Sparks are set to fly, as pay as you go ignites the utilities market

With the advent of smart metering set to level the playing field for the utilities industry, a cultural shift is also on the horizon around how users not only consume, but pay for their energy. With direct debit agreements seen as the most effective way to pay for utilities, smart metering opens up the options to both suppliers and consumers by paving the way for pre-payment methods to become mainstream. But whilst this is certainly great news for the consumer, experience in smart pre-pay in the UK is low, with only a few suppliers having made the switch successfully. Unless the upgrade challenge is tackled in the right way energy suppliers could find themselves in hot water with unresolved data issues and holes in their underlying IT infrastructure coming to light fast.

Evolving payment options

Traditionally perceived as something for those on a low income – the method of pre-payment for utilities services is set to rise up the ranks, as both suppliers and consumers realise the benefits it can bring in the smart meter age. An estimated 13 per cent of customers in the UK currently pay for their energy by pre-payment, but that is expected to increase substantially with research suggesting that it could rise to 30 per cent once smart meters are fully rolled out.

Instead of pay-as-you-go offering a short term solution which could cost you more in the long term, smart metering has the potential to reduce the cost difference between credit and pre-payment methods, creating opportunities for suppliers to charge for pre-payment at virtually the same price as standard credit. With energy suppliers using a meter built to a common standard, the difference in capital cost between pre-payment and credit meters will virtually disappear, making pre-payment a more attractive option for consumers who might not have previously considered it. This could take it out of the low-income user market into a broader population of people who like the attributes of pay-as-you-go.

As well as the cost management aspect, pre-payment meters offer an additional layer of functionality to help consumers better manage credits and energy usage. This will give both the consumer and energy supplier more detailed data on how they are using their balances but also presents one of the main challenges for utilities companies. Big billing, the upgrade of billing and customer information systems to turn the increasing volume of data from smart metering into revenue, will see suppliers collecting increased levels of data associated with pre-payment, with many struggling to manage it and reap the opportunities it presents.

Coping with the technology challenge ahead – and beyond

A data deluge is expected to come with the increased amount of meter read data, the upgraded payment and metering options will have a huge impact upon the existing technology infrastructure designed to manage usage data and customer information. There is also potentially more to go wrong, with additional pre-payment interface devices and tariffs to test and an increased amount of end-to-end integration testing for pre-pay channels.

Despite these risks, the advent of SMETS (smart metering equipment technical specifications) requires that all suppliers make the change and provide meters that can handle both credit and pre-pay. However, consumers are not likely to give suppliers any grace during the transition, expecting new systems to “just work”. Information needs to be accurate and up-to-date and if basic functions fail, consumers are more likely to switch suppliers. We have already seen some suppliers roll out smart meters to customers which need firmware upgrades to make them work in pre-pay mode, which could represent a big risk if they fail to ensure the software works end-to-end.

Add to this new market entrants who come without the baggage of legacy systems and the large energy suppliers could find themselves out of favour if they can’t provide a slick and reliable pre-payment service.

Paving the way for pre-payment

Those suppliers that approach the pending technology upgrade in the right way will put themselves in prime position to secure a large slice of the pre-payment market as consumers start to realise the benefits of paying for their utilities in this way. Instead of a knee-jerk reaction, any overhaul should be seen as the start of the next chapter in the evolution of the market with due diligence at its heart.

Technology is now a game changer for all industries and although smart metering marks one of the biggest technology changes within the utilities industry, suppliers must be ready to cope with the next change and use this as an opportunity to future proof their processes. Although the full rollout of smart meters isn’t scheduled to complete until 2020, 62 per cent of consumers are sceptical that it will go smoothly, as many previous big IT projects have faced delays or gone over budget . However, by putting quality standards and thorough testing milestones in place to ensure that when this and future upgrades happen, risks and potential glitches will be minimised and consumer confidence assured. Smart metering pre-payment is a huge opportunity to re-engage consumers with their energy use, giving a more direct way of showing energy usage and additional flexibility of how and when they are paying their bills.

Image Credit: Chris Potter