Flexible Pricing for Electricity Tariffs in a Liberalized Power Market
The liberalization of power markets is creating a new competitive landscape for energy companies around the globe, bringing with it a compelling argument for flexible pricing and adaptive customer charging capabilities. Neural Technologies’ charging-as-a-service (CaaS) can provide dynamic pricing solutions for utilities in competitive retail power markets across the world.
The role of traditional vertically-integrated utilities operating everything from generation through to customer retail has been eroding over the last few decades. Liberalization of power markets began with pioneering countries in the 1980s, notably Chile in South America, and the UK in Europe. Europe has seen widespread liberalization over the period since, with the EU operating an almost universally liberalized and competitive power market today.
Supporters of liberalization argue that it creates an efficient and incentivised power market that boosts energy efficiency while enhancing customer service. Those arguments are certainly persuasive for policymakers around the world, with liberalization efforts underway in several key markets.
Southeast Asia is one region at the heart of this evolution, with Singapore recently opening up its own retail market to competition. Malaysia has announced plans to continue its own liberalization journey, with intention to introduce retail market competition in 2021. Discussions are also underway in Thailand to follow a similar path. Southeast Asia is not alone in this transformation, with retail market liberalization the end-goal of reform efforts in nations from Asia to South America.
Supporters of the mature liberalized landscape in Europe argue that it has delivered real benefits for consumers, creating a working common market that ensures security and sustainability of supply at competitive prices. At the same time, existing incumbent players have suffered some significant challenges from the transition, creating revenue difficulties for many electricity suppliers.
This challenge was highlighted in a study of power market liberalization by Boston Consulting Group, noting that ‘Too many utilities, however, either deny that the threats of a changing market are imminent or address those threats only incrementally… Successful companies start their transformations before a significant downturn in performance has occurred.’
It’s not just incumbent players that face these risks. With the gradual liberalization of Singapore’s power market over recent years, many independent new players entered the market. By 2019, five of those players had exited due to an inability to remain competitive.
Neural Technologies’ cloud-native charging-as-a-service solution delivers a dynamic pricing platform that can help utilities transform their customer charging to meet the needs of this competitive environment. It leverages artificial intelligence (AI) and machine learning (ML) technologies to provide a responsive solution that offers time-of-day, day-of-week, peak hours, geo-zoning, and a wide range of additional dynamic scenario planning. It enables immediate adjustment of rates based on multiple real-time variables.
As vertically-integrated utilities give way to a competitive market opportunity, the need for flexible tariff solutions empowered by smart digital data and optimised customer service will be a key differentiating factor for companies.
Focus on sustainability for utilities
The growing demand for sustainable and renewable energy solutions is unlocking new complexities to the dynamic pricing needs of the modern retail energy market.
Time-of-use tariffs can integrate with the intermittent nature of renewable energy generation, creating optimal pricing models that encourage consumers to consume power in a greener way. That adaptive pricing structure can be a powerful enabler for utility companies seeking to further enhance the sustainability of their operating ecosystem.
Consumers increasingly rely on their own understanding to inform consumption decisions, with energy comparison behaviour that looks at efficient and sustainable opportunities. A consumer will not only compare electricity tariffs for prices, but for the green credentials of the offer, with affordability and sustainability going hand-in-hand. In Deloitte’s 2017 Resource Study, keeping energy bills affordable and using clean energy were the two main priorities of residential consumers in the US.
With informed consumer switching behaviour, and the essential measure of consumer service forming a core part of regulatory oversight, utility companies are under pressure to deliver tariff structures that meet changing consumer demand.
The rise of rooftop solar and home generation adds another dimension to a smart, dynamic charging solution. The International Energy Agency (IEA) predicts adoption of rooftop solar will double to reach 100 million homes by 2024. As so-called ‘prosumers’ generate and sell their own energy back to the grid, smart AI and ML solutions will be vital to building an effective tariff model that can adapt to give real-time solutions for utility players around the world.
Big data and machine learning solutions are fundamental to the competitive future of utilities in liberalized retail markets. The Boston Consulting Group study notes ‘by tapping into this abundance of real-time data, utilities can use predictive modeling and insight generation to reduce costs, increase revenues from existing operations, and generate new revenues from innovative services.’
Neural Technologies’ CaaS solution provides a dynamic pricing system that leverages the value of that big data opportunity. Its use of the Microsoft Azure platform ensures a simple, secure, and user-friendly solution that requires minimal IT resources. Open API and IoT enables seamless integration with third-party platforms and applications, with the Optimus mediation layer unlocking wider benefits of data insight and understanding.
Utilities also benefit from a predictable ongoing expenditure model for the CaaS solution, moving away from capital-heavy expenditure models built on expensive hardware or licensing. That means a more adaptive, flexible charging solution for customers, with a more sustainable pricing model for utility companies themselves.