What does a next-generation utility look like?
The traditional model of a utility is a “plant-to-plug” model, in which one supplier generates electricity, distributes it across its own network and sells it directly to households and businesses. Over the coming years, more homes will have solar panels linked to an onsite storage battery which can be managed to deliver electricity to devices around the home whenever it is needed. A centralised system will be used to allow customers to power devices around the home, such as the thermostats for central heating or water heaters, at the most suitable time. When these systems start becoming common place, we’ll see the end of the traditional utility model and a new model emerge which gives the end user total control of where they want their electricity to be used, allowing them to save electricity and money at the same time. In effect, customers’ homes will be turned into mini power stations.
But that doesn’t mean that customers will go completely off-grid – they will still need a trusted energy provider to help them manage their energy needs. So what then does a future utility look like? Our view is that a future utility will be based on a combination of business models –
- Distributor – A distributor will distribute energy-efficient products and services. For example, a distributor will help homeowners understand what energy saving and generating products they can install in their homes, will provide suitable financing solutions and offer a big company service, but at a small company price. Leads will be generated through home-energy audits conducted by distributors, or they could be generated through partnerships at the point of contact when consumers engage large companies such as TelCo’s or property portals through existing channels.
- After-sales specialist – An after-sales specialist will provide maintenance services for many types of equipment. Through its HomeCare program, for example, British Gas provides customers with options for maintenance and repair of boilers and central-heating units, regardless of where the equipment was purchased. This model will be especially attractive to future utilities that have a well-developed field force and large concentrations of customers, typically located in urban areas.
- Aggregator – Future utilities seeking the broadest opportunity can become aggregators, coordinating the full range of activities for customers across a spectrum of product and service providers. The utility may deliver services itself when it has the capabilities, or it may engage other entities to provide them when it does not. Utilities can act as a single point of contact for customers, enabling them to access anything from financing to maintenance through one source. For the remaining supply levels required from the grid, an aggregator can either have its own supply capability or offer the customer automatic switching ensuring it is the sole energy relationship the customer has.
The critical enablers we believe future utilities will need to invest in to ensure their new business models succeed are as follows –
- Provide financing options – Future utilities should consider establishing partnerships with financial institutions to help customers finance investments in energy-efficient products and services. A utility could simply act as a sales channel for an existing financial institution, or it could establish an internal division that originates, processes, and distributes loans. Some utilities will just offer vanilla consumer finance offerings, whereas others will develop nontraditional financing options – for example “rent a roof” schemes where a utility provides free solar power to customers. Under such a program, the utility would maintain ownership of the panels, and earn revenues when they generate extra power that is sold back to the grid. Pay-as-you-save financing mechanisms similar to what the Green Deal tried to achieve – finance attached to the meter – will also play a critical role.
- Develop field-force capabilities – Future utilities should train their field forces to act as advisers, consultants, and relationship managers, able to engage consumers at moments when they are likely to make decisions that could affect their energy footprint, such as when they are purchasing a mortgage. Field representatives should be able to help consumers at any point in the product or service life cycle, from weighing options and securing financing to providing post-sales support and maintenance across the full spectrum of energy efficiency solutions.
- Develop brand credibility – For future utilities, developing a trusted brand around being reliable providers of energy efficient products and services will be fundamental to success. This will be one of the main assets future utilities can exploit, leveraging brand equity as a competitive advantage in the relationship with customers vis-à-vis players from other industries.
What is clear is that as technology adoption and competition increase, incumbent utility revenues will shrink, and therefore next generation utilities will have to expand customer engagement with additional products alongside energy. By deepening and broadening the relationship with the customer, not only does this provide added income from additional products sold, it increases customer loyalty and shareholder value. The basic formula for success will be a combination of traditional supply along with provision of energy-related services to meet the changing needs of customers. The most loyal customers will be those that engage with utilities on both.
At Hometree we are deliberately starting life as a distributor, aiming to significantly enhance the existing retail experience for customers seeking to get energy efficient and energy saving devices installed into their homes. We have established partnerships with great financial institutions to help customers finance investments in energy-efficient products and services, acting as a sales channel for these existing financial institutions, and we are focusing on providing our distributed network of trade partners with leading technology so that they can start to become the advisers that consumers deserve. Furthermore, we are investing heavily into our brand as a future disruptor within the utility market.
We believe building Hometree on top of these strong foundations, in particular on top of a loyal and empowered local network of trade partners, will position us very well to move towards our longer term goal of becoming an aggregator – a fully integrated energy services platform which acts as customers one point of contact for all their energy needs – enabling them to live more comfortably, more cost effectively and in an increasingly sustainable way.