VaasaETT World Energy Retail Market Rankings 2010

Editor and lead writer: Dr Philip E. Lewis

www.utility-customer-switching.com

2009 Highlights -

A Record Year for Customer Switching

2009 was a year where global electricity customer switching activity reached new boundaries. While New York and Texas eased off a little, Europe and Australia were more active than ever before, continuing their growth in switching momentum. 

Of the 33 markets followed by the VaasaETT Utility Customer Switching Research project in 2009/2010, nine substantially increased their switching rates.

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The global average switching rate for 2009 was 6.12%, around one percentage point higher than two years ago.

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Australia, and in particular Victoria, once again led the world in electricity customer switching, increasing to record levels and establishing itself as the example for others to follow.

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For the first time since the start of global electricity market liberalization, Great Britain (still a hot market) was knocked off the top spot in Europe, surprisingly by Ireland, a former laggard in terms of customer switching.

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In 2009, nearly 21% of all electricity customers in the Republic of Ireland switched supplier, 2% more than in Great Britain. Between February 2009 and February 2010, Bord Gáis Energy won nearly 21% of the residential electricity market in Ireland, by far the world’s most successful marketing campaign ever for an electricity retailer, measured in terms of the percentage of residential customers in the market who were won over a 12 month period.

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For the first time social media marketing was shown to be a major trigger and channel for utility customer switching.

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Switching also increased in other medium activity markets, such as Finland and Sweden as well as lower activity markets such as Italy, the Czech Republic, France, Greece, Portugal and Slovenia.

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in Austria, Germany, Belgium (Flanders, Wallonia and Brussels), Norway and the Netherlands, switching trends were at similar or lower levels to 2008, limited in part by reduced price volatility and a generally uneventful market.

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Other markets remained dormant, for now, but the evidence shows a general increase in the momentum of switching activity globally. The trend is typically upward.

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Active utility customer switching can no longer be considered an Anglo Saxon or Nordic only phenomenon.

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Introducing the 2010 World Energy Retail Market Rankings Report The Fifth Edition of the VaasaETT World Energy Retail Market Rankings Report remains to this day the only truly comparative global view of utility customer switching activity.

Drawn from the VaasaETT Utility Customer Switching Research Project (UCSRP), the most comprehensive and uniform source of comparable switching statistics (past and present) in the electricity and gas markets worldwide, this report is merely an overview of selected analysis that has been collected by the UCSRP in 2010, combined with some additional analysis collected during the past 14 years. If you would like to enquire about information from the UCSRP please visit www.utility-customer-switching.com or contact us through any of our direct phone numbers or email addresses listed at www.vaasaett.com/contact.

IMPORTANT NOTE: Please note that in this report we generally refer to energy Suppliers as Retailers. Unless otherwise stated, statistics refer to electricity and to Aggregated (weighted residential and I&C) data.

We encourage you to use tables, charts and other figures from this report in your own reports and presentations providing they are unchanged and accompanied by full reference to the VaasaETT World Energy Retail Market Rankings Report, or alternatively to www.VaasaETT.COM .

If you would like further usage rights, please contact Philip.Lewis@vaasaett.com

CONTENTS 

1. About the VaasaETT Global Energy Think-Tank

4-5

2. The Utility Customer Switching Research Project

6-10

3. 2009-2010 Switching Trends

10-13

4. Market Switching Reports

14-37

5. Little Bits a. Switching Myths

26-27

b. The Importance of Timing

38

6. Authors and Sources

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The VaasaETT Global Energy Think-Tank The VaasaETT Global Energy Think-Tank is a unique and independent

collaborative

concept

based

on

the

philosophy of mutuality. Through its network of thousands of senior executives, officials, researchers and other experts who are for the most part known and trusted personally, the Think-Tank provides value-to-all by combining an interactive Community and Collaborative Projects. The Think-Tank focuses broadly on practical strategic business and market issues, as well as envisioning state of the art innovations and developments. The VaasaETT Global Energy Think Tank brings together utilities, authorities, universities, NGOs and other players in the energy industry.

More Information at www.vaasaett.com

The VaasaETT Global Energy Think-Tank offers knowledge sharing through its extensive online knowledge centre, unique data sharing through various projects such as the Household Energy Price Index for Europe and the Utility Customer Switching Research Project, networking integration through its intimate high level events, the VaasaETT Community and world leading round-tables and coalitions such as the Smart Energy Demand Coalition based in Brussels. ďƒŁ2010 VaasaETT

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The VaasaETT Global Energy Think-Tank also publishes an array of free reports, on its own or in partnership with other organizations such as Capgemini, and its collaborative projects, such as the renowned Respond 2010 smart metering and demand response project, incorporate the best partner organizations and experts that the world has to offer.

This knowledge sharing, best practice identification and collaboration ultimately leads to outstandingly innovative strategies, solutions, methodologies, tools and visions, such as the Utility Churn Radar, the most advanced loyalty/disloyalty prediction tool available in the energy utilities market, developed through 14 years of research and collaboration in over 35 liberalised energy markets around the globe.

“VassaETT provided a concise and infomative report using primary and secondary information to survey international energy markets. The depth of content and speed of which the report was assimilated was remarkable and of great value to us” Pádraig Fleming, Head of Regulation, Bordgais, Ireland

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The Utility Customer Switching Research Project The Utility Customer Switching research project (UCSRP), founded jointly in 2004 by Dr Philip E. Lewis and Paul Grey, monitors switch rates and trends in all fully liberalised energy retail markets worldwide.

It was the first and remains to this day the only global view of utility customer switching activity, as well as being the most comprehensive and uniform source of comparable switching statistics in the electricity and gas markets worldwide. For all observed markets we have switch trend data since the time those markets were fully liberalised until the present.

The Utility Customer Switching It also provides ever-increasing analysis of observed trends

Research Project is used

and explanations for utility customer switching behavior.

extensively around the global

Some of this information is provided free or through

utilities industry and in leading

subscription services to our network members, additional

reports such as the Capgemini

insight is provided through client offerings.

European Energy Market Observatory

More Information at: www.utility-customer-switching.com

Project Scope 

Research, measure and compare customer switch rates



Historical customer switching trends and projections



Identify factors promoting and hindering competitive retail activity



Insights into successful customer acquisition and retention strategies



Customer switch rates as a benchmark for market success



Retail market share analysis

The UCSRP currently follows 37 liberalised electricity markets, many of which also have liberalised gas markets. Both residential and I&C switch rates are covered separately, although publicly, only aggregated switch rates are published. This year however, while Alberta was followed and recorded, it was not included in the rankings due to data comparability issues. 2010 VaasaETT

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Why Measure Customer Switch Rates?

Customer switch rates are an important dimension of energy market competitiveness and have the advantage of being objective, measurable and comparable between markets. Many energy market commentators tend to focus on the wholesale aspects of the utility value chain as a measure of restructured market success, such as generation sources, transmission interconnections and wholesale market trading. The UCSRP contends that both retail and wholesale markets must be successful for consumers to receive the full benefits of competition.

