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The new site contains more commentary, insight, and analysis from all of the Datamonitor Energy team, as well as overviews of all published and soon to publish data and research.

For more information, you can find the site here: www.datamonitorenergy.com 

This blog account will close at the end of February; all future blog posts will be available from the link above. 

British Gas suffers PR disaster at the hands of Stephen Fry in front of 5 million Twitter users

British Gas utilizes a multi-million pound marketing budget to advertise to potential customers and reassure existing customers that its service functions are effective, with the customer the center of attention. However, when a well-followed celebrity decides to air his complaints on Twitter, that marketing message can quickly be lost.

On February 15, 2013 a clearly disgruntled Stephen Fry decided to tweet the fact that British Gas was "threatening to send in bailiffs" for a bill that he claimed he had already paid. Although customer forums on sites such as Moneysupermarket.com are frequently unearthing instances such as this, none have the reach that Fry can generate through his Twitter follower base, which numbers over 5 million people. 

But what does this mean for British Gas? Well, on a purely market share estimate, if any of these 5 million followers are located in the UK, over 20% of these will be British Gas customers who will now have a decidedly worse opinion of their supplier - an opinion that will be crucial when they next come to assess their energy supplier. Another factor will be that Fry's grievance seemed to be rectified relatively quickly according to his timeline, which will not be a good message if the "ordinary" customer cannot achieve the same results. Providing preferential treatment is not a welcome marketing image for a company that is already perceived as being untrustworthy and not acting in the best interests of its customer base, with its profit announcements regularly drawing sharp criticism from consumer groups over a profiteering attitude.  

                                          Source: Twitter

What is clear, however, is that Fry's problem is a common one, and not just for British Gas customers. In fact, a quick sweep of online customer forums shows that all of the Big Six are culpable of putting customers in similar positions. Due to this, smaller suppliers such as Good Energy, Ecotricity, and Ovo Energy are using the niche customer acquisition strategy of simply treating customers well to entice them away from the larger suppliers. This is reaping benefits, with smaller suppliers growing at a steady rate since entering the market. 

Datamonitor's forthcoming research brief, titled: "Customer Satisfaction Strategies in the UK Domestic Market" (due early March 2013), will use firsthand customer opinion data to analyze what the smaller suppliers have done to provide outstanding service compared to the behemoths of the industry, and in what areas some suppliers have been failing to provide stellar service.


Written by Tom Haddon
Analyst, Datamonitor Energy
Follow Tom on Twitter: @TomH_DMEN

For more information visit:

Datamonitor Energy group has now launched a dedicated website, replacing this blog account.

The new site contains more commentary, insight, and analysis from all of the Datamonitor Energy team, as well as overviews of all published and soon to publish data and research.

For more information, you can find the site here: www.datamonitorenergy.com 

This blog account will close at the end of February; all future blog posts will be available from the link above. 

Ask an analyst: asken@datamonitor.com
Follow Datamonitor on Twitter: @DatamonitorEN

UK Gas Generation Strategy fails to reassure investors

In December 2012 the UK government published its Gas Generation Strategy to provide reassurance to investors in new gas generation, of which 26 GW could be needed by 2030 and 9 GW by 2020 to replace ageing gas and nuclear capacity.

On Feb. 13th the House of Commons Energy and Climate Change Committee (ECC) heard testimony as to whether the strategy has actually provided reassurance and what the impact might be on carbon emissions. Other issues addressed included carbon capture and storage, combined heat and power, and biogas.

All those testifying (from academia, major utilities, and NGOs) agreed to some extent that the strategy was not achieving its aim - at least, not yet.  

The strategy appears to investors essentially as a scenario document, in which different assumptions are made for gas use, with different carbon targets and gas prices. 

In an echo of evidence sessions heard by the same committee on the question of nuclear generation in October 2012, the key word of the morning was clarity.  Investment in new gas plant, as with wind generation, is long term, and will be impeded until policy goals are transparent. A common view was that speed in the government’s electricity market reform is needed to provide such clarity.

