World's Hottest Energy Markets

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The World’s Hottest Retail Energy Markets Paul Grey Peace Software

By a clear margin the world’s hotspots of retail energy competition are Great Britain and Victoria in Australia.

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he number of retail energy markets open to competition grows year-on-year and research carried out by Peace Software and VaasaEmg has provided for the first time an “apples for apples” comparison of customer switching across competitive retail energy markets around the world. Great Britain and the state of Victoria in Australia are revealed to be by far the most active retail energy markets, at times reaching the rate of 20 percent customer switching per year. Customer switch rates in more than 30 competitive retail energy markets have been monitored on an ongoing basis by the Peace Software and VaasaEmg Utility Customer Switching Research Project team. Peace Software is a developer of utility customer information software for regulated utilities and competitive energy retailers and VaasaEMG is a university-based research center that specializes in electricity, gas and related utilities marketing to end-customers. Customer switch rates are an important metric of retail energy market competitiveness and have the advantage of being objective, measurable and comparable between markets. Eric Cody, retail energy markets consultant and former vice president at National Grid, said: “Regulators will find this comparative customer switch rate information essential for benchmarking the success of their own retail competition initiatives, and energy retailers can apply the insights to their customer acquisition and retention strategies.” The research project’s customer switch rate metric is calculated by dividing the number of customers that switched suppliers in a given period by the total number of customers in the market, and the result is then converted to an annual rate. For example, if 1 percent of customers switch suppliers in a given month, that month has a 12 percent annualized customer switch rate. This approach has substantial advantages over commonly reported switch rates that measure the cumulative market share of regulated utility providers versus competitive providers. Comparative switch rate research has enabled the classification of markets into four categories: Hot, Active, Slow and Dormant. Hot markets demonstrate annualized switch rates of 15 percent or higher; Active is at least 5 percent; Slow is below 5 percent; and Dormant markets exhibit less than 1 percent switching per year. Figure 1 compares customer switching trends in a selection of markets across these categories.

Annualized Percentage of Customer Switching Per Quarter 30 Victoria - Hot Texas - Active Finland - Slow

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New York - Dormant

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Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

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Customer Switching Examples of Hot, Active, Slow and Dormant Source: Peace Software and VaasaEmg. Category Markets

energy retail prices in recent years motivated British utility customers to switch supplier and led the incumbent utility-affiliated suppliers to ramp up customer win-back campaigns. Price hikes have especially impacted British Gas, which lost approximately 800,000 gas accounts between August 2004 and August 2005. The principal market share beneficiaries at this time are thought to have been Scottish Power and Scottish and Southern Energy. It is believed that Scottish Power achieved a net gain of around one million energy customers between January 2004 and August 2005. Meanwhile, down under in Australia, the state of Victoria has fast become a hotspot of energy retail competition. Victoria introduced full retail competition for electricity and gas in 2002 and it has exhibited increased customer switching year-on-year, peaking at over 20 percent in 2005. Strong competition from out-of-state incumbents and new start-up energy retailers have contributed to this dramatic level of switch activity, along with the introduction of lifestyle products cleverly targeted at niche customer segments.

Active Markets Active markets include Flanders, the Netherlands, New South Wales, New Zealand, South Australia, Sweden, Norway and Texas.

Paul Grey is chief market strategist at Peace Software, the world’s leading developer of utility customer information soft-

Hot Markets

ware for regulated utilities and competitive energy retailers. He and his team research the dynamics of regulated and

Great Britain has consistently been at the forefront of utility customer switching activity since full market opening in 1999. Rising

competitive energy markets so as to be able to develop advanced software products that anticipate and support utilities’

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business needs. Grey has had articles and white papers published on a wide variety of energy and technology topics and is a regular speaker at industry conferences.

www.UtilitiesProject.com


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