A Definition of Customer Switching In January 2006 Dr Philip E. Lewis, in a report for the European Regulators Group for Electricity and Gas (ERGEG) proposed a comprehensive definition of utility customer switching which has been adopted by the CEER (Council of European Energy Regulators), ERGEG and therefore the effectively the European Union: Switching supplier is defined as “the action through which a customer changes supplier”.

More specifically: A switch is essentially seen as the free (by choice) movement of a customer (defined in terms of an overall relationship or the supply points and quantity of electricity or gas associated with the relationship) from one supplier to another. Switching activity is defined as the number of switches in a given period of time.

A switch additionally includes: a) A re-switch: when a customer switches for the second or subsequent time, even within the same measured period of time b) A switch -back: when a customer switches back to his/her former or previous supplier. When a customer m oves, a switch should only be recorded if a customer switches to a supplier other than the supplier which is incumbent in the area where he/she is moving to. Theoretically, a switch should NOT be recorded if the customer remains with the same supplier as b efore the move, but for practicality this specification has been removed from the definition for this project and from those of CEER and ERGEG. A change of tariff with the same retailer is not equivalent to a switch (this exclusion extends to: changing to a new tariff; changing from a regulated to a non-regulated tariff with the same supplier or a subsidiary of the same supplier).

Sources of Data The Utility Customer Switching Research Project draws on more than 60 of the best sources for data collection. These sources typically include national or regional regulators, system operators, energy associations, meter registration organizations and statistical authorities.

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Levels of Activity Taking account of the rapid growth in the number of competitive markets, and increasing diversity of switching activity and market maturity, levels of switching are now divided into six categories: Super Hot Markets: A new category for the 2009 rankings. These are markets where activity is (in the current year) over 20% and has been consistentl y at or above 20% for at least three years. These are markets where high levels of switching and competition are an inevitable reality of the market, where at least half of all customers have switched supplier.

These are the truly competitive markets where customers come first (or on a level par with other key business objectives) and complacency leads to major losses of customers. Prices may not be lower than in less active markets, nor may retailer image be higher, but a high emphasis is placed on the development of long-term lifestyle and added value services.

Energy efficiency, smart home, demand response and other offerings are expec ted to flourish in such markets, depending on regulatory and other market structure conditions.

Hot Markets: Annual switching is approximately 15% or higher. Typically, switching activity is so intensive that competitive positioning becomes one of the utility’s most strategic issues. Switching momentum is usually high, constant, needs little encouragement and easily flares up.

Warm Active Markets: Annual switching is between 8.5% and 14%. Typically, switching activity is sufficient that utilities risk losing significant numbers of customers if they do not actively compete, or if they make loyalty-related errors. Switching momentum is significant but less permanent and mainly related to occasional stimulants in the market, such as price rises or profit announcements. While many utilities are far more customer focused, traditional corporate attitudes and over-complacency often remain despite the looming major threat facing revenues and customer profitability.

Active Markets: ek. Entry into this level of activity often acts as a wake-up call for utilities, although for many it will not take place until at least the next level of switching activity.

Cool Active Markets: Annual switching is between 1% and 3.0%. Typically, switching is noticeable and measurable, but insufficient to affect substantial change in the attitudes or behaviour of utilities. Competition is barely visible and customer awareness poor. The seeds of future activity may nevertheless already be sown.

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Dormant Markets: Annual switching is less than 1%. Typically, switching and competition exist only in theory. The markets may be officially open to competition, and customers are able to choose their supplier, but in practice only larger consumers are motivated or able to do so, competitors may not be able to compete with the prices of incumbent utilities (due to scale, access to energy or low-set regulated incumbent price issues) and in general the market is likely to be inhibited by insufficient conditions for real competition. This is not necessarily to say that competition cannot emerge, however, but regulators may need to take action in order to break the deadlock.

Comparative Data It should be noted that not all countries/markets collect or document data in a way that corresponds to this definition. Through cooperation with our data sources and careful recalibration (where necessary) we are able to largely overcome these limitations, but some markets are nevertheless unavoidably non-comparable (and therefore left out of the rankings), and a margin of error is factored into all ranking comparisons.

Switch Rate Metric The UCSRP customer switching rate metric is calculated by dividing the number of customers who switched suppliers in a given period by the total number of customers in the market, and the result is then converted to an annual rate. For example, if one percent of customers switch suppliers in a given month, that month would have a 12 percent annualised customer switch rate. Similarly, where switching trend data is reported on a quarterly basis, the quarterly switch percentage has been multiplied by four to derive the `annualised quarterly' switching rate.

Defining Fully Liberalised Markets Full liberalisation (otherwise known as full retail competition or FRC) is when residential and I&C (Industrial and Commercial) customers are all eligible to choose their energy (electricity and or gas) retailer (otherwise known as supplier). In the Utility Customer Switching Research Project Full Liberalization additionally refers to electricity or gas markets where end customers can choose their retailer freely, where they have at least one alternative retailer realistically available to them, and where switching supplier does not incur additional financial costs, reprisals from the former utility/retailer, technical changes (such as the need for an additional meter), or other unreasonable or excessive effort on the part of the customer. The dates when markets became fully liberalised are given in the following timeline.

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2009-2010 Switching Trends Levels of Activity 2009 saw a steady increase in the number of active and highly active markets. All in all the VaasaETT Utility Customer Switching Research Project recorded 23 active markets, compared to 13 dormant markets. Of the active markets five reached only Cool Active levels but a further 5 reached the Hot level of activity, a record number of markets.

For the first time, one market, namely Victoria, was so active that it reached a ‘Super Hot’ level of activity, reflecting not only extreme levels of switching, but also an average switching level of above 25% over the past three year period. This level of switching was well above that of any other market.

It is also important to note that in 2009, the myth that switching is a Nordic or Anglo Saxon phenomenon was exposed, with three non-Nordic or Anglo Saxon markets reaching annual levels of switching above 10%, in addition to four other such markets in the Active category.

The Dormant markets were a mixed bunch, but apart from Spain, Portugal and Iceland, all represented Eastern or South Eastern Europe. 2010 VaasaETT

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Levels of Switching Activity 2009

Dormant Markets

Active Markets

Hot Markets

Lithuania Slovakia

Germany Slovenia

New Zealand Queensland*

Bulgaria Croatia Hungary Latvia Romania

Flanders Brussels Finland Denmark

Great Britain Ireland

Luxembourg Poland Spain Greece Portugal

Warm Active Markets

Victoria*

Iceland

Sweden New South Wales* Netherlands South Australia*

Cool Active Markets

Texas

Super Hot Markets

Norway Wallonia

New York Austria Czech Republic Italy France

The true extent of the variation in switching levels in only apparent when more switching percentages are compared. The VaasaETT Utility Customer Switching Research Project precisely and in great detail analyses these percentages, a simple summary of which is provided below. For more detailed analysis please contact VaasaETT. In the following chart it can be seen that despite the enormous variation in switching levels, there is something of an evenness to the range of the spread, from markets with 20-26% annual switching right down to those with 0%. ďƒŁ2010 VaasaETT

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Copyright 2010 VaasaETT

The percentage of customers in these markets who have switched at least one likewise ranges massively, from nearly 0% right up to over 60%. The higher the level of switching however, the higher the amount of re-churn (customers who have switched more than once). In fact in the most active markets, most customers who switch have switched from once to several times before. Utility companies’ costs-to-serve are therefore increased, pushing profitability down. ďƒŁ2010 VaasaETT

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By looking at historical switching patterns (the VaasaETT Utility Customer Switching Research Project has collected historical switching trends for all tracked markets since the onset of competition in those markets) it can furthermore be seen that despite obvious differences between market switch patterns, there are some statistically observable commonalities. For instance, put simply all markets tend to follow common rules and dynamics relating to seasonal, cyclical and other market variables. In general, markets furthermore tend to follow an upward long-term trend.