Another theme of the day was capacity. The point was strongly made that gas and renewables should not to be pitted against each other. The question is rather how gas can complement low carbon generation.  A capacity mechanism that remunerates the fixed cost of new gas generation (high operating costs but low construction costs) along with renewable generation (with  zero fuel cost but large fixed costs) was proposed by the second panel in particular as the best way to de-risk supply and reduce the price that end consumers pay. The launch of a capacity market for gas in 2014 is intended to be one of the main tools for change.

The committee questioned whether the support given until now to renewable generation was in fact the driving factor for adjustment in the gas market. Whether one supports this viewpoint or not, Datamonitor believes that investors considering the UK will remain somewhat in limbo until the government makes it clear – notably through the decarbonisation target to be introduced in 2016 looking ahead to 2030 – just how much renewable power capacity it intends to have. 

Written by Yasmin Valji

Analyst, Datamonitor Energy Team

Follow Yasmin on Twitter: @YasminV_DMEN 

For more information:

Datamonitor Energy group has now launched a dedicated website, replacing this blog account.

The new site contains more commentary, insight, and analysis from all of the Datamonitor Energy team, as well as overviews of all published and soon to publish data and research.

For more information, you can find the site here: www.datamonitorenergy.com 

This blog account will close at the end of February; all future blog posts will be available from the link above. 

Email: asken@datamonitor.com

Twitter: @DatamonitorEN

Small energy suppliers provide the best service to residential customers

According to the Which? 2013 energy companies satisfaction survey, the best service provided to residential energy customers is from smaller independent suppliers such as Good Energy and Ecotricity. Datamonitor Energy will publish research analyzing the factors that prevent the Big Six heading the table and the disparities in the satisfaction levels from smaller suppliers.

The survey had suppliers from outside the Big Six occupying the top eight spots, clearly demonstrating that there are tangible differences between the strategies of large and small suppliers. The common theme for small suppliers is their attention to premium levels of customer service. The relatively new niche for these suppliers is to be kind toward customers and use this as an acquisition strategy for customers who value this over price or brand recognition. 

However, not all smaller suppliers are using this strategy; First Utility is focusing solely on price. The growth of First Utility has surpassed that of other independent suppliers, with turnover increasing in the thousands of percent over the last four years. Yet this revenue growth has been to the disadvantage of its customer service functions and processes; it was rated ninth in the table, with customer forums full of tales from angry and frustrated customers.

 The Big Six are now trying to improve trust issues with customers to combat the competition - for example, E.ON's "Reset Review," SSE's "Customer Charter Guarantee," and so on. Yet a valid question for these utilities is whether it really is a priority to dedicate much focus on customer service if they already control 99% of the market. With millions of customers - compared to thousands for the smaller suppliers - the Big Six tend to utilize marketing campaigns to attract customers. Low switching rates and apathy toward switching ensures that customer losses remain a very small fraction of the overall base.

Datamonitor's forthcoming research brief, titled: “Customer Satisfaction in the UK Domestic Market” (due early March 2013) will use first hand customer opinion data to analyze how most of the smaller suppliers have provided outstanding service compared to the behemoths of the industry, and in what areas the lower ranked suppliers have been faltering.

Written by Tom Haddon

Analyst, Datamonitor Energy.

Follow Tom on Twitter: @TomH_DMEN

For more information:

Datamonitor Energy group has now launched a dedicated website, replacing this blog account.

The new site contains more commentary, insight, and analysis from all of the Datamonitor Energy team, as well as overviews of all published and soon to publish data and research.

For more information, you can find the site here: www.datamonitorenergy.com 

This blog account will close at the end of February; all future blog posts will be available from the link above. 

Email: asken@datamonitor.com

Twitter: @DatamonitorEN

Cost overruns and prolonged uncertainty dissuade Centrica from UK nuclear investment

Centrica has withdrawn from its nuclear rebuilding partnership with EDF in the UK, citing rising costs, delays, and regulatory uncertainty. The utility must now decide where and on what to focus its resources, with potential opportunities arising in gas and offshore wind.

