'Paradigm shift' could see power moving to energy consumers

11 December 2018 Consultancy.uk 6 min. read
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With an increasingly costly utilities sector pricing many consumers into debt for the bare necessities of power and water, the UK’s market has often been slated by critics for forcing many consumers to “choose between heating and eating”. However, a new report from a global consultancy has suggested that the sector is “on the verge of a technological revolution” that “spells profound change for the industry.”

According to the Digital Vision for Energy and Utilities report by Atos, a combination of factors are making it more likely for consumers to switch between providers. Drives in the UK to make it easier to switch energy providers, increased local energy generation and the proliferation of intelligent home devices are disrupting the utilities market, providing new opportunities to create a nation of professional consumers. The optimistic opinion paper also states that utility providers are facing a “race to transform” with those companies able to understand and respond to the rapidly evolving market in the best position to win.

Remarking on the ramping up of competition in the utilities sector, Neil Snelling of Atos argued, “The convergence of new technologies, regulatory intervention and new entrants will make it easier for consumers to swap and save: in 2017, around nine million consumers changed their energy supplier; we’re looking at a layer of choice and simplicity which could soon see that number double.”

By Atos’ reckoning, that would see digital disruptors seize a fifth of the UK utilities market by 2020. Supporting this, earlier in 2018, an Ofgem report found that the six largest suppliers of the UK energy market had seen their market share fall to 79% for electricity and 78% for gas in December 2017, down from 84% for both a year earlier. The question is whether that genuinely makes a difference to consumers. Theoretically, mainstream economists have asserted over the past four decades the received wisdom that competition drives down prices, however utility bills have become a waking nightmare for millions of British residents in recent years.

Megatrends in utilities: the rise of a decentralised energy world

When purchasing power parity was accounted for, consumers in the UK faced one of the largest jumps in the cost of electricity in Europe last year, with the 5% increase only surpassed by Estonia and Romania. At the same time, the cost per megawatt-hour of large industries in the country did not grow at the same rate, while still remaining at a far lower level. At the same time, the Consumer Council for Water, the watchdog for water consumers, has revealed the number of people being put on to reduced rates for water bills, because they are struggling to pay, has risen by 50% in a year to almost 400,000. 

Furthering this, a report on poverty from the Joseph Rowntree Foundation meanwhile found that arrears for bills for water (another market Atos’ paper suggests is ‘opening up’ as a market) are now the most common form of debt for the poorest families in Britain. According to that study, more than 7% of the UK’s poorest quintiles were behind with water bills between 2014 and 2016. Around 3.8% were behind with electricity, and 3.5% were behind on gas payments. What’s more is that figure is likely to have risen since, as rising costs, including private rent, have left families with less money for other essentials, while the wages of the 8 million working families living in poverty have stagnated. There are 14.3 million people of all ages living in poverty in Britain.

Revolution deferred?

While a large portion of society struggles with the spiralling pricing of once publically owned services, however, the UK Government remains reluctant to intervene in the market. Instead, the emphasis has largely been placed on enabling consumers to make more ‘informed choices’. With regard to electricity for example, this means the roll-out of smart metres, which tell consumers of the cost incurred by their energy use in real time. Every home in Britain is supposed to have a smart metre – which avoids the need for customer readings – by 2020, however, there is "no realistic prospect" of the government meeting its own deadline to install the smart metres, according to the National Audit Office (NAO).

Despite this, Atos’ paper predicts that in the near future, UK householders will be able track the best utility tariffs in real time, switching energy providers within a day, and possibly within a few seconds, with data analytics able to predict consumption and deliver more responsive services, to some extent offsetting rising bills. Companies which transform to support and serve this evolving market will be rewarded with consumer loyalty and growth, the consultancy concludes.

Commenting on the report, Franck Chevalley, Chief Executive Officer, Atos Worldgrid, said, “In the face of global megatrends, every utility is facing significant operational and competitive challenges… Now, market dynamics, new energy sources and the rapid emergence of game-changing digital technologies are disrupting the landscape. Today, markets are deregulated while regulation is stiffer than ever; renewables already make up 10% of the energy mix; and smart grids and meters point the way to tomorrow’s truly connected homes. And at the heart of this perfect storm, there are unprecedented volumes of data that, until now, have barely been used.”

Adrian Gregory, CEO, Atos UK & Ireland added, “This industry has always been quick to see the potential of new technology and today’s forward-thinking utilities companies can again steal a march. Through digitally enabled transformation, we will see a move from utilities as commodities to high-value service providers at the heart of people’s homes and lives. This paper explores the key opportunities and challenges of this exciting time of change. My team and I look forward to working with our customers and partners to make this digital vision a reality.”

Related: Grid Analytics Europe 2018 to help utilities companies better leverage data.