Copyright 2010 VaasaETT

Consequently switching trends can be predicted and leading markets explained.

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Australia Australia remains the most active country in the world in terms of electricity and gas customer switching, but rates differ greatly between jurisdictions.

For electricity a clear activity divide exists between the two most active markets (Victoria and Queensland) and the less active markets (South Australia and New South Wales), with Victoria the clear leader overall. For gas, Victoria is out on its own. In fact in 2009 Victoria achieved the highest levels of calendar year residential and aggregated* customer switching ever recorded for an electricity or gas market, anywhere in the world**.

For electricity Victoria had by far the highest level of switching throughout 2009, but unlike the other jurisdictions, saw a slight decline in the last two quarters of the year. According to the 2009/2010 VaasaETT ranking definition, only Victoria is a ‘Super Hot’ market in terms of activity. The other Australian jurisdictions are ‘Hot’ or ‘Warm Active’. *Important Note: The following trends illustrate aggregated (residential plus commercial) switch rates. All quarterly values have been annualized. **In 2007 slightly higher rates were recorded in Victoria, but that was based on NEMMCO data, which is believed to overstate switching levels by approximately 2-3% compared to Switchstats Australia data (due to methodological and definitional differences). When this is taken into account the 2009 Victoria switching levels are higher than the 2007 levels.

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In the Gas market, Victoria saw switching rates consistently between 25- 30% throughout 2009, around 15-20% higher than the other jurisdictions.

While all jurisdictions are therefore ‘Warm Active’ or ‘Hot’ according to VaasaETT ranking definitions, only Victoria is ‘Super Hot’.

Commentary “The (VaasaETT Switchstats Australia) figures show that Victorian energy consumers are embracing retail choice, setting a global benchmark for competition among electricity and gas companies,…Since electricity retail price competition was introduced in Victoria in 2002, over 60 per cent of the state's residential and small business energy customers have chosen to change retailers…The switch has saved them between 5 to 10 per cent on their energy bills, Our Government removed energy retail price caps for small businesses customers in 2008, and for residential customers in 2009, and the decision has allowed Victorian energy consumers to choose from an even wider range of energy price and service options. The figures released today show the success of this competition, with Victorian households and businesses able to choose from about a dozen electricity and gas retailers.”

Peter Batchelor , Energy and Resources Minister, Victorian Government, Australia, May 2010 2010 VaasaETT

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Australia State-by-State Victoria Victoria’s “Super Hot” ranking continues the pattern of it being Australia’s most active state market. The record customer switching in 2009 owes much to the decision of the State Government to phase out retail price regulation from 1 January that year. Regulation was replaced by a regime of price monitoring by the Essential Services Commission of Victoria (ESCV), which involves all retailers actively selling to small customers, of which there are fourteen, having default tariffs listed and compared on the regulator’s web-site.

With other Australian states yet to follow the Victorians in removing price regulation retailers upped their marketing efforts in the state and the pursuit of customers became even more intense than in previous years. Use of door to door strategies was extensive and with marketing occurring against the backdrop of a possible domestic emissions trading scheme, consumers were perhaps more engaged on energy matters than usual.

It is likely that high levels of activity will continue in the current year as there are limited prospects for price deregulation in other states, and the failure to pass the proposed emissions trading scheme means that wholesale energy prices should remain fairly stable.

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South Australia What had traditionally been Australia’s second “hot” market came off the boil in 2009. While activity is still apparent new entrant retailers are shunning the market in the belief that its high summer “peaks” and lack of wholesale market liquidity are significant barriers to entry. There is also a view that the current regulated tariffs in the state provide limited “headroom”. Switching that did occur in 2009 was largely between the retailers with an established presence in South Australia, most of whom have generation cover in the state.

The independent review and rule setting body, the Australian Energy Markets Commission (AEMC), had found in 2008 that the South Australian market was “effectively competitive” and that price regulation should be removed. The incumbent state government chose to reject that recommendation in the lead up to a state election in 2010. Unless that decision is revisited and prices are deregulated it seems unlikely the South Australian market will return to its “hot” status in the near term.

Queensland Since being opened up to full contestability on 1 July, 2007 the Queensland market has been on somewhat of a rollercoaster ride. When one looks at Queensland, it really should be considered as two markets, the largely urbanised south-east corner of the state and the extensive regional and rural areas north of the Sunshine Coast.

With its price regulation policy the State Government maintains a “maximum uniform tariff” for all consumers regardless of where they live. To do so in regional areas requires a government Community Service Obligation (CSO) payment, which is payable only to consumers serviced by the incumbent government owned retailer for those areas. Customers who move away from the incumbent retailer lose the CSO and therefore competing providers are unable to offer a more attractive product, making switching almost non-existent outside the south-east corner.

In the south-east customer switching was particularly high in the year after full contestability began, which also coincided with the privatisation of the government owned retailers in that part of the state. New entrant retailers were therefore competing against new incumbents without brand loyalty so activity was high and “headroom” was allowed for in the initial regulated tariff decision. After a consumer backlash about price increases and some service issues, the state government began interfering in pricing decisions from mid 2008 and the squeezing of margin and regulatory risk led to a downscaling of activity. The pick-up in switching to ‘Hot’ in the second half of 2009 indicates “headroom” is returning to the market although new entrants remain wary of the regulated price setting process.

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New South Wales New South Wales continued to exhibit moderate levels of customer switching in 2009, although largely between the incumbent government owned electricity retailers and existing gas retailer.

The level of “headroom” in the regulated tariff and the high level of public ownership of the energy industry continued to keep private new entrant retailers out of the market. Ongoing uncertainty about a drawn out privatisation policy of the state government, which will shape the market structure in both retailing and generation, has also impacted on the willingness of new players to enter New South Wales.

Until the ownership and market structure issues are resolved, it is unlikely NSW will see a significant pick-up in customer switching. On the positive side a controversial 2010 three year price determination may have improved the outlook for “headroom” and could make consumers more active in seeking out market contracts.

Some keys to success in the Australian market have included clear, simple, hassle free marketing and sign-up processes, lifestyle focused incentives and products by multiple competing newcomers, as well as excellent price comparison and switching web sites including SwitchWise and others.

