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When Every Day Is a Weekend, How Can UK Energy Retailers Succeed in the New Normal?

Benjamin Grunfeld
Jul 07, 2020
Smart Home 3

This blog was coauthored by Mark Livingstone and Artur Lenkowski.

Energy Retailers Face a New Normal in Which Homebound Customers Play a Bigger Role   

The pandemic has dramatically changed the way we live, impacting every household’s energy consumption. As most people stayed at home during the lockdown, demand patterns changed abruptly. Energy suppliers in the UK are reporting weekday power consumption typically seen on weekends. Residential electricity use in April was 15% higher than before the coronavirus outbreak with midday demand peaks up by 30%. 

While the shift to this new way of living happened quickly, energy consumption patterns will remain different even with economic recovery from the impacts of associated with COVID-19. We may see a permanent shift in working patterns, including a long-term increase in the number of people working from home. This new normal in residential energy consumer behavior should prompt the rethinking of energy retail business models. 

The Stay-at-Home Customer Is a More Engaged, Tech-Savvy Energy User

As energy consumption surged during the lockdown, so did household electricity bills. Coupled with weakened purchasing power, these changes are putting energy spending under increased scrutiny. Higher costs will lead to greater customer engagement due to a desire to manage energy consumption or self-generate electricity. 

Energy retailers can benefit from increased customer awareness by broadening their relationship beyond the provision of energy and offering affordable sustainability solutions or a better home experience. Customers will look for ways to improve household energy efficiency by making home upgrades or replacing less efficient appliances; for example, switching from gas boilers to electric heat pumps can yield up to 52% energy savings. Using smart meters can lead to energy cost savings or create revenue, as tested through residential demand response schemes.  

Increased midday consumption has reduced the average payback of small-scale solar PV from 13.5 years to less than 11 years. (See the following chart for correlation between spring solar generation and residential demand.) This trend will encourage the growing segment of (reportedly more climate-conscious) millennial and Generation Z property owners to invest in self-generation.

Residential Electricity Consumption and Solar PV Generation
(Typical Spring Profile in the UK)

Residential Electricity Consumption and Solar PV Generation (Typical Spring Profile in the UK)

(Source: Guidehouse and Elexon)

Stay-at-home customers are more digitally active, reflected by a boost in online shopping during the lockdown. Digital energy retailers are ideally positioned to take advantage of increasing sales of home-related goods. For instance, homebound consumers will spend more on smart home products such as home assistants, Internet of Things-enabled security systems, smart thermostats, and lighting controls. 

How Can a Customer-Centric Retailer Succeed?

In the past, many retailers have failed to diversify their offerings and engage with customers. An effective customer engagement strategy is essential; here are some of the key lessons learned: 

  • Use customer data. Using information on family, home status, EV ownership, or spending patterns helps develop customized products and target marketing. Increasingly, suppliers are using AI to improve customer load forecasting, which reduces hedging uncertainty and lowers costs.
  • Create integrated solutions. Smart integration of complementary services can give a competitive edge over conventional sellers and yield synergies for customers. For instance, home control appliances, home services, or EV chargers could be bundled with time-of-use tariffs that incentivize demand optimization or enable roaming solutions. 
  • Partner with the best. New product development can be costly and challenging. Partnering with leading technology providers can reduce product risk in exchange for customer access. Strong partnerships can improve brand perception and boost revenue through cross-selling and enhanced customer loyalty. 
  • Offer financing. Financing solutions such as saving-sharing schemes and leasing can overcome the upfront investment hurdle for many customers. Financing can be scaled through community energy (physical projects and cloud-based solutions) while green mortgages can reduce borrowing costs for energy-efficient properties. 

Energy retailers need to adapt quickly to take advantage of opportunities in the new normal. If they move slowly, incumbents will face increased customer switching amid competitive threats from new markets entrants, ranging from tech-savvy startups to oil & gas majors increasing their investment in the power sector.

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