In Britain, next to the banks the ‘Big Six’ energy companies are the only ones to make large profits since the 2008 crash. This has largely been achieved by capturing the market in energy supply. So far, the cartel has avoided serious disruption from new energy companies – largely because challengers have tended to promote themselves solely as being greener than the rest.
The trouble with promoting your company as “green” is that while we like to salve our consciences with easy green measures; the overwhelming majority of us are far more concerned with the price we end up paying. So unless a challenger can cut our energy bills (without cutting customer service to the point that we prefer the Big Six) we are unlikely to bother switching.
The introduction of smart meters could result in real changes, however. While the Big Six view the introduction of smart meters primarily as a means of firing meter readers; they could prove truly disruptive. This is because they pave the way for energy company business models based on competition for market share. As Jonathan Salem Baskin at Forbes notes:
“Most people are about as engaged in their monthly electricity bills as they are in tracking the amount of air they breathe.”
But US energy company Direct Energy has used smart meters to help customers understand and lower their energy usage:
“The project started in Texas, where smart meters allow Direct Energy access to energy usage data updates in 15-minute increments. It used a formula to spot patterns and track the estimated usage of specific devices in homes, such as clothes washers and dryers, and convert that data into a simple, line-itemized bill.”
As A Direct Energy spokesperson explains:
“Our hypothesis is that if we help them buy less energy, it will yield their long-term loyalty.”
The second part of the company’s business model is to engage in the kind of cross-selling that we have become used to when we shop online – “customers who bought this also bought that”. If, for example, smart metering shows that a boiler needs fixing or a household appliance needs repair or replacement, a sister or a partner company can be recommended (with a financial kick-back for the referral).
In the UK, smart meters are supposed to be fitted in every household by 2020; although critics say that the programme is well behind schedule. Whether they will prompt challenger companies to take a similar approach to Direct Energy in the USA has yet to be seen. But by lowering energy use in this way, a company would combine the twin goals of cutting consumer bills and having a greater impact on climate change.