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CASE STUDY “The success of Australian Power & Gas has been around understanding that within the Australian market customer acquisition has been primarily a marketing channel strategy plan rather than a product play. What that means is that in our market most customers are not self seeking a better energy offer but will respond to one when it

Australian Power & Gas has been named

is put to them directly. Therefore most energy

the fastest growing company in Australia

sales at a residential level are made directly by a

by Business Review Weekly Magazine with

cold call either through door to door or

1,300% growth in the last 3 years.

telemarketing.

The core strength of APG has been to build its outsourced relationships in particular with the Cobra Group who are one of the world’s biggest direct sales companies to sell for APG. Cobra were incentivised to come with a smaller retailer initially as they were able to earn equity into APG as their success grew. Cobra now has about a 20% ownership of the company and is very aligned as our success grows so does their wealth as shareholders.

Secondly we then diversified away from a singular channel to where we now have 2 direct sales companies, we tele-market are part of a home movers channel where people get their utilities moved for them when they move house and we are using internet switching which is continuing to grow.

As with the UK we believe this channel will continue to increase as energy prices rise in Australia.”

James Myatt, CEO, Australian Power & Gas

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SwitchStats Australia The Switchstats Australia Scheme is a collaboration between the VaasaETT Global Energy Think-Tank and 10 Australian energy retailers representing over 80% of electricity customers and 90% of gas customers in Victoria, New South Wales, Queensland and South Australia. The collaboration is conducted in partnership with the Energy Retailers Association of Australia (ERAA) VaasaETT collects switch data directly from the retailers, according to a strict and consistent methodology and definition, in compliance with the same definition used with the Utility Customer Switching Research Project. This is based on the same definition (by Dr Philip E. Lewis) used by the European Union regulators, and therefore allows direct comparison against switching data from all European markets as well as fully liberalized

Members of

markets in the USA and Canada.

For more information on members,,

SwitchStats Australia

methodologies and definitions, please contact Dr Philip E. Lewis at Philip.lewis@vaasaett.ccom

    

Australia Power & Gas

   

Country Energy



TRU

Momentum Energy Energy Australia Simply Energy Victoria Electricity Integral Energy Origin AGL

Note: Victoria Electricity Includes Victoria Electricity, South Australia Electricity, Queensland Electricity, New South Wales Electricity.

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Republic of Ireland The Republic of Ireland (referred to here as Ireland) electricity market has been open to competition for larger businesses since February 2000 and has been fully open to competition in all market segments since 2005, but it was only in 2009, with the arrival of two key new entrants in February 2009, Bord Gáis Energy (the Incumbent Irish Gas Provider) and Airtricity, that the residential market became active, resulting in the electricity incumbent ESB losing large numbers of retail customers.

After the initial wave of switching activity among larger energy users following market opening in 2000, there was a slow but steady level of switching only within business markets with the ESB losing approximately 4% of business consumption per annum during the period 2002-2008. Both Bord Gáis Energy and Airtricity had both been active in this business market for a number of years but had only built up relatively small (yet nevertheless significant customer bases), mainly in the SME markets.

The entry of Bord Gáis Energy and Airtricity into the domestic market in 2009 howevver, transformed the competitive landscape not only in the domestic market, but also in the business market where it has had a major knock-on effect on business awareness of supplier switching options.

Record Irish Switching in 2009-2010 Between February 2009 and 2010, Bord Gáis Energy won

The Irish Experience is

nearly 21% of the occupied residential electricity market in

additional proof that there is

the Republic of Ireland. This Bord Gáis Energy campaign

no such thing as a safe

has in fact been by far the world’s most successful

customer for incumbent

marketing campaign ever for an electricity retailer, if

energy companies. Markets

measured in terms of the percentage of residential

that are uncompetitive now,

customers in the market who were won over a 12 month

can become active very

period.

quickly if the conditions are right. In the coming few

Only five national markets have ever managed a (calendar)

years it is predicted that

yearly level of switching above 20% (the Australian markets

similar the experiences will

of Victoria, Queensland and South Australia, plus Great

happen in other markets

Britain and New Zealand). Prior to 2009, the highest

around Europe and

national switch rate ever recorded for a 12 month period was 28.33% in Victoria, Australia, between the 4th Quarter 2006 and 3rd Quarter 2007, and that switch level was shared between competitors in the market. 2010 VaasaETT

elsewhere, especially since evidence indicates that once truly active, such markets tend to remain active.

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Bord Gáis Energy are though not the only energy company in Ireland that has won customers from the incumbent. Airtricity has also won significant numbers of residential customers, and additional new entrants into the market are now a possibility since the market has shifted from near inactivity just over a year ago, to being one of the most active electricity markets in the world.

It remains to be seen if there is yet enough long-term momentum in the market to sustain this level of activity, but the high rate of switching has continued from 2009 into 2010 with over 30,000 switches every month in the domestic market, approximately 1.5% of the total domestic market.

Why the change in fortunes ?

The main reason for this extraordinary level of customer switching has arguably been price margins at a time of economic downturn in Ireland. Price margins were achieved through a combination of regulatory price controls placed on the incumbent ESB (ESB was not allowed by the regulator CER to lower its regulated standard prices in the face of lowered price offerings from the new entrants) and happenings in the wholesale market. More specifically, the lower new entrant prices were facilitated by the softening of the wholesale market in 2008 and 2009 in the context of former extensive high cost forward hedging by the incumbent at a time of very high fuel prices.

The ’clever’ or ’fortunate’ purchasing strategies of Bord Gáis Energy in particular and Airtricity, combined with the ’price-to-beat’ price regulations of CER therefore enabled the new entrants to offer significant discounts ranging from a minimum of 5% on the incumbent’s regulated tariffs up to 14% depending on payment options and dual fuel discounts.

One should not underplay the significance of marketing on Irish switching levels however. Energy companies typically fail to achieve sufficiently simple, clear and appealing campaigns. Energy may seem like a simple product to sell but few companies have ever managed to win many customers in this market. Ireland’s outstanding marketing has made the difference. Nicky Doran, Head of Marketing at Bord Gáis Energy states that the success of the campaign was down to a number of factors, “the right price point, the simplicity of the message and great creativeness were all major factors in the success of the campaign” according to Doran. Furthermore Doran states that “The web has proved to play a huge part in the success of the campaign with as many as 30% of customers switching on our micro site thebigswitch.ie”. The advertising campaigns of the new entrants have been very effective in communicating the message that significant savings were to be made through engaging in a simple, pain-free switching process, and that the reliability of the service offered would not be affected by switching. Most significant though was the extensive role of social media, the first time this has been proven to have won large numbers of customers within competitive electricity markets. 2010 VaasaETT

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Most significantly Bord Gais Energy launched, ‘The Big Switch’ campaign which has had a highprofile media presence across all major forms of advertising in 2009 and 2010. Airtricity has followed suit and this has undoubtedly raised awareness of switching and created a momentum which has continued unabated to date. The simplicity of the industry switching process has also been key to this success.

