Competition in the electric industry has been limited for a long time, but customers are realizing they have a choice of providers. But how will utilities react to the change in perception, and can technology help them keep customers?
In early July, the Competition and Markets Authority (CMA) published a report on energy retail and customer perception, and found that customers think they are paying more for energy than necessary. However, the reluctance to switch may have more to do with perception than the actual process.
"We have observed that there is some evidence indicating that the process of searching for an alternative supplier and successfully switching has been problematic for some consumers," CMA said in their report. "Significantly, the perception of the complexity and burden of the process appears to be worse than the reality, which may further dissuade domestic customers from shopping around and/or switching."
As the country rolls out smart meters, pricing will be easier to analyze, and customers will understand what they are being billed. But until then, the country also has a problem with perception of correct billing. And energy suppliers -- both utilities and retailers -- are doing nothing to set themselves apart from anyone else.
"One of the things that makes it hard to foster competition around electricity and gas is that one retailer's product is much the same as another's," said United Kingdom Energy Research Center (UKERC) Co-Director Keith Bell in a statement. "It isn't the retailer that determines quality of supply -- the voltage, frequency, harmonic content and reliability of supply for electricity or the calorific value or pressure for gas -- but the distribution network operator (DNO) -- which consumers don't get to choose. All that is left in respect of the retailer is how much they charge are and whether they send out the correct bills."
Energy suppliers might work harder to increase service if it were easier to switch providers, but in the UK, a retailer has 28 days to switch you from one retailer to another. Both the Competition and Markets Authority (CMA) and Ofgem have recommended reducing that time to a maximum of one week, "which would be more in line with other countries," according to Bell.
"There is currently something like a 40-step process to get through," Bell explained. "Many of the steps are manual and include someone digging under the stairs to note the meter reading."
Part of the four-week delay has to do with a "cooling off period" to allow customers time to change their mind. However, smart meters may be the answer to the solution. The UK Department of Energy and Climate Change (DECC) has mandated smart meters in every household in Britain by 2020 -- at an estimated cost of 10.9 billion. According to Bell, the cost is justified on the lowered energy usage, and therefore cost, that will happen due to the smart meters -- more than 17 billion is expected to be saved by customers after the country is equipped with smart meters.
"In other countries, 'smart meters' have been rolled out and claimed as a success," Bell explained. "In Italy, they were justified as a means of reducing the cost of 'non-technical losses' such as theft or unpaid bills. On that basis, they were quick to deliver and enormously successful."
This success is due to the communication between utilities and customers in understanding energy use.
"Such a communication is critical to providing information to consumers (or disconnecting reluctant bill-payers) and collecting time-stamped consumption data so that bills can be determined quickly and accurately, including for any time-of-use tariffs that might be in place," Bell explained. "However, that basic communication says nothing fixed about what the consumer might do with the information they receive from a utility or gather about their own consumption."
However, Bell said the UK made two major mistakes when mandating a smart meter program: they did not clarify between advanced metering and smart technology, and they put the meter rollout into the hands of retailers, rather than utilities or distribution network operators (DNO).
The mistakes made in the UK will likely be seen in the coming years, and other countries will learn. But a mandate for smart meters in every home still puts the country far ahead of most every other country -- and they can learn from those mistakes.
"As the availability of power becomes increasingly variable and uncertain, with growing volumes of wind and solar power, and electrification of heat and transport, the infrastructure and information will be in place to enable smarter grid management and the development of increasingly differentiated products (and cheaper tariffs) by retailers," Bell explained. "This might seem like pie in the sky. But we can already signs of what's possible in the growing market for flexible demand among half-hourly metered electricity customers and the services offered by aggregators. So perhaps the future won't be so dumb after all."
Source: Smart Grid News
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