In the next decade, the utilities sector will change beyond recognition. As governments attempt to curb climate change and rising fuel bills, energy companies are increasingly having to work with their customers to make more efficient use of electricity and gas.
As well as supplying energy, utilities now need to supply information – information their customers can use to adjust their usage patterns and get the biggest bang for their buck.
In practice that means the days of quarterly, or even annual, meter readings are drawing to a close. Utilities are increasingly installing smart meters that can track energy usage in near real-time, greatly increasing transparency for customers. More than 130 million smart meter will be shipped worldwide in 2016, according to research firm IDC, up from about 55 million in 2012.
In some cases, utilities are rolling out smart meters hand-in-hand with dynamic pricing - different tariff rates for different times of the day - in a bid to smooth out the peaks and troughs in demand. And some consumers are also becoming producers of energy, feeding electricity generated by the solar panels on their roof, or a wind turbine on their land, back into the grid.
More complexity, greater risk
These fundamental changes mean the complexity of the utilities business is rising fast. And, with rising complexity, comes greater risk. Although the introduction of smart grids should improve energy companies’ operational efficiency, new infrastructure and new processes also open the door to new kinds of revenue leakage and fraud.
In developed markets, billing errors, meter tampering and other forms of fraud mean between 1% and 5% of utilities’ revenue is already leaking away, while in developing markets that figure can be as high as 20%. With the transition to smart meters, the rate of leakage could rise even higher as utilities implement new systems and processes.
Smart grid projects typically involve the deployment of new devices (including distribution automation and communication infrastructure, as well as smart meters), billing systems and other applications, new usage patterns and dynamic pricing. As they grapple with these changes, energy suppliers face an array of risks, such as delays in entering new customers onto the billing system, inadequate metering (resulting from inaccuracies mapping time-of-use pricing to usage data), meter tampering and more bypassing of meters.
As well as damaging the utility company’s reputation, errors in bills may result in dissatisfied customers deferring payment, creating new credit risks, or even removing their smart meter, as has been the case in North America. Widespread negative publicity about smart meters in a particular market could put an energy company’s entire smart grid programme in jeopardy. Moreover, deregulation has made it straightforward for dissatisfied customers to switch to another supplier.
Dealing with big data
All this upheaval is compounded by the need for the utility company to begin managing vast amounts of data. As they can track energy usage on a minute-by-minute or an hour-by-hour basis, smart meters will turn energy suppliers into big data companies. If utilities can capture and analyse the data generated by smart meters effectively they will have a comprehensive picture of customers’ changing energy needs, enabling them to develop compelling new services, while also tackling fraud and cutting revenue leakage.
But the energy sector doesn’t need to reinvent the wheel. In effect, utilities are becoming more like telcos, which have long tracked their customers’ usage in granular detail. They should, therefore, harness the massive scalability of the Revenue Assurance solutions that have been successfully deployed in the telecoms sector. These sophisticated software suites will be far more effective than the home-grown systems that have typically been used by utilities to date. In many cases, utilities’ existing systems lack the sophisticated methodology and smart algorithms that underpin the commercial Revenue Assurance and Fraud Management systems used by leading telcos.
To address the challenges posed by the growing complexity of the energy distribution sector, utilities companies can leverage the knowledge and experience of Revenue Assurance solution providers in the telecoms sector. Tapping this expertise will help energy companies effectively address revenue leakage, boosting both the top and bottom lines.
Under intense pressure to keep energy prices down, utilities can ill-afford to see even a small proportion of their revenues lost to errors and fraud. Now is the time for the energy sector to follow in the footsteps of the telecoms industry and get serious about Revenue Assurance and Fraud Management. If they can mitigate the risks they face, utilities will be stronger and better placed to thrive in the new era of energy distribution.