Social media marketing has been a key to the Irish Switching Phenomenon

The Significance of Regulation Nowhere else has switching been influenced more by regulation than in Ireland, but in response to these changing competitive conditions, the CER published its consultation on a ‘Roadmap’ to deregulation in December 2009. This document set out the competitive milestones that would signal the end to regulated prices in the Irish retail market. The CER reviewed the relevant markets; domestic, small and medium businesses and large industrial & commercial customers and concluded that all three business markets are sufficiently competitive to allow for the complete removal of regulated prices. Unregulated competitors currently account for more than half of business market consumption and therefore ESB Customer Supply was freed to compete in business segments from 1st October 2010. They will be free to compete in the domestic market as soon as it has lowered its domestic market share to no more than 60%.

Regulatory support for competition will not end there, however. As part of the broader retail market workstream, The CER plans to continue to take measures to sustain and potentially improve upon the high rate of customer switching in the Irish market, focusing especially upon improving general customer awareness and price transparency as well as encouraging active market participation across all market sectors. 2010 VaasaETT

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Great Britain Great Britain was Europe’s second most active market in 2009, supported once again by for example, aggressive and effective marketing, significant retail margins, high levels of customer awareness, powerful online switching and comparison services, active media and retail price volatility. The element of recession also appears to have played a supportive role.

Source: Household Energy Price Index for Europe 2010 (HEPI), EControl and VaasaETT, 2010 http://www.vaasaett.com/projects/hepi/

The continued activity of the Great Britain market, having remained highly active for over 11 years, is testament to the switching momentum that can develop in competitive electricity markets. Although 2009 saw a general easing off of electricity tariffs switching remained the 3 rd highest in the world. Some of this activity was however a delayed response to large gas and electricity price increases in 2008 as well as increasing public annoyance at what is seen as unfair growing price margins of retailers, especially for gas where wholesale prices have fallen far more sharply than retail prices.

In a market where the majority of switching for the past 13 years appears to have been directly or indirectly the result of perceptions of price increases, margins and profits, it is both ironic and paradoxical that one of the world’s highest levels of switching still exists in parallel with some of Europe’s highest gross retail margins and costs-to-serve. It is not illogical though, that high levels of competition appear to have left relatively large margins intact, since retail margins facilitate price savings, encourage customer focus/acquisition/retention and give retailers a reason to stay in the market. 2010 VaasaETT

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At the same time the high levels of switching heavily increase cost-to-serve

through

costs

associated

with

winning,

switching

and

retaining

customers. Churn is an expensive business and who wants to be in a business with low margins?

What

is

perhaps

surprising

however, is that after nearly 13 years of such high levels of competition, strong utilities

and

handed in

apparently regulation,

Great

Britain

appeared in 2009 to generally still be

publicly

average

heavily

gross

criticsised,

margins

rose

Source: Office for National Statistics/Bloomberg 2010, Chart produced and published by BBC: www.bbc.co.uk.

temporarily to extreme levels and utility profit increases followed. Under such circumstances, it is perhaps easy to see why skeptic onlookers may view the energy industry in Great Britain as non-competitive, even anticompetitive or monopolistic, despite its high levels of switching and relatively high levels of customer focus.

It is interesting therefore to note that, finally, after 13 years of full liberalization, in 2010 British utilities have begun to move away from the tradition of competing over price and ‘service’, towards a new paradigm of competition through partnership with the customers. The imminence of mandated smart meter rollout throughout Great Britain has been preceded by attempts by utilities to build closer relationships with customers.

A number of the leading retailers in particular for instance are now offering customers in-home feedback displays to assist them to save energy and therefore money. These offerings are accompanied by energy savings advice, associated tariffs and even (in at least one case) the ability to remotely turn off devices to save money. Not only do such offerings help customers to save money in other ways than switching supplier (potentially avoiding the need to change supplier to ensure a good deal), but they also build a more mutual relationship with the customer, to some extent may tie in the customers, and may go some way to reversing the negative images associated with the utilities and the energy industry. In the longer-term they may also enable more advanced revenue generating or cost-reducing offerings to the mass market. ďƒŁ2010 VaasaETT

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Switching Myths Research over the years has revealed a myriad of myths associated with utility customer switching: That customers need large savings to switch retailers, that satisfaction and loyalty are closely correlated, that energy is necessarily boring, that energy needs to be interesting for customers to switch retailer. The list goes on and on. In this edition of the world energy retail market rankings we bring your attention to just two myths: that switching process speed and the number of contracts a customer has to sign correlate with national switching levels.

Regarding the relationship between the time taken to switch suppliers and the level of switching, the following graph indicates that not only is such a relationship at best weak, but that there is probably no significant relationship at all. While retailers may find less profitability in a market where switching is more complex and thus more expensive, customers generally have no idea how long it will take to switch when they decide to do so, and for the most part they do not care.

What appears to matter most to customers is that from their point of view the switching process is smooth, simple and predictable. As long as they know it will take a month, then that is rarely a problem for them, as long as they know it is happening. They are not excitedly waiting for something to happen.

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Regarding the relationship between the number of contracts a customer has to sign if they switch retailers, the following chart concerning electricity, supported also by survey data, clearly reveals that in Europe at least, as elsewhere, there is no sign of any impact of the number of contracts.

For sure customers would prefer to have just one contract, and thus one bill relating to the supply of electricity or gas. At present for instance in Sweden, Norway and typically also Finland, customers who switch retailers will end up with two regular bills for electricity instead of one, one bill for distribution and one for the electricity commodity.

The distribution bill will be sent by the distribution company and the electricity commodity bill will be sent by the retailer.

Interestingly Great Britain and France both have one bill, yet Great Britain is highly active and France is not. Sweden has two bills and is a Warm Active market, yet Austria and Greece which have one bill are not very active. This would indicate at least that having one bill is not a prerequisite for an active market, even though it is desirable from the customer’s perspective. Nor are two bills a major deterrent to switching even though customers who find out about having two bills once they have already switched are sometimes disappointed.

A single biller regime can therefore be seen as a preferred market characteristic, but not one of the more important determinants of an active electricity market.

Source: VaasaETT & Capgemini

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The Netherlands The Netherlands was a Warm Active market in 2009, standing 8th in the rankings, with stabilization in its switching trend at around 11% per annum. The outlook for switching was however downgraded in Autumn 2009 following the introduction of a 'do not call me - register' and an apparent consumer tiring of direct marketing coinciding with reduced (survey) stated intentions to switch. The consequence of the ‘don’t call me register’ is thought that once a customer has registered himself, retailers are forbidden to call them. For retailers, canvassing via telephone was formerly by far the most significant channel of customer acquisition.

Typical of more active and mature liberalised electricity markets, this is a year-on-year slight decrease in the number of customers switching away from their incumbents to one of the newcomers in the market. This is not a sign of slowing competition, but a reflection of the maturity of the market (the lower hanging fruit have already dropped) and the fact that more and more customers are now switching between retailers for the second or successive time. To date, almost one third of the residential customers in the Netherlands have switched at least once and (once again in line with other active markets) customers who have switched at least once have a higher than average intention to switch in the future.

The level of activity in the Netherlands is though somewhat masked by the significant number of customers renegotiating their contract with their own retailer. These customers do not actually switch retailers, but do switch contracts.

