Energy providers worldwide are operating in a constantly evolving marketplace, and these changing conditions present both challenges and opportunities. From increasing costs and new technologies to the imperative to decarbonize the energy sector, we’re witnessing a pivotal moment in the industry.
Energy providers know they must rise to the challenge. In a global survey of 150 energy providers and suppliers jointly conducted by studioID’s Utility Dive and ESG, a leading software provider for energy companies, energy providers shared candid assessments of the pressures facing their businesses. As a partner to some of the largest energy companies and over 40 million customer accounts worldwide, ESG was well–placed to explore the issues dominating the industry today.
These concerns and priorities fall into three distinct yet interconnected categories. While each presents its own difficulties, energy providers know they can turn these into new growth opportunities — if they utilize the right strategies.
Competition: Meeting customer expectations in a crowded marketplace
When asked to describe1 their biggest non-technological business challenges, energy providers named competition repeatedly. And it’s not a surprise that providers are feeling the effects of new market entrants — in the U.S. there are about 1,600 power providers, and in the U.K., despite the dominance of the Big Six, there are now about 22 energy providers.
Inflation and cost increases are affecting energy providers, who are under pressure not to pass those costs along as higher rates for customers. Survey respondents summarized the situation:
- “Providing affordable services to the customer is the key priority as inflation is rising and consumers are demanding affordability.” U.K. energy provider
- “Offering affordable electricity prices to customers along with additional services is very difficult for us.” U.S. energy provider
In addition to cost pressures, energy providers know they must provide outstanding customer service and meet new expectations. The proliferation of smart meters and advanced distribution management systems is changing the relationship between power supplies and commercial & industrial customers, and they expect reliable power in a seamless experience.
Yet underneath these new customer expectations are persistently uncertain economic conditions, which affect energy providers’ rates and, ultimately, their profitability.
Profitability: Maintaining margins in a volatile environment
Economic and regulatory conditions play a major role in energy providers’ underlying costs. The effects of inflation globally, along with higher interest rates and banking instability, have put an intense squeeze on liquidity and profits:
- “High operating costs resulting in a decrease in revenue is the biggest challenge currently.” U.S. energy provider
- “Raising the capital for business expansion is a major concern, as there is a shortage of liquidity in the market.” U.K. energy provider
The shift to renewables and stricter emissions targets are also driving regulatory changes, which impose additional costs on energy providers. Increasing regulations were cited by numerous survey respondents as a major challenge:
- “Regulatory issues have been so strict that sometimes it slows down the progress of a project.” U.K. energy provider
- The business challenge we are facing is changing regulations, as complying with them is very time-consuming.” U.S. energy provider
Addressing these challenges while not passing along rate increases to customers is a difficult, if not impossible, balancing act for energy providers.
The answer to this issue is technology, as ESG is seeing across markets. “It has been a common theme with all our clients that competition is increasing and margins are very slim,” says Karen Padir, Chief Product Officer with ESG. “This creates the opportunity for products and solutions that increase energy providers’ efficiencies and decrease their costs,” she explains.
Technology: Finding the right solutions to maximize operations and profits
It’s clear from the latest research that implementing advanced technology is a major challenge for energy providers, but it also provides extensive opportunities to break through the competition — and providers know it.
While technology itself can’t solve issues such as inflation or interest rates, the ability to automate processes and gain operating efficiencies can address the issues energy providers cite in the survey data. This is why, in their responses, energy providers focus on how to implement these tools effectively:
- “Deploying machine learning algorithms for accurate predictions and real-time monitoring is the biggest challenge for us.” U.S. energy provider
- “Implementing advanced AI tools that can provide more accurate forecasts is challenging with current infrastructure.” U.K. energy provider
Advanced technologies that can provide load forecasting, integrate distributed resources onto the grid, and manage complex billing programs will give energy providers an advantage in the marketplace. But data on its own isn’t enough — energy providers need analytical tools to make use of that data.
“Having data is potentially very powerful for an energy supplier, but ensuring that it can be processed, stored and empowered at volume in an integrated fashion is absolutely vital,” says Andrew Green, Chief Technology Officer at ESG. “Analytic capabilities will support specific customer requirements and industry initiatives such as demand response, enhanced time-of-use billing, and improved forecasting based on consumer activity,” he adds.
What’s ahead for energy providers
The recent survey by studioID’s Utility Dive and ESG revealed many important insights, including broad agreement among energy providers on business and technological challenges they’re facing today. It also showed that, far from being overwhelmed by these challenges, energy providers are optimistic about how the right tools and strategies can help them improve profitability and win in a competitive marketplace.
The key is the right technology partner who can meet their needs. “Energy providers know they need technology to differentiate themselves from their competition,” Padir says. She advises, “Focus on your core capabilities and look for partners that help you derive insights from your data.”
What comes next must be thoughtful strategies, powerful tools and the right partners to get them there.
Click here for the full survey data report.
Contact ESG for a complimentary benchmarking analysis of your energy retail operations.
ESG is the market-leading integrated software platform for the energy industry. With over 25 years of market experience, ESG software manages over 40 million customer accounts worldwide, performing 2.5 million transactions per hour or 30 million transactions per day. ESG software is behind over 40% of all UK smart meters and supports energy retailers in every deregulated state in the US.
1 Some survey responses have been edited for clarity.