Delta White Paper Energy Services Strategy And Tactics Final


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Energy suppliers can grow their market share of the lucrative energy services market

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Delta White Paper Energy Services Strategy And Tactics Final

  1. 1. Strategies and tactics forsuccess in energy servicesmarketsDelta Energy & EnvironmentApril 2011
  2. 2. Strategies and tactics for success in energy services markets A Delta White Paper – April 2011Strategies and tactics for success in energyservices marketsThis White Paper, the third in a series of three based upon new Delta research,explores the strategic and tactical options for energy suppliers and other players tosucceed in European energy services mass markets to 2020.The first Delta White Paper examined the size of the European energy servicesmarket, which we forecast will grow from €8bn today to around €10bn gross marginby 2020. The second White Paper discussed the engagement of energy suppliers inthis space, currently with a market share of less than 10%, but with the potential todouble or triple this by 2020.The key findings of this third White Paper are: The energy services market is complex and diverse – there is no ‘Silver Bullet’ solution that will crack the market open for energy suppliers Delta has identified four scenarios to characterise the nature of energy services markets, each of which translates to a different strategy and level of attractiveness for energy suppliers Delta has developed a series of tactics as part of a toolkit for energy services success. These tactics can be grouped around the following key areas: heating & cooling (particularly low carbon); other ‘direct’ products (such as PV and insulation); and ‘indirect’ (customer retention and smart demand) Delta’s research and analysis can help energy suppliers and other companies decide their strategic focus, and to select the right tactics within each part of the energy services market.© Delta Energy & Environment Ltd 2011 Page 2
  3. 3. Strategies and tactics for success in energy services markets A Delta White Paper – April 2011Four scenarios for energy services market developmentEnergy suppliers – or indeed other companies seeking to offer energy services – need to carefullyunderstand the nature of this market before defining the level of their ambitions. Figure 1 belowcharacterises four market scenarios.FIGURE 1: DELTA’S FOUR SCENARIOS FOR ENERGY SERVICES MARKETSThe x-axis shows the degree to which energy suppliers can access energy services markets. The y-axis is the gross margin potential per household from energy services.Source: Delta Energy & Environment, 2011In each country that Delta has studied, we have identified the applicable scenario today and in 2020,for each of the six areas within the energy services market (conventional heating & cooling; lowcarbon heating; distributed generation (DG); energy efficiency; heating systems services; homeenergy management (HEM) systems). This helps companies define their aspirations in each area,and the key decisions they need to make.Delta has also developed around 20 case studies profiling innovative approaches and projectsundertaken by energy suppliers and other players, and from which we have identified lessons whichmay have relevance for energy suppliers in their own markets. Selected examples are mentionedbelow:German energy supplier EWE navigates away from ‘Locked-out’The power of local heating installers is locking energy suppliers out of the lucrative Germanresidential heating market. EWE, an electricity and gas supplier, has innovatively secured a largeshare of the boiler replacement market for the north-western region of Germany, where it is based. Ithas worked with local installers to offer long-term heat contracts, whereby EWE retains ownership ofthe boiler, selling heat to the customer.© Delta Energy & Environment Ltd 2011 Page 3
  4. 4. Strategies and tactics for success in energy services markets A Delta White Paper – April 2011Spanish energy suppliers focus on Me-Too boiler servicing optionsIn Spain, energy suppliers have been largely absent from the energy services market. As the energyretail market gradually becomes more competitive, energy suppliers are using heating systemservices (in the form of insurance and maintenance contracts) as a way of making their energy supplyofferings more attractive. While increasing their revenues, the main prize is attracting (and potentiallykeeping) new energy supply customers.Centrica sees ‘big-time’ opportunities in the UKIn September 2010, Centrica’s CEO Sam Laidlaw said “The old utility business model is dead”. Hewent on to say that within just a few years, the British Gas energy services business will become atleast as big as its energy supply