only set to become more prevalent, and the ever-increasing amount of intermittent non-dispatchable generation coming online, both the ability and need to manage demand becomes possible as well as inevitable. Those who are able to do so, put themselves in a strong position.
Providing the price signals to respond to – an incentive to shift consumption – as easyEnergy has done, is a first critical step. Mechanisms must however be in place to ensure consumer safety and shield those more vulnerable customers.
How will regulators respond to such initiatives? With the “supplier of last resort” in The Netherlands currently the grid operator (for situations where customers fail to pay their energy bills and are cut off by the supplier) will they come under pressure if and when customers cannot meet payments, due to unwittingly having used energy during a very high price spike period?
Ultimately customers are being given more choice, but they are going to have to become much more aware of their usage and/or invest in ways to be able to flex their consumption.
How are you making sense of the disruptive business models you see transforming the energy sector? What do you make of this very different energy supply offering? Contact me on [email protected] or call 0131 625 3336 for a chat.