How to react to changing Australian market conditions

by Jul 28, 2020

Tightening the energy ecosystem

Image sourced from www.geoharvey.com/2020/05/25/

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The key to success lies with an energy retailer’s ability to cope with rapidly changing market conditions.

Summary

In this blog we’re going to cover the following topics:

  1. Challenges within AUS utility retail

  2. The new role of an energy retailer

  3. How IT blocks change in your pricing department

  4. Unlock agility in your IT systems

The challenge

Market design changes require retailers to adapt rapidly

It’s an exciting time for energy retailers. To truly succeed, retailers will need to embrace the new status quo, with customer price awareness, competition, legislation changes and available data increasing fast. A rigid operational structure and IT systems hold back major innovations, while instead they should be built to support innovation.

Current Australian energy market design is under pressure for change. What was historically designed to serve consumers with predictable generation sources has now evolved into a complex distributed ecosystem.

The Energy Security Board (ESB) now proposes to change the rules shaping the energy market to facilitate a two-way market between various sources of energy and actively participating consumers. 

One of the things under discussion by the ESB proposal for 2020 is location-based pricing, as this would be more economically justifiable with low network cost regions being rewarded.

Retailers who work to adopt these cost changes and at the same time are able to understand customer demands would be able to lower the costs with targeted offers. This will eventually result in achieving greater market share.

A crucial factor will be how energy retailers are set up to deal with this and future changes to the market design, as the ESB stands for a big challenge to create a market design that takes following variables into account: 

  • the mix of generation technologies

  • government energy policies

  • the future level of electricity demand

  • patterns of energy use

** Info released in the EBS – issue paper for a post-2025 market design

The role of an energy retailer

A digitized energy retailer will unlock the full potential of a distributed two-way market

In today’s energy industry, the retailer is evolving as a key component between the market and the consumer. Both ends of the spectrum are increasingly defined by an overarching complex structure of distributed generation and consumption, interweaving responsibilities, costs and investment returns.

Through its close connection with generators, demand response solutions, industry regulators and consumers, large retailers are uniquely positioned to leverage their existing assets to connect all stakeholders. A model which can be leveraged to distribute returns according to the rules set out by the Australian Energy Regulator (AER).

A precondition will be that energy retailers are agile enough to cope with this rapidly changing ecosystem. To do this, enterprises should look carefully at their IT infrastructure.

How IT delays product innovation

Raise your hand when spreadsheets are the duct tape of your organizational IT infrastructure.

While the utility industry was one of the first sectors to adopt and invest heavily in digital solutions, it created a rigid system which is hard to steer and change – and that in times where technological innovation has never been faster.

At Gorilla, we believe the sales & pricing departments are the most impacted by the increase of data and constantly changing market demands. A company aware of these changes is, for instance, Origin Energy. They invested in Kraken technology, developed by Octopus Energy, to centralise data when it comes down to customer experience, billing and online support portals. 

The problem? The pricing process has grown to be a rigid set of tools and spreadsheets, which are driven by business logic but have limited degrees of freedom when it comes down to changing the actual price models.

If you would like to learn more about why energy retailers should embrace technology, have a look at our whitepaper here.  

How to unlock agility in your IT systems

The key to agility is the ability to change without breaking business-critical processes

When asked to design a pricing system optimized for today’s world, we would never consider to ‘hardcode’ a pricing model in forecasting, quoting, billing or even hedging IT systems. Today, everyone should be aware that cost components will constantly change, product structures get updated and input formats will be revised continuously.

Three years ago, we took this challenge on ourselves to create a solution where pricing experts would be able to configure new prices, work with large data sets and be able to expose price models to other departments in an automated way.

We did this by building a calculation platform, optimized for performance, that allowed for flexible configuration and execution of algorithms (cost components).

By decoupling the calculations from pricing processes typically located in transactional systems like Salesforce, Dynamics CE or SAP CRM and augmented with industry-specific CPQ solutions such as Vlocity, Apptus or Cloudsense, we are able to truly offer agility without giving up the efficiency gains brought to you by process automation tools.

 Find out more about our solutions or request a demo to discover more about our latest developments.

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