business. The company has worked to keep all profits from energyservices in-house, rather than outsource delivery to third party partners. There is no doubt as to BG’sposition as the UK market leader and pace-setter. The company is investing heavily to maintain andgrow its competitive advantage in the UK energy services market – but key to this strategy is makingthe best informed decisions about where, when and how to invest.A complex picture - strategy and tactics are required for each area of theenergy services marketIn analysing different EU countries, Delta found some stark differences between the six areas of theenergy services market. Each company needs to develop its own tailored approach, and to decide inwhich parts of the market it can succeed.As an example, we show below the UK market for low carbon heat. Today, the market is small, butrelatively profitable. Energy suppliers have a low market share. The size of the bubble representsthe market size today. By 2020, the market will have exploded in size. Margins will have fallen due toincreased market competition and lower technology costs, but will remain attractive. Finally, theenergy supplier role in the market could have increased considerably, sending the market from“Locked Out” into “Big Time”.FIGURE 2: THE UK MARKET FOR LOW CARBON HEATING INSTALLATIONS WILL EXPLODE IN SIZE,AND WILL SHIFT FROM A LOCKED-OUT TO A BIG TIME SCENARIO (2010 TO 2020)Source: Delta Energy & Environment, 2011© Delta Energy & Environment Ltd 2011 Page 4
  5. 5. Strategies and tactics for success in energy services markets A Delta White Paper – April 2011Using this scenario approach, Delta has sized each area of the energy services market and assessedthe value that can be captured by energy suppliers. This defines the ‘size of the prize’ for energysuppliers within each area of energy services market, and informs decisions regarding the optimumstrategic focus.FIGURE 3: DEFINING STRATEGIC FOCUS – THE SIZE OF THE PRIZEThe value for energy suppliers can vary significantly between the different areas of the energyservices market, as illustrated for one country in the following chart. The blue bars indicate the directsources of value from products and services. The orange bars indicate indirect value from usingenergy services to shape the timing of customer demand for energy, and to reduce the likelihood ofcustomers switching to other energy retailers. € million Fossil Boilers  Low carbon  Heating  Energy  Onsite DG HEM Smart  Customer  ‐ install heat ‐ install system  efficiency demand retention servicesSource: Delta Energy & Environment, 2011Tactics for success in energy services marketsSupported by the case study library, Delta has developed nine tactics as part of a toolkit forcompanies to use to develop their own strategy for success. Each energy supplier will need to selectthe combination of tactics that match its level of ambition in each area of the energy services market.Delta concludes from its research that the development of tactics can be grouped into the followingkey areas:FIGURE 4: SELECTING TACTICS – THE KEY AREAS AND NATURE OF COMPETITION Heating (especially Selective smaller Indirect – customer low carbon) and services (eg PV, retention & smart services insulation) demand Battle with Battle between installers and Very fragmented suppliers and competition manufacturers new entrantsDelta’s research and analysis can help energy suppliers and other companies decide their strategicfocus, and to select the right tactics within each part of the energy services market.© Delta Energy & Environment Ltd 2011 Page 5
  6. 6. Strategies and tactics for success in energy services markets A Delta White Paper – April 2011 About Delta’s Research This Delta White Paper is based on research carried out for the Delta multi-client study, ’Energy Services Mass Markets: Strategies for Success to 2020’. For further details on the research of the study, or any questions about this White Paper, please contact one of: Andy Bradley,, + 44 131 476 4259 Cian McLeavey-Reville,, +44 131 625 3332 Jon Slowe,, +44 131 625 1004 Or visit: Delta’s 2nd Annual ‘Energy Services in Europe’ Summit 8 June 2011, Copenhagen Following Delta’s highly successful first ‘Energy Services in Europe’ Summit held in June 2010 in Amsterdam, this invitation-only Summit brings together 50 European utilities and other key stakeholders to explore how energy services markets and utility strategies will evolve within these markets. For further details, please contact Andy Bradley,, +44 131 476 4259. Companies attending the first Summit included Centrica, Endesa, Fortum, E.ON UK, EDF, Nuon, Essent, E.ON Ruhrgas, Iberdrola, EDP, Enamo, ScottishPower, ESB, Electrabel, EDF Energy,, European Commission, Kofler Energies and others.© Delta Energy & Environment Ltd 2011 Page 6