Energy Market Transformation vs Customer Needs and Wants

I’m currently reading ‘The Everything Store’ which charts the story of Jeff Bezos and the growth of Amazon. It’s a good read, and central to the whole ethos behind Amazon is an obsession with the customer and the need to innovate according to customers wants and needs. Clearly this obsession has worked, and I recognise how I’ve been sucked into the Amazon world courtesy of Amazon Prime, one-click, kindle store, choice and speed of delivery.

Inevitably, whilst reading, I started drawing comparisons with the energy industry and questioning some of the biggest challenges we have today in making the transformation to a low carbon world. Central to the challenge is the question do customers actually want or need the necessary innovations?

Smart meter roll out: As has been widely published, the rate of installations in the last quarter has fallen again with just over a million meters installed by large energy suppliers, down 17% compared to the same period last year (source: BEIS). As a customer, who continues to resist having a smart meter installed, this does not surprise me. Put simply I neither want nor need a smart meter and don’t believe my life will be improved by having one installed (at least in the short term)- and clearly I’m not alone:

- Will I save money? No- unless our family’s behaviours change as a result of looking at the in home device showing what energy we’re using. Bluntly, other than as a short term diversion, there are plenty of other screens already in the house with far more entertaining demands of our attention.

- Will I incur disruption? Yes- I will need to be at home for at least a two hour window (maybe more) when the meter is installed. That means time off work or, at least having to wait at home at a specific time.

- Will it definitely work? Probably, but given I live in a remote rural area with poor mobile and broadband signals, quite possibly not..

So despite my current (and previous) supplier’s best efforts to persuade me to book an appointment to switch meter, I won’t be doing so anytime soon. The suppliers may ultimately get penalised because I haven’t had a new meter installed- but it’s not their fault. The majority of people, like me, are struggling to see the benefit of having a smart meter installed and so suppliers, regardless of supply chain and technical issues, have an impossible challenge to even come close to 2020 targets. Meanwhile spending increasing amounts of (taxpayers) money on national campaigns trying to persuade me of dubious benefits just begins to irritate. Unless I’m forced to change meter or there is a compelling reason to do so, I will wait.

Boiler replacement and heat strategy: We all know that in order to achieve the necessary carbon reductions to get us to 2050 targets (let alone net zero) the elephant in the room is how to address domestic heating. With the Committee on Climate Change’s recommendation that from 2025 new homes should not be connected to the gas network, we are seeing the start of change, but it’s a drop in the ocean- the real challenge lies in converting the existing housing stock.

Our home is currently heated with an oil fired boiler (we’re not connected to gas) and we typically get two deliveries of fuel a year to an external tank (which gets filled whilst we’re at work) and a relatively small boiler does its business to keep the house warm. It is hassle free.

If we were to convert to any of biomass, ground source heat pump or air source heat pump fuelled boilers regardless of the questionable economics, we would need to find increased space to put the kit, probably need to dig up the garden, do some decorating and then live with a very different (and probably slightly cooler) heat regime and potentially tepid hot water. If biomass, we would also need to secure a fuel source and find somewhere to put tons of pellets or alternative.

Our house is typically ‘moderately’ insulated and having been extended over the years, means that different parts are of greater or lesser energy efficiency. The cost and hassle of improving the energy efficiency to a ‘good’ level would not make a sufficiently compelling improvement to our lives, either in comfort or cost to make us want to incur the disruption and do the work. So, even if we were to replace the boiler, its efficiency and cost benefits would be difficult to assure.

To have even a chance of making the economics work, we would need to secure the Domestic Renewable Heat Incentive (RHI) to bridge the cost gap. This, in its current state, lasts for seven years, requires detailed paper filling and a requirement to complete an annual ‘qualifying’ return. As with FITs it is only as good as the time that the policy is in place- there are no guarantees that the scheme will not be withdrawn at any time, with or without grandfathering. Not really customer friendly on any level.

‘Treating customers fairly’ is a core principle of market regulation, and one that cannot be argued with. However, there is a big difference between treating customers fairly and innovating according to wants and needs. The challenge we have now is that what is needed to make the big market transformations stick is not wanted or needed by customers. The case for change needs to be more compelling which probably either means changes to homes are mandated through policy or incentivisation in the form of financial benefit is put in place. Whilst the climate change argument is compelling, most of us whilst making some of the right behavioural changes, cannot make the leap to disrupt our own homes with the associated cost and hassle. Putting undeliverable obligations on suppliers or other market participants will not deliver the necessary change whatever the penalties- because customer appetite is not sufficient to make the change happen.

Too often in this industry, policy and regulation is set with minimal consideration of the resulting impact on the behaviours of the end customer. Whether in a domestic scenario or business, we are all emotional beings whose behaviours are driven by feeling as much as fact. A purely economic approach does not necessarily drive desired outcomes. We’ve proven, via the now defunct FIT scheme, that customers buy into change where there’s something in it for them. The feel good factor associated with carbon reduction was a winner when there was something to gain from it. All of a sudden with the loss of export tariffs and the FIT, volumes of new installations have fallen off a cliff. We should not be surprised.

So perhaps going forward, if we put the same priority on customer needs and wants as economic and carbon imperatives when setting policy and regulation, the outcomes could be very different. An obsession with the customer has made Amazon transform our buying habits and there is a lot to be learned from the approach.