A solid business case behind market driven smart meter rollouts will foster innovation in the utility retail sector.The Australian metering market has been undergoing significant change since the first rollout of smart meters in Victoria started in 2007. Based on lessons learned from the Victorian rollout, in 2012 the government of Australia took a decision that all subsequent smart meter implementations will be commercially led rather than driven by a mandate or regulation. The intention of this is to promote innovation ‘that delivers services valued by consumers at a price they are willing to pay.1’
The primary difference in a supplier led rollout is that the decision to install smart meters is driven by the benefits the retailers hope to derive. Importantly, the retailer (the financially responsible participant) is responsible for the coordination of the meter installation and the provision of metering services. The reason for this is that the meter ‘does not just determine the customer bills but settlement between the retailer and the market, and the commercial arrangements between the retailer and the network. Determining who is responsible for, and who can own, the meter is important to the operation of the market and to innovations that benefit customers.2’
The new policy is driven by the philosophy that the extra cost of smart metering must provide some kind of competitive advantage for the supplier or improvement for the customer. This improvement could take the form of product differentiation or better customer service; however there must now be a sound commercial basis for the deployment of smart meters. Additionally, a market driven rollout should provide customers access to the services they want, while providing retailers the flexibility and opportunity to continually refine and develop their services and products.
Two of the primary opportunities for utilities are the ability to be price competitive and reduce operational costs and increase efficiencies. Additional benefits to customers should include the provision of accurate and timely bills, reducing ‘bill shock’ by providing more frequent bills, providing customers greater insight into their energy consumption and enabling more convenient ways to pay their bills when they wish.
The fragmented nature of the market makes utilising data to effectively manage the buying and settling of energy key to success. The analysis of meter data can enable utilities to buy electricity more efficiently while settling in the market more effectively. They will thus only pay for what their customers’ have consumed.
Smart metering is a wonderful opportunity to engage customers and provide more pertinent services. The biggest challenge for the market is to view this as an opportunity and not a regulatory burden. As retailers begin to refine their offerings, the effectiveness of smart meters to a retail business in Australia will continue to emerge as will benefits for consumers. The ability to offer customers with smart meters benefits will provide retailers with a competitive advantage. A retailer that rolls out smart meters can offer new and existing customers a range services that result from the data collected. As a result, others will follow suit.
The other incentive for retailers is that smart meters allow retailers to drive significant operational efficiencies that can assist the internal business case on the rollout of smart meters. Some of these efficiencies include:
- Reducing wholesale risk and improving settlement performance
- Frequent meter reading allowing more accurate reconciliation, settlement and billing
- Availability of data driving better consumer engagement and development of new products
- More precise consumer segmentation will allow retailers to reduce the cost of energy without reducing profits
- A more convenient way of allowing customers to move home, as the process can be handle remotely and doesn’t need a field engineer
- More accurate meter reads & customer engagement reducing call centre costs
- Allowing customers to manage their bills by providing easy ways for them to pay frequently. This reduces bill shock and if managed well reduces bad debt for retailers.
- Improved cash flows by reducing the gap between wholesale and network settlement and customers’ paying.
In a dis-aggregated market, the end-toend benefits are often harder to see than in a vertically integrated one. In Australis retailers can’t have complete control over the energy supply chain and therefore capitalising on all the opportunities becomes slightly tricky.
If the only tool in your toolbox is a hammer, then every problem starts looking like a nail. Similarly, if energy retailers don’t have more tools in their toolbox they won’t see the opportunity in examining consumer energy usage and trying to match services, pricing or products to different consumer segments.
They each provide opportunities and metering offers a great insight into where new and profitable products may lie. It is possible to use the data from the smart meter and continuously refine buying patterns and hedging tactics to match consumer demand. This is especially useful in Australia, because it improve visibility of revenue and gross margin for a retailer, consequently improving profitability.
For new entrants to the market, the advantage lies in ‘not knowing what is impossible’ and therefore being freed from traditional thought processes around how utilities engage with customers. Most new entrants in competitive retail markets are good marketing organisations and really good customer service organisations and that is what, for the moment, gives them the edge.
When metering is considered a core part of a customer service and business strategy, the opportunities for retailers are endless. Rethinking the industry and the role of tools within the market will require a significant shift in thinking and strategy. MI