Centrica Looks at the Future Amid a Bleak Present

Centrica, the largest of the Big Six energy suppliers in the UK and owner of Direct Energy in the North American market, made it into the news twice during the week of February 18. The first instance was to announce its investments in two promising customer-facing startups, Mixergy and GreenCom Network, the other was when its shares plunged to a 20-year low (on Thursday, February 21), despite a 12% rise in the company’s operating profits.

There are many reasons why Centrica’s share fell so dramatically, including its gas exploration and nuclear businesses not performing as expected and the energy price cap introduced by the government last year. 

Perhaps the most important trend for the long-term future of the company is the drop of 6% (almost three-quarters of a million) of its customers during 2018. This puts the company below the 20% UK energy market share for the first time since Ofgem started tracking this data in 2004. Centrica has been losing customers in every quarter since 2Q 2013, when it held 25% of the market. Centrica’s power price offering in the UK market is one of the most expensive, allowing it to remain profitable at the expense of market share. However, this only works for those customers not willing to switch, despite the implication of this process (switching providers takes less than 5 minutes to request and finishes in 2 weeks, on average).

Solving Centrica’s Customer Retention Problem

Centrica understands it has a customer retention problem that needs to be solved before its long-term future is in trouble. Until now, however, attempts to correct the problem have not been successful—the company has a full set of products for gas/heating customer solutions and a smart home product.

Centrica’s investment in Mixergy and GreenCom networks could help the company turn around the customer retention problem. While Mixergy’s smart water tank could grant access to a technology that distinguishes the company in the extremely competitive heating solutions market, this will complement the current offering, but not transform it. On the other hand, Greencom’s investment could the stepping stone to transform Centrica’s offering in the electricity market. Greencom’s technology could allow Centrica to offer new products like energy communities, all you can consume electricity flat rates, or DER self-consumption solutions (Guidehouse Insights used Greencom as a case study in its Distributed Renewables Aggregation Strategies in VPPs report).

While the results of these investments will take time to develop into new products, the change must be soon or Centrica could face another year of declining market share.