Centrica has withdrawn its 20% stake in its partnership with EDF to build new nuclear capacity in the UK. Four new EPR reactors are planned at Sizewell C (Suffolk) and Hinkley Point C (Somerset). Centrica acquired the option in 2009, along with a 20% share in the eight nuclear plants currently operated by EDF, which Centrica will retain. At that time Centrica raised GBP2.2bn in additional capital to finance the options, of which it will launch GBP500m in share repurchases to return capital to shareholders in 2013.

Centrica's decision comes as no surprise, and EDF has been looking for new partners since September 2012. EDF's most advanced discussions are with China Guangdong Nuclear Power Group (CGNPC), with which it is already working to build two new EPR reactors in Taishan, China.

Chinese capital could assist EDF at a time when it lacks sufficient capital to see its investments in the UK to fruition alone. However, no confirmation from CGNPC is likely before any concrete figures come out of the discussions between EDF and the UK government on Contracts for Difference (CfD) feed-in tariffs, which were most recently rumored to be around GBP100/MWh.

The rising costs and longer-than-expected construction times weighed heavily on Centrica's decision. It is less clear, however, whether the potential revenue flows, primarily determined by the level of the CfDs, were a critical factor.

Centrica now needs to decide where it will reposition its resources, and swiftly. It has already written off GBP200m in predevelopment costs in 2012, and will likely prioritize investments with shorter development times such as offshore wind. This is likely to fare just as well as nuclear under the new Electricity Market Reform, with the added benefit of requiring a smaller upfront stake. Although the excess capital will be returned to shareholders, the decision to write off the nuclear stake will leave Centrica with more breathing room to evaluate alternative opportunities, such as gas projects, expansion in the US market, or an acquisition of the Irish government-owned retailer Bord Gais Energy.

Written by Yasmin Valji

Analyst, Datamonitor Energy Team

Follow Yasmin on Twitter: @YasminV_DMEN 

For more information:

Datamonitor Energy group has now launched a dedicated website, replacing this blog account.

The new site contains more commentary, insight, and analysis from all of the Datamonitor Energy team, as well as overviews of all published and soon to publish data and research.

For more information, you can find the site here: www.datamonitorenergy.com 

This blog account will close at the end of February; all future blog posts will be available from the link above. 

Email: asken@datamonitor.com

Twitter: @DatamonitorEN

SME customers struggle to see the benefit of smart meter installation

Datamonitor's Energy Buyer Research survey has found that businesses of different sizes are assessing the benefits of the smart meter roll out very differently.

During H1 2012 Datamonitor conducted in-depth interviews with energy buyers at businesses of all sizes to determine the satisfaction of the customer experience throughout the smart meter installation process and to assess the benefits seen since installation.

Large power consumers responded with positive comments 57% of the time when asked about the benefits they have experienced after the installation of smart metering, while smaller consumers only gave positive comments 20% of the time.

The graph below shows how SME and MEU customers have responded to smart meters since installation was completed. Respondents provided positive comments (highlighting only benefits), mixed comments (no change in experience or seeing benefits and problems), or negative comments (highlighting only problems). SMEs' experience post-installation is still not conclusive, with mixed comments forming the majority. Although many feel that the units have not been installed long enough to judge, there is certainly an element of not being used to the technology and lacking full understanding. Technical problems, while rare, appeared to be catastrophic, with one SME reporting that its new meter "hasn't given meter readings as it can't get a signal."

                                   Source: Datamonitor

MEU customers have a much more favorable view of smart meters, with 57% of MEU comments positive toward the technology. This statistic is higher due to these customers being more aware of usage before installation and being able to interact with the technology more effectively.

Datamonitor also asked respondents to assess any cost savings. SMEs are much more likely not to see a change in costs due to a lack of pre-installation information on usage and costs. Power MEUs, which are more reliable in judging cost savings due to better pre-installation information, averaged less than 5% cost savings, which is in line with domestic trials of the technology (circa 3% as reported in Ofgem's Energy Demand Research Project: Final Analysis, June 23, 2011).

