Do consumers want the new business models we can offer?

Dr Stephen Hall, University of Leeds

Overview and relevance

The electric utility business model is facing multiple challenges and must evolve to survive in all low carbon futures. The Utility 2050 project explores this evolution by testing crowd-sourced future utility business models against economic, policy, technological, and consumer criteria. This work explores the consumer responses to six possible future utility business models. Peer to peer energy contracts, multi utility smart home, energy service contracting, and home electrification business models are all technically possible, and each can access new financial values created by low carbon futures. However any utility business model innovation that does not take close account of consumer sentiment is doomed to fail, and may affect trust across the market. In spite of the maturity of competitive supply markets and switching in the UK, we have almost no data on how consumers view possible future switching options. This work explores consumer responses to innovative business models in arguably the most important energy decision consumers make, their choices when switching supplier.

Methodology

We crowed sourced six potential future utility business models for the UK market from experts across academia, government, and the energy sector. We created consumer facing attributes of these business models. We then undertook a choice experiment with a representative sample of 2024 UK energy consumers with partial or full responsibility for the supplier switching decision. This experiment explored how various consumer segments responded to the business model attributes in a hypothetical switching scenario, their attitudes to demand management, smart home technology, and transport/heat electrification.

Results

This experiment demonstrated that none of the proposed business models totally fail in a consumer experiment. Each has a market segment which finds some attributes appealing. Peer to Peer business models are the most attractive alternative business model to consumers switching supplier now. Domestic energy service contracting is the least attractive to current consumers. Demographics are not as important drivers of choice as attitudinal variables such as environmental consciousness. While customers say they find innovative business models attractive, they often qualitatively rate them as “risky, unfair, and oppressive” while rating existing suppliers as “safe, boring, efficient, and predictable”.

Conclusions

Our data suggests customers in the UK switching market are more open than we have come to think if presented with real alternatives to the current model. However, there are substantial hurdles to overcome in designing business models that are both engaging and considered ‘safe’. To capture the future values presented by low-carbon transitions, utilities need to evolve. This data suggests a rigorous understanding of consumer responses will be needed if new offers in the domestic supply market are to succeed. This also suggests the need for extremely cautious innovation if the consumer journey is to include trust, consent, and deeper engagement in energy transitions.