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Kaluza has built a software platform to replace legacy infrastructure. Image: Kaluza.
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Reducing operating costs: looking under the hood of energy retailers

Kaluza has built a software platform to replace legacy infrastructure. Image: Kaluza.

I was working as an account executive for Southern California Gas Company when the California energy crisis of 2000/01 happened. As an account executive, my role was to ensure that my 130 commercial accounts were paying their bills, buying energy efficient appliances and were kept abreast of the latest rules and regulations around energy markets. Once energy prices spiked in the winter, some of my commercial accounts lost their businesses, while others scrambled to make sense of what was happening to their energy bills. My phone was ringing non-stop.

California’s wholesale prices surged to over $1400 per megawatt-hour (£1,143/MWh), compared to a $45 per megawatt-hour (£37/MWh) average one year earlier. This led to the ousting of the state’s governor, the largest energy utility filing for bankruptcy and the government having to purchase power contracts on behalf of the beleaguered energy utilities.

It is now over 20 years since California’s energy crisis. I am no longer living in warm and sunny southern California. These days I am living in London and enjoying the constant threat of rain, along with a lot of soccer. Although worlds apart and decades in between, the UK’s energy market is now experiencing similar price changes to those that shook California. Google searches for ‘energy bill help’ have surged by over 3000% in the UK in recent months. Customers are facing eye-watering household energy costs in April due to spikes in wholesale prices and over 30 energy companies have gone bust in the last year.

Figure 1. Wholesale electricity price spikes UK vs California. Data from Ofgem and EIA. Image: Kaluza.
Figure 1. Wholesale electricity price spikes UK vs California. Data from Ofgem and EIA. Image: Kaluza.

However, we are often so engrossed in policy and regulation that we overlook how energy companies are actually running. I believe that if we can address this then we can solve a far more deep-rooted and pervasive challenge: getting energy customers to engage with their energy use. Achieving this would allow the role of energy companies to transform from mere kWh providers to decarbonisation partners, able to offer a whole host of cheap and green products and services to customers. It would be the difference between surviving and thriving in today’s volatile market conditions.

Energy crisis aside, financial pressures have been mounting on UK energy retailers over recent years. Larger supplier profit margins fell to a nine-year low of 3% in 2018, with the ‘Big Six’ experiencing a net loss of around 1.3 million customers in 2018/2019 due to competition from small and medium retailers. Operating costs as a percentage of revenue were generally increasing, partly as a consequence of fixed operating costs being spread over fewer customers as they lost market share.

Larger supplier profit margins fell to a nine-year low of 3% in 2018, with the ‘Big Six’ experiencing a net loss of around 1.3 million customers in 2018/2019.

The cause of increasing operating costs? Look under the hood of an energy retailer’s tech stack today and it’s clear. Most energy companies have been running off the same, monolithic operating systems for the past 20 years. The majority of these platforms were coded in the 1990s, meaning that they require intensive and costly maintenance, and simply cannot deliver for today’s energy needs. Basic processes have become a huge headache across the entire retailer organisation due to the inflexible nature of these systems when presented with new or different data.

Consequently, customers are left unengaged, or worse, unsatisfied with their energy service while their online banking and grocery experiences get faster, easier and more rewarding. There is no ignoring the digital revolution already underway in energy; doing so would see retailers succumb to the same fate as Blockbuster or Kodak, where they are simply outmanoeuvred by new entrants with the latest tech that better serves customer needs. Customer expectations are higher than ever and when benchmarked against other consumer-facing industries, utilities deliver the worst digital experiences. Energy retailers have some catching up to do.

Figure 2. UK energy utilities average NPS is far lower than other industries. Energy supplier NPS is an average of small, medium and large supplier NPS. Data from ukrn.org. Image: Kaluza.
Figure 2. UK energy utilities average NPS is far lower than other industries. Energy supplier NPS is an average of small, medium and large supplier NPS. Data from ukrn.org. Image: Kaluza.

More than market share is on the line here. We are relying on customers to drive the energy transition forward, yet most of the time we cannot tell them how much money they owe, never mind interest them in low carbon propositions.

At Kaluza, we have built a software platform to replace legacy infrastructure, so retailers can turn the tables on customer experience and decarbonisation. The platform creates operational cost savings of 30-50% for a retailer through improved data management and automation. This kind of reduction in day-to-day overheads frees up retailers to invest more time and money into building compelling green propositions for their customers, allowing them to step up and become the trusted decarbonisation partners that the industry – and indeed the world – needs.

Platforms like Kaluza are tackling the challenges incumbent systems cannot. For example, billing. Legacy platforms think in meter reads and periodic bills – however, today’s energy sector requires multiple engagements and touch points with customers every day, not just a few times a year.

On top of that, the industry needs to deliver a step change in accuracy and trustworthiness. Customers simply won’t allow companies to take control of energy usage in their household with current levels of service. They want real-time and personalised insights into their energy use.

Currently in the UK, inaccurate billing makes up more than 40% of the problems raised by energy customers who come to consumer helpline Citizens Advice for support.

Billing is a pertinent example of the change needed. Currently in the UK, inaccurate billing makes up more than 40% of the problems raised by energy customers who come to consumer helpline Citizens Advice for support. Waiting times can be long and many queries aren’t fully solved, so those same customers have to call again. Providing support in this way costs the retailer millions of pounds a year and by the time this frustrating interaction is over, customers are in no mood to listen to an electric heating offer.

Kaluza has been able to reduce call volumes by 50% for OVO Energy by providing customers with an easy-to-use digital hub. In fact, 80% of customers who arrive on this site are able to resolve their query without picking up the phone. With fewer customers calling in about billing inaccuracies, Customer Care Agents can take up an advisory role, helping customers purchase the products and services that allow them to reduce their bills and carbon footprints.

Kaluza has been able to reduce call volumes by 50% for OVO Energy. Image: Kaluza.
Kaluza has been able to reduce call volumes by 50% for OVO Energy. Image: Kaluza.

It all comes down to having agile technology at foundation level. Kaluza thinks in real time and processes data as it streams into the system, leveraging it to form a minute-by-minute view of every account and supply in the portfolio. This opens up a multitude of opportunities for retailers to optimise their business and provides customers with live insights into their accounts so they can understand exactly what’s going on with their energy.

To summarise, if we can save energy companies money and future-proof their business models at the same time as reducing customer bills and carbon emissions – it’s a win, win, win. We can get there, but we need to leave old technology in the past.

We know that embracing new technology, especially when it replaces a highly-embedded and familiar system, is a big step. However, given the plight of the industry today, the question facing energy companies is no longer ‘what is the risk of replatforming?’ but ‘what is the risk of not?’.

This article originally appeared on Kaluza's own website.

Marzia Zafar's photo

Marzia Zafar Director of policy and sustainability, Kaluza

Marzia Zafar is director of policy and sustainability at energy software company Kaluza.

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