The research found that during the installation process, SMEs spending less than GBP50,000 a year on power were much more likely to enjoy a problem-free experience. 89% of SMEs reported no problems with installation, while only 63% of MEUs spending more than GBP50,000 per year on power said this. This is due to 22% of MEU power customers reporting that energy supply was disrupted during the installation.

More detail is available in Datamonitor's B2B Smart Meter Roll Out: Analysis of Customer Experiences (January 2013, EN00009-019).

Written by Tom Haddon

Analyst, Datamonitor Energy

Follow Tom on Twitter: @TomH_DMEN

For more information:

Datamonitor Energy group has now launched a dedicated website, replacing this blog account.

The new site contains more commentary, insight, and analysis from all of the Datamonitor Energy team, as well as overviews of all published and soon to publish data and research.

For more information, you can find the site here: www.datamonitorenergy.com 

This blog account will close at the end of February; all future blog posts will be available from the link above. 

Email: asken@datamonitor.com

Twitter: @DatamonitorEN

Major French electricity users unhappy at cost disadvantage compared to Germany

French large energy users are lobbying the government to restructure electricity tariffs. Comparisons with Germany appear to reveal large disparities, placing French industry at a disadvantage; however, no action has yet been taken by the French regulator to address these concerns.

French retail customers enjoy some of Europe's lowest electricity prices, which stood at 0.142kWh (taxes included) in November 2012. This is due to the country's large nuclear industry. However, major industrial electricity users do not see the same benefits, and some may be extremely vulnerable to changes in price. ArcelorMittal, for example, uses 1% of France's electricity, and for other businesses in the aluminum industry electricity can account for up to 70% of costs. 

In contrast, major industrial sites in Germany are largely exempt from distribution tariffs and pay roughly 80% of that for similar sites in France. Further, they are insulated from price rises due to carbon taxes, and they also receive relatively higher payments in exchange for voluntary cuts in supply. A large German user pays between EUR35.20 and EUR37.05 per MWh compared with EUR46.90 in France according to Uniden, the French union of large energy users. 

The subsidies granted by the German government recognize the impact on competitiveness of the cost of electricity, and that large industry is geographically mobile. The government has already implemented a set of measures to spare major energy users the electricity price increases that the German public faces due to the replacement of nuclear generation by renewable energy.

In France Uniden has demanded that the government give large industrial users similar cost advantages. This topic was discussed recently in a seminar organized by the Union for a Popular Movement backbencher Francois-Michel Gonnot. The seminar brought together key representatives from regulatory bodies and utilities and focused on the costs and financing of the energy transition in France. 

The minister of ecology Delphine Batho spoke at the seminar, and while recognizing the measures taken to protect German industry underlined the fact that their SMEs carried high costs. No concrete response to Uniden's lobbying is expected from the French energy regulator before October 2013, when the government will begin drawing up a new law on France’s energy transition. 

In times of fiscal austerity, Datamonitor expects the weight of Uniden to pale in comparison to that of France's small energy consumers; the government has already agreed to reimburse EDF EUR4.9bn out to 2018 for various costs incurred under the CSPE charge (including the extra cost incurred for buying solar and wind generation at guaranteed state rates).To avoid substantive electricity price increases, the government can be expected to prioritize subsidies to small consumers for political reasons, and may encourage large energy users to manage their energy procurement more effectively.

Written by Yasmin Valji
Analyst, Datamonitor Energy
Follow Yasmin on Twitter: @YasminV_DMEN

For more information:

Datamonitor Energy group has now launched a dedicated website, replacing this blog account.

The new site contains more commentary, insight, and analysis from all of the Datamonitor Energy team, as well as overviews of all published and soon to publish data and research.

For more information, you can find the site here: www.datamonitorenergy.com 

This blog account will close at the end of February; all future blog posts will be available from the link above. 

Email: asken@datamonitor.com

Twitter: @DatamonitorEN