Copyright 2010 VaasaETT

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Sweden Sweden was 10th in the 2009 rankings, and a Warm Active Market, where as of January

2010

approximately

75%

of

customers had either switched retailers or at least switched contracts with their incumbent, around 9% higher than the previous year. A total of almost 1.8 million domestic customers (40% of the total number of such customers in the Swedish electricity market) either switched suppliers or changed contracts with their existing one.

The increased activity is considered to be a reflection of Customers moving away from standard price contracts to the preferred variable contracts. In December 2009, for the first time ever, variable-price contracts were the most common type of supply contract among Swedish households with 30% of customers on variable-price contracts as opposed to 22% in December 2008. Activity is also supported by the Energy Markets Inspectorate’s independent, web-based price comparison site Elpriskollen, which brings together prices and terms and conditions for all Swedish electricity supply companies in order to facilitate the choice by consumers of the supplier that best suits them.

It should be noted however, that the ability for Swedish electricity customers to request and receive personal improved contract offers from their existing retailers, may be seen as a barrier to more intensive competition rather than an illustration of it. As in other parts of the Nordic region, retailers can offer lower prices to their customers who request offers, than to those who do not (termed price-matching). This cherry picking means that incumbent retailers can subsidise their competitiveness to active and valuable (preferred) customers using margins from their less active incumbent customers. This extends their already significant home advantage against newcomers and neutralises much customer switching that would have occurred if price-matching was not allowed (price matching for instance does not occur in Australia or Great Britain for instance).

Of course it can be argued that does this matter, well it does matter because it prevents greater switching momentum in the market (essential for more newcomer competition), and since prices do not have to be as low to keep customers as to win them, the customer may end up with a worse price than if they had switched retailers. Incumbent retailers therefore retain most of their customers and most of their original market power, and true competition is killed off before it can even truly begin.

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Norway In Norway there are about 100 energy suppliers. Some of them have offers nationwide, and some are local suppliers. A little more than 50% of the household customers and almost 70% of the industry customers have a spot contract in Norway. A spot contract is a contract that offers the customer the monthly average system price at Nord Pool Spot (corrected for the price area of the customer) plus a mark up from the supplier. The mark up is normally a sum per kWh, but could also be a monthly or yearly amount. For the customers with this kind of contract the mark up difference between suppliers is the potential gain by switching. The mark up is in itself low, in fact sometimes close to zero.

The difference in mark up between the most expensive supplier and the least expensive supplier in this type of contract is normally small and thereby does not in itself trigger switches on a large scale, at least not for those with a low yearly consumption.

Supplier switches have been monitored in Norway for the last 15 years, and the statistics show that in general the number of switches is clearly correlated with energy prices and media publicity. When prices are high, the media writes more about the electricity market, on how to switch supplier and on ways to save energy, which in turn increases the public’s awareness in this field. The prices in turn are partly a reflection of the weather conditions and tend to be higher in the winter when it is cold and demand for heating is high and lower in the summer when temperatures are pleasant.

Quarterly Switching Trends and Incumbency in Norway 2000-2010

Source: The Norwegian Water Resources and Energy Directorate (NVE)

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Supplier switching trends behaved typically in 2009, with the highest levels in the first and last quarter of the year (incidentally similar to most other European energy markets). Switching levels were also similar to previous years with 195 250 household market switches and about 24 700 I&C switches, representing 8.1% and 7.9% of the market respectively. These numbers were unremarkable in part because there were no sustained periods of extreme prices, but also because the Norwegian electricity market appears to have somewhat matured and stabilised within the Warm Active switching level category. Only in periods of relatively very high energy prices do switching rates substantially increase beyond typical levels.

This stabilisation could be partly explained by the fact that the margins of energy retailers are low and so the differences in prices between the retailers are not big enough to motivate the customer to switch. Some customers also have other preferences than prices when choosing a retailer, for instance supporting local initiatives or retaining familiarity or peace of mind.

Because of many factors including relative price volatility, fast and simple switching procedures with no economic costs for the customer, and relatively high levels of customer awareness, Norway has for over a decade been one of Europe’s most active energy markets in terms of customer switching. Nevertheless the majority of customers in Norway tend to stay with or return to their local supplier, even if that supplier is not the cheapest one. In fact around 70% of household customers and 65% of I&C customers still have a contract with the retailer connected with the local DSO. Norway could therefore be described as a relatively mature, moderately active, low margin market with volatile tendancies, where incumbents remain dominant and most customers remain loyal , but those who switch tend to be habitual switchers.

Denmark Denmark was an emerging market in 2009. Although still only 6.3% of electricity customers switched retailers, this was approximately twice the previous highest ever recorded level of activity (recorded in 2008), and it brings Denmark very near the border with the Warm Active markets category. The main reasons for this activity was the increased marketing activity of new entrants combined with increased customer elasticity resulting from the effects of the recession. Switching has not been very evenly spread around the market however, with some of the more local players experiencing much lower levels of switching.

Switching levels appear however to be even higher in 2010 than in 2009.

As in other Nordic markets, many customers (2.5% in the case of Denmark) instead negotiated or received better contracts from their existing retailer, thus reducing the potential for genuine switching activity, but competition has apparently led to an emerging interest in additional competitive offerings such as home smart meter based energy feedback and the development of forthcoming home energy management and smart home services. ďƒŁ2010 VaasaETT

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Nordic Switching Determinants Research conducted by VaasaETT in collaboration with he Central Research Institute of the Electric Power industry of Japan (CRIEPI) in 2009, indicates that switching in the Nordic markets is primarily influenced by a number of key drivers. In the following table, the degree to which each market conforms to each criteria is defined by the numbers in the columns, ranging from 1 to 4 (where 4 indicates the highest and 1 the lowest degree of confirmation). By averaging the numbers for each market it is possible to then consider the overall switching propensity of each market. Analysis found that the relative propensities of the four markets closely reflected the relative observed switching levels in each market, indicating the importance of the selected switching variables.

The Churn Radar Through extensive analysis such as this and much more, covering 13 years and markets around the world, VaasaETT has now developed a loyalty / disloyalty engine, known as the Churn Radar which enables utilities to predict, in real-time the switching propensity and likely switch levels in their market . The Churn Radar integrates more than 100 variables and is totally customizable to almost any liberalised market. This tool is now available to all utilities.

Source: VaasaETT & CRIEPI ďƒŁ2010 VaasaETT

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Belgium In general, switching levels in Belgium, where three separate regional liberalised markets co-exist, are mid-table ranging from modestly Active to Warm Active.

Switching is stimulated and restricted by the same flawed competitive environment.

Limited switching has been restricted by a mixture of factors including for instance excessive market concentration (two utilities control over 80% of generation), insufficient savings opportunities and switching process and rule inefficiencies. Factors including for instance dissatisfaction with incumbents, prices and the industry in general have on the other hand stimulated switching despite the restrictions.

Wallonia is the most active of the Belgian markets, with an annual switch rate of around 10% and incumbent retailers losing in the region of between 1-3% of their customer base each year (meaning that the majority of switching is taking place between former incumbents). Switching would now appear to be sustained by a reasonably stabilised level of momentum, but further activity is arguably restricted by unclear game rules between retailers.

