Beyond the energy crisis: How can retailers respond?

Navigating COVID-19, an energy crisis and a worsening climate emergency – never before has the world of energy retail been so unpredictable. Preparing for the unknown and responding to evolving events with speed and agility are fast becoming the hallmarks of success, leaving retailers unable adapt to market changes and customer demands at risk of falling behind.

In the early 2010s, the deregulation of energy markets across Europe aimed to foster competition, giving rise to a wave of new energy retailers challenging established incumbents. These newcomers disrupted the market through price competition and innovative customer propositions while still relying on many of the same solutions as the incumbent suppliers they were trying to displace.

However, the recent energy crisis exposed those within the sector that were vulnerable and remained on legacy tech, leading to the downfall of many new entrants. Poor risk planning and hedging against unpredictable higher energy prices resulted in their exit from the market, creating a period of retailer consolidation, particularly in places like the UK where 31 retailers have gone bust since 2021. As the markets reopened after the winter turmoil, we’ve seen the launch of new customer propositions in attempt to gain and maintain competitive advantage.

Changing tack

Regulatory intervention is increasing across European energy retail markets alongside an increase in public pressure, stemming from elevated energy prices and increased consumer interest. Regulatory bodies, such as Ofgem in the UK, are closely observing failures and enforcing compliance in key operational targets, putting energy retailers under pressure to maintain high standards of operations and customer service. The consequences are fines and bad press with long term implications on customer satisfaction and churn.

Issues like energy debt, fuel poverty, energy usage monitoring, and energy efficiency have become focal points, with customers seeking ways to reduce their energy consumption, particularly in high-impact areas such as heating. We should expect additional regulation to protect vulnerable customers in the near-term come this winter, whilst longer-term regulations around accelerating the energy transition start to take shape: energy retailers are increasingly required to offer energy efficiency services, provide real-time information to customers about energy consumption, and participate in demand response programs.

The post-crisis energy retailer must therefore be proactive in anticipating regulatory changes, as well as being nimble to adapt to changes to ensure compliance, continue to engage with and support customers, and avoid costly fines. But rather than retreat and chase potential savings in their cost-to-serve this is an opportunity for retailers to delight customers and innovate with their propositions, making improvements in their gross margin in the process.

Competition, customer service and market share

The recent energy crisis has sped up consumers’ understanding and awareness of the energy market and their contracts: in a study across 6 European countries, 78 percent of respondents consider themselves better informed now than before the crisis – however they are still often unaware of the full product portfolio of their energy supplier, indicating a need for better communication to households.

During the energy crisis, price competition and new propositions were effectively put on hold as governments and retailers worked together to introduce measures aimed at reducing the impact on customers. Since spring and summer 2023 we’re now seeing a lot of movement in this space:

• Utility Warehouse released the cheapest fixed tariff in the UK when combined with their multi-service offering
• Vattenfall Netherlands halved their variable rate
• OVO in the UK released Charge Anytime, the cheapest EV type-of-use tariff powered by Kaluza.

As the public is increasingly aware of their energy bill and their suppliers’ customer experience, switching rates will likely increase to pre-crisis levels and potentially higher – threatening incumbents and providing opportunities for new entrants with lower market share and innovative propositions. It’s also an opportunity for incumbents to solidify their market leadership if they take the steps to modernise their tech stack by replacing their restrictive legacy solutions. However, whether this return to switching will be slowed by customers waiting to see how good deals become remains to be seen.

Switching rate stats and trends across Europe

United Kingdom

Millions of households could switch their energy supplier in the second half of 2023. In March 2023, the total number of switches was up 20% relative to February 2023, and 59% above the level observed in March 2022, but remains significantly lower than before the gas price crisis started. The number of electricity switches increased from 121,335 to 147,218, while gas switches increased from 74,902 to 88,151.

Germany

Why people in Germany are being advised to switch energy suppliers. When it comes to electricity, 76 percent of electricity tariffs in the basic supply sector – in other words, the suppliers that have the most customers in a certain region – are still above the electricity price break in some cases despite reductions, according to the comparison portal Check24. In the alternative supply, 88 percent of the tariffs are cheaper than the price break, said a spokesperson.

Netherlands

Monitor Consumentenmarkt Energie shows switching rates trending back towards pre-crisis levels, despite a low base of less than 1% across 2022.

Spain

CNMC reported a significant increase in switching from regulated to free-market tariffs, driven by regulated price increases, while total switching rates spiked to over 20% during the crisis.

Customer service

We expect that customer service will become a key differentiator once again. The focus of customer service teams is shifting from providing fundamental information around energy spend, to helping solve more complex needs, especially around low carbon technologies. Modern tools enable customer service agents to advise on the best course of action, leveraging real-time data and AI to detect and resolve account issues before they arise and create personalised messaging. This proactive approach empowers customers and agents to navigate through new propositions and effectively manage payments and tariffs, while also addressing debt prevention through targeted communication strategies.

This is combined with a movement towards more innovative, agile operating models allowing retailers to quickly adapt to evolving customer expectations and being able to offer promotion and support for innovative decarbonisation-oriented products.

Embracing the Future: Multi-Service and Beyond

The future of energy retail lies in embracing emerging technologies and evolving customer needs. As customers increasingly adopt rooftop solar photovoltaic (PV) systems and electric vehicles (EVs), energy retailers must adapt to provide solutions that accommodate these changing demands. Most major energy retailers across Europe already offer some basic services for transport, heating, and PV, however some are differentiating by including fringe services such as electric appliances, heating and cooling, household insurance and repairs and maintenance. Others have ventured into telecommunications, offering bundled prices for broadband, mobile, and energy. Most of these non-core services are yet to be fully integrated into customer journeys and bills however due to the ageing technology being used by energy companies.

Successfully integrating multi-service offerings and providing comprehensive support for PV and EV solutions will be key differentiators in the market: enabling customers and agents to sign up to, view and amend these contracts requires costly integrations between CRM providers and billing systems. Real-time data flows between systems are necessary to ensure customers and agents can keep track and reconcile utility spending.

Simplifying the complex

Earlier we mentioned how most customers consider themselves better informed now than before the current crisis – but are still often unaware of the full product portfolio of their utility. Energy tariffs are only set to become more dynamic, complex and personalised as European households and grids decarbonise and require stronger, more granular price signals. Complex tariffs, bundles and offers often confuse customers, leaving them to navigate FAQ pages and calling service centres; customer portals with clearly laid-out usage and tariff information backed by user research goes a long way in preventing service dissatisfaction. Customers will require support in finding the tariff that best suits their unique needs, with new AI detection algorithms being able to best advise on personalised profiles.

Conclusion

The energy retail landscape is undergoing a profound transformation, driven by regulatory changes, customer expectations, and the urgency to combat climate change. Energy retailers must be proactive in leveraging advanced technologies, real-time data, and AI to deliver innovative customer propositions, enhance customer experiences, and drive decarbonisation efforts. By anticipating future trends and embracing evolving market dynamics, energy retailers can position themselves as leaders in the industry, contributing to a sustainable and customer-centric energy future.