“Many energy utilities see their core business as supplying electricity and gas to the metre and are not fully engaged in working with their customers on how they use energy," said Jon Slowe, a director at Delta Energy and Environment, a consulting firm.
"They have not had to do it, it is not their business model, it’s not what they’re good at,” said Slowe, who leads Delta’s work with utilities, helping them develop decentralised energy and low carbon strategies and tactics.
Europe's first-ever binding energy efficiency directive is taking shape as the 27 member states debate the draft bill in the EU Council of Ministers. The talks are expected to be concluded by July, with the end of the six-month rotating Danish presidency. It is expected to deliver 20% energy savings by 2020.
One of the most controversial articles in the bill, hailed as the most substantial part to deliver the 20% target, is an obligation on energy companies to save 1.5% energy annually among their final customers.
“We cannot achieve these targets only through renewable electricity generation, we must achieve them partly through better energy efficiency. This is going to happen anyway, whether energy companies like it or not,” Slowe said.
Energy retailers see the 1.5% obligation as a "threat" as they will be forced to sell less units of energy, Slowe said. But it does not necessarily mean that it will have a negative impact on their business, he added. “If they define their business as generating, supplying and helping customers use energy efficiently, then they can grow their business”.
Building trust
Marie Donnelly, director for renewables and energy efficiency at the European Commission's energy directorate, agreed. Speaking at an industry conference in Brussels, she said the lack of information amongst consumers is the main obstacle in promoting energy efficiency services.
“The citizen, the consumer, the residential owner is what we should be focusing on,” she said.
Under the upcoming EU legislation, buildings, appliances and heating systems will have to be more efficient. Energy companies will have to remodel their business into selling energy services, such as the installation of more efficient water boilers or heat pumps.
This will have to be topped by raising consumers’ interest in the services, which would otherwise not have bought. And this is where the challenge lies, Slowe said.
"Those that can win the trust of their customers and can develop some new business ideas will be successful," he said.
The market for energy services will develop regardless of the current wish of the industry and some forward-looking utilities could see the opportunity to get into this business.
“It will take imagination, innovative sales and marketing,” Slowe said. “It will be targeting the right consumer with the right proposition at the right time.”
Compared to telecommunication companies, which have a long history of targeting different consumers with personalised offers, energy retailers "did not really have customers" 10 years ago, Slowe said. “They just had metres and bills that they read. They have not had to be very consumer-focused, innovative, quick-thinking, quick-moving organisations”.
Personalised propositions
The right way to trigger consumers’ interest is by showing them what their energy consumption patterns are compared to other users, Slowe said.
Energy companies could set energy savings targets for consumers and reward those who reach them with a present. They could also offer a badge to the most energy efficient houses, a scheme that is already functioning in Norway. “That is the sort of innovation that will get consumers excited. They are genuinely interested in this topic, but there is a huge gap between this interest and their actions,” Slowe said.
The obligations that will be laid down in the upcoming Energy Efficiency Directive will create incentives in the energy services market, Slowe believes. As the 1.5% annual energy savings target will reduce demand for electricity or gas, energy companies will have to engage in activities that they do not understand or that are not part of their core business.
“Ultimately, they’ll have to pay for it,” Slowe said. Eventually, energy retailers will have to pass this cost on to consumers through higher electricity bills. But overall, customers will be the winning ones, Slowe said, as they will be using saving more than they will be paying in surplus.
Some companies realise that this is an opportunity, as they can develop new products and services from this opportunity and can start selling more products to customers, Slowe said. Rather than selling new units of energy, they get involved in selling energy-efficient heating systems.
The German company EWE, for example offers customers new boilers if their old ones break and they pay for all the installation costs. Then they try to sell heating to customers on a long-term contract by also offering to install heat pumps, which would reduce heating bills year by year, Slowe said.
Another example is the energy retailer Centrica in the UK. The company's chief executive thinks the energy services business will be bigger than the energy supply business in the future, Slowe said. They have investments in companies selling metres, heat pumps and solar equipment, offering their customers a wider range of services.
“Now they make a bigger profit margin on energy services than they do on energy supply”.
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