The coming renaissance in electric power retailing (and what it means for the smart grid)

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By Jesse Berst

I think I know why electric power retailing is going to gradually expand across America and Europe. And why it is going to dramatically impact the shape of the smart grid. But it's not what you think.

(For those who don't want to wait until the end... it's about choice, not about price.)

I first got wind that something was brewing in electric power retailing when I visited Texas recently for the Metering America show. I was able to spend time with a senior staffer from the Texas public utility commission. She characterized electric power retailing in Texas as a real success story.

Price is part of that success. Prices stood at roughly 10 cents per kWh before reregulation. Nine years later, they sit at about 7 cents.

But the light bulb went off for me when the staffer revealed that low price is just the table stakes. What is really causing people to switch providers – and to be glad they did – is the bundling of other products and services together with electricity.

The power of choice and options

We've known for a long time that consumers like choice. They like choice in clothing, in music, in telecommunications and television, etc. But we never stopped to realize that they would value choice and options in electric power too.

Perhaps we didn't make the connection because, until recently, there was no easy way to package electricity together with other products and services. But the smart grid has changed all that. Here are just a few of the things currently being bundled together with electric power: Contributions to community charities, demand response, energy management software, EV charging, free air conditioner maintenance, frequent flyer miles, green energy, guaranteed multi-year rate, prepayment, programmable thermostats and home energy monitors, rebates, rooftop solar.

Why the electric power retailing renaissance?

Until now, I thought electric power retailing would remain in isolated pockets but would not spread more widely. I didn't think it would take off because I didn't think they could get the price down low enough to make it worth the effort.

Now I understand that there are other ways to create value besides just price. Marketing types call it "creating a compelling value proposition" or "competing beyond price." This point was really driven home for me with the release of two new research reports. They are free, and I recommend them both very highly:

·         EcoPinion: Resurgence for Retail Electricity Choice and Competition?
EcoAlign, March 2011
After conducting 1,000 online surveys in March 2011, the EcoAlign consultancy found "overwhelming support for the concept of competition in the retail purchase of electricity."

·         Revealing the Values of the New Energy Consumer
Accenture, April 2011
Accenture surveyed more than 10,000 consumers around the world. It concluded that "price is the pivotal factor... but price alone will not drive adoption."

What electric power retailing means for the smart grid

The gradual resurgence of electric power retailing is going to alter the course of the smart grid. More and more, utilities will have to think of the smart grid as a platform. Not just a platform for delivering electrons, but also a platform for delivering "apps for electricity" – innovative bundles that combine electricity with other things.

Reasonable reliability at reasonable prices will not be enough. Consumers will gradually begin to clamor for a better value proposition. And to pressure utilities to give them access to the choices and options that will be available already in places such as Texas and the UK.

I will stop here to let you weigh in by using the comment form below. During a recent consulting project, I gathered input from more than 100 electric power experts. Very few of them believed that electric power retailing would ever spread past its current boundaries.

So I know I am an outlier. Nevertheless, I'm going to climb to the end of the limb and predict that by the end of the decade, more than half of all U.S. states will be actively engaged in electric power retailing. And so will virtually all European countries. This gradual transition to retail competition will be a powerful driver that will push those regions toward a fully modernized grid.

Jesse Berst is the founder and chief analyst of Smart Grid News.com. He consults to smart grid companies seeking market entry advice and M&A advisory. A frequent keynoter at industry events in the US and abroad, he also serves on the Advisory Council of Pacific Northwest National Laboratory's Energy & Environment directorate.

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