Electricity retailers supercharge their customer offerings

Electricity retailers supercharge their customer offerings to compete and grow

New Zealanders can expect more innovative retail offerings from the country’s power companies as they work harder to grow in a fiercely competitive market, according to PwC's Leading Energy analysis.

PwC Energy Sector Leader Chris Taylor says, “Little was normal about the last financial year for New Zealand’s electricity generation and retail companies.

“Warmer winters in 2012 and 2013 meant Kiwis used less power to heat their homes, while some big high-energy industry users renegotiated their wholesale power supply agreements or reduced their activity levels. And at the same time, South Island hydro-generation returned to standard levels, which together, created spare power capacity across New Zealand.”

“When you consider one in five customers switched power providers in the last financial year, it adds up to a perfect storm that’s disrupting the power companies traditional business models and competitive positions.”

The report found total power generation for the big five dropped 3.1% in their last financial years as demand reduced.

“How the sector responds to these market challenges will be crucial to maintaining profitability in the short to medium term and sustaining the companies’ success,” highlights Mr Taylor.

With two state-owned enterprises (SOE) IPOs now complete and another readying itself for sale, the report recommends power companies turn their focus to customers and optimising their existing assets.

Mr Taylor adds, “With limited opportunity to achieve growth through asset development, delivering more value to retail customers to meet their increasing expectations and compete has become a high, if not top priority.

“Expect to see electricity companies transforming their retail models, with a more customer centric focus as new technologies and ways of working are introduced to attract customers and encourage them to switch providers.

“Already, we see smart metering is driving new ways of interacting with customers. Next New Zealanders could see changes to the way power companies sell and price electricity to encourage consumers to shift their energy usage away from peak load times,” Mr Taylor explains.

The report compares New Zealand’s market to the themes of PwC’s Global Power and Utilities Survey, and finds domestic power companies are facing similar challenges to their global cousins, albeit to a lesser degree.

“Overseas, a variety of technology advances and a new breed of customer mean self generated or distributed power generation is beginning to eat into sector revenues and marginalise conventional centralised generation.

“In New Zealand, it’s estimated about five percent of power comes from distributed generation, such as solar or wind generation. Yet, as technology developments improve and costs decrease, customers may one day become less dependent on the centralised grid for their power needs.

“This would threaten the electricity utility business model, and is a looming trend the sector should watch. Of course, the big difference between the New Zealand and global situation is Europe’s subsidised distributed power generation model, which drives higher levels of distributed generation,” Mr Taylor believes.

Over the past three years, PwC New Zealand found the number of major generation plants under construction or planned for development has shrunk.

“Decreasing demand, coupled with a capacity surplus means new additions to the electricity generation portfolio are unlikely. Possible generation plant retirements are on the cards, while projects will be shelved or put on hold pending an upturn. It will be interesting watching how the sector responds to the changing market and positions itself for the future,” concludes Mr Taylor.

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