After a period in the energy retail market which has been characterized by business failure, profit warnings and general doom and gloom- it is great that in the last couple of weeks we have seen some genuine good news stories bringing green shoots to the energy market transition.
Firstly two meaningful injections of capital into growing suppliers- medium sized Ovo and small scale Tonik. Mitsubishi have taken a 20% stake in Ovo in return for an injection of £200m. Mitsui has invested £10m of a broader £13m cash injection into Tonik. What characterises both businesses, and no doubt has been the key attraction to the investors is that neither are focused solely on supplying energy. Both businesses are focused on developing broader technology solutions to support smart homes, electric vehicles and self generation/battery storage. As the value leaches out of energy supply margins, new revenue streams are essential to ensure supply businesses are sustainable. The convergence of technological development, demand for local balancing and the creation of innovative new businesses, overlaid onto growing customer bases without the encumbrance of legacy issues, makes these and other supply businesses, increasingly attractive to investors. Customers are being offered energy services and solutions, rather than simply a contract for turning their lights on and off.
It is not just smaller suppliers who are going down this route- Centrica also announced this week that it is expanding its smart home activity through investment in two start ups GreenCom networks and Mixergy.
The direction of the supply market is clear- and it will be interesting to see who wins out, the large scale historic utilities, on the acquisition trail supported by ‘innovation labs’ and R&D, or new investment and players coming into the market gluing together businesses potentially with more agility but less infrastructure and organisational stability.
Coming from the other direction we’re seeing technology playing its part with the growth of automatic switching sites. For the first time in a long time we are seeing a new range of adverts and campaigns from the switching sites- the historic orangutans, blue flames and blobs of the Big 6 are being replaced by talking lizards in costly advertising campaigns. The switching sites are undoubtedly helping new entrants grow, and provide active customers with ongoing cheap deals. They are playing their part in encouraging the fierce competition that is challenging the sustainability of several supplier models. However, they are also providing the key engines that are encouraging more customers to switch supplier and are probably safer havens of value currently than the suppliers themselves.
Solution sales and commodity switching don’t sit easily together. As the market continues to develop, it will be interesting to see which models win out. Can they be mutually successful and how will technology play a part? Either way, we are now beginning to clearly see the creation and growth of new business models for the supply market and a new era of investment.