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

1. Strategies and tactics for
success in energy services
markets
Delta Energy & Environment
April 2011

2. Strategies and tactics for success in energy services markets A Delta White Paper – April 2011
Strategies and tactics for success in energy
services markets
This 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 to
succeed in European energy services mass markets to 2020.
The first Delta White Paper examined the size of the European energy services
market, which we forecast will grow from €8bn today to around €10bn gross margin
by 2020. The second White Paper discussed the engagement of energy suppliers in
this space, currently with a market share of less than 10%, but with the potential to
double 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. Strategies and tactics for success in energy services markets A Delta White Paper – April 2011
Four scenarios for energy services market development
Energy suppliers – or indeed other companies seeking to offer energy services – need to carefully
understand the nature of this market before defining the level of their ambitions. Figure 1 below
characterises four market scenarios.
FIGURE 1: DELTA’S FOUR SCENARIOS FOR ENERGY SERVICES MARKETS
The 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, 2011
In 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; low
carbon heating; distributed generation (DG); energy efficiency; heating systems services; home
energy 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 projects
undertaken by energy suppliers and other players, and from which we have identified lessons which
may have relevance for energy suppliers in their own markets. Selected examples are mentioned
below:
German energy supplier EWE navigates away from ‘Locked-out’
The power of local heating installers is locking energy suppliers out of the lucrative German
residential heating market. EWE, an electricity and gas supplier, has innovatively secured a large
share of the boiler replacement market for the north-western region of Germany, where it is based. It
has worked with local installers to offer long-term heat contracts, whereby EWE retains ownership of
the boiler, selling heat to the customer.
© Delta Energy & Environment Ltd 2011 Page 3

4. Strategies and tactics for success in energy services markets A Delta White Paper – April 2011
Spanish energy suppliers focus on Me-Too boiler servicing options
In Spain, energy suppliers have been largely absent from the energy services market. As the energy
retail market gradually becomes more competitive, energy suppliers are using heating system
services (in the form of insurance and maintenance contracts) as a way of making their energy supply
offerings more attractive. While increasing their revenues, the main prize is attracting (and potentially
keeping) new energy supply customers.
Centrica sees ‘big-time’ opportunities in the UK
In September 2010, Centrica’s CEO Sam Laidlaw said “The old utility business model is dead”. He
went on to say that within just a few years, the British Gas energy services business will become at
least as big as its energy supply business. The company has worked to keep all profits from energy
services in-house, rather than outsource delivery to third party partners. There is no doubt as to BG’s
position as the UK market leader and pace-setter. The company is investing heavily to maintain and
grow its competitive advantage in the UK energy services market – but key to this strategy is making
the best informed decisions about where, when and how to invest.
A complex picture - strategy and tactics are required for each area of the
energy services market
In analysing different EU countries, Delta found some stark differences between the six areas of the
energy services market. Each company needs to develop its own tailored approach, and to decide in
which 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, but
relatively profitable. Energy suppliers have a low market share. The size of the bubble represents
the market size today. By 2020, the market will have exploded in size. Margins will have fallen due to
increased market competition and lower technology costs, but will remain attractive. Finally, the
energy 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. Strategies and tactics for success in energy services markets A Delta White Paper – April 2011
Using this scenario approach, Delta has sized each area of the energy services market and assessed
the value that can be captured by energy suppliers. This defines the ‘size of the prize’ for energy
suppliers within each area of energy services market, and informs decisions regarding the optimum
strategic focus.
FIGURE 3: DEFINING STRATEGIC FOCUS – THE SIZE OF THE PRIZE
The value for energy suppliers can vary significantly between the different areas of the energy
services market, as illustrated for one country in the following chart. The blue bars indicate the direct
sources of value from products and services. The orange bars indicate indirect value from using
energy services to shape the timing of customer demand for energy, and to reduce the likelihood of
customers switching to other energy retailers.
€ million
Fossil Boilers Low carbon Heating Energy Onsite DG HEM Smart Customer
‐ install heat ‐ install system efficiency demand retention
services
Source: Delta Energy & Environment, 2011
Tactics for success in energy services markets
Supported by the case study library, Delta has developed nine tactics as part of a toolkit for
companies to use to develop their own strategy for success. Each energy supplier will need to select
the 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 following
key 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 entrants
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 5

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, andy.bradley@delta-ee.com, + 44 131 476 4259
Cian McLeavey-Reville, cian.reville@delta-ee.com, +44 131 625 3332
Jon Slowe, jon.slowe@delta-ee.com, +44 131 625 1004
Or visit: www.delta-ee.com
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, andy.bradley@delta-ee.com, +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, Alert.me, European
Commission, Kofler Energies and others.
© Delta Energy & Environment Ltd 2011 Page 6