Since full liberalisation was achieved on July 1st 2003, Flanders has seen a consistent increase in the level of switching. The trend has however been (at least temporarily) been leveling off (even slightly decreasing for gas) during the past two years and in 2009 was just under 6% in the Active switching level category. This downturn is considered to be at least in part in part a response to reduced price differentials in the market and an overall downward trend in energy prices during 2009 (in comparison to a peak at the end of 2008). Not only could many customers benefit less from switching, but there was less impetus from news media as a result of the absence of price shocks (customers are even more likely to switch because of price increases than in response to increases in price differentials).

Switching in Brussels has nearly doubled since 2008 making it an Active market, and while not exactly a volatile or prolific market (switching rates for each quarter in 2009 did not vary much), it would appear to be a market with some potential. Nonetheless, the Brussels trend is showing that it will be a more active market in the coming years.

Slovenia In Slovenia, switching levels in 2009 were approximately 150% higher than 2008, making it the most active market in the Eastern and South Eastern European region.

Activity was enhanced by increased marketing activity from one marketing focused new entrant player GEN-I. GEN-I increased its market portion in the total retail market by approximately 6% whereas most other retailers approximately retained their 2008 positions, except one distribution company / retailer which increased its market share by approximately 2%. ďƒŁ2010 VaasaETT

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France In France in 2009, an increase in marketing activity for electricity, and a relatively favorable wholesale market for gas, meant that non-incumbent (new entrant) retailers temporarily showed signs of prospering, especially in the residential segment, arguably for the first time since French electricity and gas markets were fully liberalised on 1 July 2007 (although end-user regulated prices still exist in all market segments).

Electricity The number of monthly switchers remained remarkably stable between July 2008 and August 2009, promoting France into the Cool Active switching level category for the first time since the market was fully liberalised. New entrant marketing activity however subsequently slowed down again in early 2010, due to the squeeze effect between wholesale sourcing costs and the retail price cap established by the government based on the (relatively low) cost of nuclear base owned by the national incumbent EDF. Additionally, an important change has taken place since September 2009, as competitors have been focusing on improving the quality of their portfolio rather than indiscriminately gaining new customers.

On the positive side, ten country wide suppliers compete with EDF in the residential market compared to six in 2008. New entrant retailers also doubled their customer base in 2009. On the negative side, by mid 2010, three years after market opening their market share was still only 5% of the market (in terms of numbers of customers), even though approximately 10% choose a new entrant when moving home. In the non-residential segment the situation was rather different.

The market has been inactive throughout 2009-2010, despite the existence of 18 country wide competitors to EDF, resulting in new entrant market share decreasing to around 8% by mid 2010.

Changes in store for 2011 The French government has drafted a bill which is currently under discussion in the Parliament to achieve two objectives: to impose a right of access for alternative suppliers to EDF nuclear facilities at a wholesale price based on cost; and to remove retail price regulation on the non residential market.

Gas In 2009 and the first half of 2010, wholesale market prices have been lower than long term contract prices indexed on oil. As a consequence retailers have had the opportunity to compete fully with end user regulated prices based on long term contracts.

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Nevertheless, only six country wide retailers compete with the incumbent GDF Suez on the residential market (although this compares to three in 2008) and new entrant retailers’ customer base represents only 6% of the market three years after market opening. This market continues to suffer from the lack of customer awareness and the complex legislation that impeded customers having switched to a non regulated offer to switch back to it.

In contrast to the residential market, the non-residential market has 21 retailers covering the whole country and competitors to GDF Suez have reached 17+ % market share (25% in volume).

An optimistic outlook The possibility to switch back to a regulated offer has been introduced in the legislation since the beginning of 2010 for residential customers.

Marketing Characteristics for Gas and Electricity 

All new entrants have now chosen a dual fuel strategy. It would seem that today, gas is the main driver for the electricity market: competitors try to target those customers with the highest gas bill.



The smaller competitors mostly rely on door-to-door sales, in spite of high acquisition costs associated to this channel.



Competitors have re-internalized their sales forces after several years of outsourcing, in part because they intend to place a lot more emphasis on customer segmentation.



Increased targeting and segmentation: Until now, the lack of proper customer targeting has resulted in important portfolio adjustments: both Poweo and Direct Energy had to terminate a large number of contracts due to bad debt problems. Another issue for new entrants related to segmentation is the fact that they had difficulty to recruit homeowners. With a majority of leaseholders among their portfolio, they suffer from important churn rates when those customers move. Poweo for example has seen its churn rate peak at 6% per month by mid 2009 (according to a press release). It appears new entrants are now trying to improve their targeting, in order to reduce churn and debt. New massive recruitment campaigns are not expected to start again until the details of the NOME law are known.

Czech Republic An increase in marketing and new supplier activity characterised the 2009 switching environment in the Czech republic, along with the collapse of a major electricity trader (Moravia Energo, a.s.) and the subsequent application (for the first time) of the concept of supplier of last resort. 2010 VaasaETT

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2009 was the first year when competition was visibly active in the household segment, rather than just larger consumer groups. Nearly four times as many residential customers switched their retailer in 2009 compared to 2008, and nine retailers were competing for residential customers.

Alberta, Canada Alberta is considered an Active market, but due to switching data comparability issues, it is not included in the VaasaETT World Energy Retail Market Rankings List for 2009.

Fully open to competition already in January 2001, between January 2002 to December 2009 the percentage of customers (metering sites) that switched to a competitive retailer increased from approximately 3% to 30%, representing all customer classes. In the same time period 82% of large commercial and industrial customers and 47% of small commercial and industrial customers switched to a competitive retailer. Commercial and industrial customers are (relative to other customer groups) generally more knowledgeable of the electricity markets and therefore more comfortable in choosing an electricity retailer.

In the Alberta retail market customers who use less than 250,000kWh annually can choose between a regulated rate option (RRO) or a competitive contract. The rate under the RRO consists of a blend of monthly forward contacts and long-term hedges that RRO providers purchase on behalf of their customers. Customers have, since 2006, gradually been transitioning to a rate where the RRO will be entirely based on monthly forward hedges. In July 2010 the RRO will be based 100% on monthly forward hedges. There are currently four residential retailers and ten commercial and industrial retailers. Most competitive contracts available to residential customers are either for one to five year terms or for a flow-through of the monthly average wholesale price. The Alberta retail electricity market has shown a continuous increase in the number of customers switching from the RRO to competitive market products.

Portugal In 2009 Portuguese competition activity benefited from the Spanish new entrant utilities (facilitated by low interconnection constraints with Spain), with the context of savings potentials driven by wholesale opportunities. Nevertheless, Portugal remains a Dormant market according to the VaasaETT UCSRP definition. Following the voluntary return of most nonresidential customers to the regulated tariff in 2008, switching from the regulated tariff has however once again returned due to favorable conditions for the transition of customers from the regulated market to liberalized market, (taking advantage of the gap that existed between the last resort tariffs and the prices in the liberalized market). ďƒŁ2010 VaasaETT

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In 2009, the existence of a small but significant price spread between Portugal and Spain and reduced interconnect congestion, meant that trading risk for Spanish retailers (which do not have generation in Portugal) reduced, encouraging more competitiveness and competition from those retailers, enabling the new entrants to gain slightly larger numbers of customers. The level of aggregated switching remained under 1% per annum, as it did in 2008, but there are signs of sprouts in the Portuguese market. The future of competition in Portugal is nevertheless considered bleak unless regulated tariffs are removed.

