Change is the only constant so the saying goes and in recent years the UK energy market has perhaps seen more than most. For many, it has been a bumpy ride and with a constant pressure on consumer prices, driven by a combination of wholesale costs, generation and transmission charges, environmental obligations and other industry costs. Meanwhile criticism continues to be levelled at leading suppliers for missing a self-imposed deadline to help households with smart meters avoid unexpected bills. Further significant change then, remains inevitable. Indeed the smart energy challenge is arguably the biggest change the sector will have seen for over a decade. It has perhaps an appropriate time therefore for utilities to take stock, sense check their planning is on track and ensure their people are working towards the same goal with the right strategy in place.
Around 50 million smart meters must still be installed in homes and businesses if the industry is to meet the Government’s 2020 deadline, but towards the end of 2016, less than 10% of households had a smart meter in place. Currently these are all of the SMETS 1 meter type – meaning they are not currently compatible with the central Data Communications Systems (DCC).
New era for energy
This communications infrastructure, linking smart meters to energy suppliers, is of course a vital component within the change now taking place throughout the energy market – one which it is hoped will see an end to the sorts of issues reported in the broadsheets recently. Its effective implementation will enable both the consumer and industry to move into a new era for energy and potentially, away from a more simplistic and less rewarding price switching culture. Only once a smart meter is in the system will consumers be able to fully realise the benefits the Government intended. Whilst some benefits are available with the SMETS 1 meters, such as visibility of energy consumption via the in home displays, the real benefits will come with increased interoperability, only enabled by the SMETS 2 meter types.
The roll out of smart metering for residential and small businesses began early in 2016, and while the DCC went live in November 2016, the industry will only really view the system as fully resilient and operational once there are over a significant number of meters in the system – millions as opposed to thousands. Industry experts think this point is now some 18 months away and it is clear there remains much work to do to convince sceptics that change is a good, or indeed a smart thing.
Change and challenge are of course natural partners and in a market with the level of complexity of the UK energy sector, the challenges are both numerous and far reaching. And for every energy supplier, the next major challenge is looming on the not too distant horizon. After October this year, only SMETS 2 smart meters – those that are compliant with the DCC – can be installed, but only by those suppliers who have completed their ‘DCC readiness’. For every supplier, that second deadline for DCC readiness – 25 November – is now approaching rapidly.
In practical terms, for different utilities, this means different things. Some will be well underway with the complex changes required to back end legacy systems while for many of the recent challenger entrants to the market with more modern and flexible systems, the process will be easier to complete and presents an opportunity to compete more effectively.
But regardless of size, there is a great deal to think about. Security for instance is critical – the data captured by smart meters will remain the consumers’ and will be visible only to parties authorised by them. With recent headlines talking about recent virus attacks on the NHS and large corporate, any shortcomings in this area will very quickly undermine public confidence and therefore, DCC readiness includes a security assessment and regular audits.
Building trust and empowering consumers
As more and more smart meters are installed, so the quantity of data collected will increase. Indeed energy companies and their customers will never have had more information at their fingertips and as the roll out continues, the more intelligence businesses will receive. It is a situation which offers clear advantages for future competitive success, but one in which expectations will rise simultaneously. In the years to come, simply meeting those expectations may well not be enough – energy suppliers need strategies for managing the increase in data, as well as propositions which can offer extra products and services based on it.
The months ahead are therefore of paramount importance for both energy suppliers as well as metering companies, to ensure they are prepared and ready to deliver their part in an effective roll out programme.
But what does an effective roll out mean? For consumers, accurate billing is a very obvious and important consideration but for the industry as a whole this is but a small part of the mix. An enabler for managing demand and time of use tariffs, an effective roll out also has the potential to facilitate the development of other services, healthcare monitoring for instance. One might argue therefore that the programme is about changing perceptions, building trust, empowering consumers and nurturing customer relationships.
In short it is an opportunity for growth. But with a mandatory deadline approaching and the media’s attention never far away, the risks are equally obvious. Trust, after all, is not something that can be created overnight and this is an industry which has repeatedly acknowledged that its relationship with the consumer is broken.
Offering enormous scope for all utilities as an enabler for nurturing customers and driving growth through a more personal, tailored offer, energy suppliers must also recognise that poor preparation will seriously undermine their future operational effectiveness.
Privatisation may well have been intended to provide consumers with greater choice and to reduce bills through increased competition. However, while record numbers continue to switch, around 66% of consumers have remained with their original supplier, many on expensive standard variable tariffs. It is not just lethargy or a lack of awareness of available options that drives this inaction – there a very real lack of trust which continues to undermine the market. This cynicism, which continues to be fuelled by the media with articles reporting on politicians attempting to “fix the broken market for gas and electricity”* is symptomatic of the current state of affairs.
Much of this attention is centred on price, the much maligned standard variable tariffs and a perceived failure in service. If nothing else, it is indicative of the level of consumer confusion that persists and a perceived lack of transparency. Both undermine trust and without that, suppliers will remain on the back foot, reliant upon switching to drive growth and this is not something any energy company should rely upon for long term success.
Future of success
Smart metering presents a way in which traditional consumer-supplier relationships can be refreshed by offering utilities the chance to engage more effectively with consumers. In time, it is the key to changing the negative perceptions of the sector. It is crucial to remember however that change also introduces the opportunity for adverse customer experiences. Some consumers may initially see smart meters as intrusive and if their experience at the time of installation is poor, or incorrect bills are received in the months that follow, relationships may well be irrevocably damaged.
To achieve the result we all want to see, ‘all reasonable steps’ must have been taken before the deadline of 25th November to complete qualification as a DCC user. It is essential that suppliers start on a good footing. For those whose preparations are less advanced, some of the key challenges which must now be faced include the raft of new supplier responsibilities and licence conditions, understanding the new demands upon IT and making sure the right software systems are in place as well as working out how to optimise interaction with the DCC.
Smart meters are the foundation upon which a very different sort of energy market can be built and operate successfully. The DCC is an enabler of this exciting future – a stepping stone or rather a series of stepping stones that lead to a more flexible future – and as always, it is the early adopters who will reap the greatest rewards. Deadlines are looming but it is not too late, indeed this is very much the start of the process rather than the end and the opportunity for utilities to provide a tailored customer service offer, with greater clarity and reassurance for consumers has never been greater. Time spent in preparation today will enable more proactive products and services that can be deployed tomorrow, playing a critical role in the growth and customer retention strategy for every energy company in the years ahead.
*The Observer 12.03.17 (p-18)
For further details, please contact us today