Greece Greece’s still Dormant switching level increased ever so slightly in 2009, largely due to high retail prices for smaller consumption segments combined with wholesale opportunities for new entrants, and increased activity from new entrants (known as non PPC suppliers). The trend furthermore appeared to continue into 2010, with nearly 25000 customers (mainly industrial and commercial) switching retailer (to a non-incumbent retailer) in the first quarter of 2010.

According to ERSE, the Portuguese energy regulatory authority, there are two main reasons for the increase in switching: a. The tariffs of the integrated company PPC suffer from distortions and cross subsidies that benefit residential customers at the expense of I&C customers. This provides opportunities for retailers that focus on the needs of I&C customers. b. During 2009 high hydro generation meant wholesale prices were quite low, offering a considerable margin to suppliers to enter the retail market. Nevertheless, during 2010 it is expected that the tariffs of PPC will be rebalanced and all cross subsidies and distortions will be removed, result the containment of switching to new suppliers.

Greece is expected to remain a dormant market, especially for residential customers, in the foreseeable future, and until major regulatory and structural reform takes place.

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The Importance of Timing From a marketing perspective, there is no more important determinant of switching than effective timing. Timing manifests itself in the dynamics of switching through

On average, across all markets (excluding AUS and NZ), over 69% of switching takes place in Q1 & Q2

a multitude of ways.

Whether competing to win or keep customers, utilities must consider factors such as seasonality, cyclicality, taking advantage of competitors’ price rises and publicity mishaps and playing to customer emotions and levels of critical awareness, to name but a few.

Furthermore, we are not just talking about approximate timing, sometimes windows of opportunity extend no more than a matter of days.

No switching determinant dominates however. VaasaETT has identified and analysed over 100 variables that are all significant within the context of switching rates. It is the state, interplay and dynamics of all these variables that determines switching levels and trends.

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Meet the Authors Dr Philip E Lewis Dr Lewis is a leading international specialist in utility customer behaviour and psychology and related market and marketing issues including especially Customer

Loyalty,

Demand

Response/Eco-Home/Smart

Grid

and

Market

Competitiveness.

During 14 years in the liberalized utilities industry Dr Lewis has conducted customer switching related research in over 50 countries and four continents for over 330 organizations including for instance Shell, E.ON, EDF, Panasonic, BP, Nokia and British Gas. Dr Lewis has also worked extensively at an industry and market-wide level, having written major benchmarking and advisory reports for e.g. the European Regulator’s Group for Electricity and Gas (ERGEG) and government ministries, as well as providing opinion and advice for e.g. the EU, the Finnish Parliament and various other governmental organizations around the world.

Dr Lewis is a globally renowned expert in the field of customer switching and loyalty. His World Energy Retail Market Rankings report is the leading authority on customer switching trends around the world, and his definition of customer switching has been effectively adopted as the European norm within Europe and Australia (by the European Union / European Regulators) as the Energy Retailers of Australia Association). Dr Lewis also has an extensively array of both Industry and Academic publications to his name and was founding chief editor of the book 'The Energyforum Global Report’, as well as a co-writer of the renowned Capgemini European Energy Markets Observatory. He has also chaired and co-organized dozens of high level conferences globally.

Dr Lewis was formerly head of Marketing Research and Analysis for a UK based retailing subsidiary of Amoco and (now) EDF, during the onset of competition in the British retail energy market. Following this Dr Lewis was founder and chief of the University of Vaasa Energy Markets Group (VaasaEMG) as well as an Assistant Professor of Marketing. Dr Lewis holds a PhD in Marketing (customer psychology and behaviour) from the University of Edinburgh, Scotland and developed his graduate marketing expertise in the banking sector with American Express Bank in Frankfurt and National Westminster Bank in London. More information at: www.vaasaett.com/contact 2010 VaasaETT

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Sean Brennan Sean is a research analyst at VaasaETT, and has been investigating global utility customer switching trends for the past two years under the guidance of Dr Philip E. Lewis.

Sean, collaborating with contacts within the Utility Customer Switching Research Project’s extensive global network of sources, is VaasaETT’s lead connection to the latest and best switching data from around the world. Born and educated in the USA, Sean is now based in Finland and is additionally trained in IT related market issues as well as network development.

Contributors The authors gratefully acknowledge and appreciate all the many people who generously donated time, knowledge and or data to assist the development of this report, including the following: 

Jennifer Mosende, Department of Energy, Electricity Division, Retail Policy Business Unit , Alberta, Canada



Gert Mergan, Vlaamse Reguleringsinstantie voor de Elektriciteits- en Gasmark, Belgium – Flanders



Alain Vasteels; Commission Wallonne Pour L’Energie, The Regulatory Authority for Energy, Belgium – Wallonia



Marko Senčar; Energy Agency of the Republic of Slovenia



Ivar Þorsteinsson, Orkustofnun, National Energy Authority, Iceland



Matthias Noorlander, Netherlands Competition Authority (NMa) / Office of Energy Regulation



Members of the Energy Retailers of Australia Association



Helle Stisen; Dansk Energi



Patricia de-Suzzoni; Commission de régulation de l'énergie

Please note that many contributors stated a wish not to be named in this report. To those people we also express our sincere gratitude.

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Additional Sources and References We would also like to thank the following organizations for providing or facilitating data that was used for the purpose of compiling this report: ERAA (Australia), AEMO (Australia), BBC.co.uk, Electricity Authority (New Zealand), ERCOT (Texas), New York State Public Service Commission, Government of Alberta Department of Energy, OFGEM (Great Britain), Energiamarkkinavirasto (Finnish Energy Market Authority), BnetzA (Germany), E-Control (Austria), Energiezaak (Netherlands), CNE (Spain), The Norwegian Water Resources and Energy Directorate (NVE), Statistics Sweden (SCB), Swedish Energy Agency, The Energy Markets Inspectorate (Sweden), Dansk Energi (Denmark), VREG (Flanders), Autorità per l'energia elettrica e il gas (Italy), CRE (France), EDF (France), RAE (Greece), Commission for Energy Regulation – CER - (Ireland), Public Utilities Commission of Latvia –PUC-(Latvia), Energy Regulatory Office of Poland, ANRE (Romania), Energy Agency of the Republic of Slovenia, CWAPE (Wallonia), RUGEL (Brussels), Orkustofnun National Energy Authority (Iceland), Entidade Reguladora dos Serviços Energéticos – ERSE - (Portugal), Institut Luxembourgeois De Regulation (Luxemburg), Energetický regulační úřad – ERU - (Czech Republic), Operátor trhu s elektřinou, a.s.

- OTE – (Czech Republic), Central Research Institute of Electric Power Industry of Japan (CRIEPI).

www.utility-customer-switching.com

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