The big beasts of energy have been busy shape- shifting in a bid for survival. Last year, RWE created Innogy, Eon spat out Uniper, and Centrica continued a programme of divestments that has seen it rapidly ditching conventional generation assets in favour of energy services and connected home technologies.
But what of EDF, the world’s biggest producer of electricity? There has been no fanfare announcing a bold new strategy from the French energy behemoth. Only a string of financial reports that show mounting debt – now nearing €40 billion, which dwarfs its market capitalisation of €19 billion – and newspaper headlines exposing the woes of hugely expensive and troublesome nuclear projects at Flammenville and Hinkley Point C.
Are such issues impeding EDF’s ability to reinvent itself for a digital and decentralised energy future? Not at all, assures Beatrice Bigois, managing director for EDF Energy’s customer business.
Utility Week meets the neat, softly spoken Frenchwoman at EDF Energy’s “Blue Lab”, an innovation hub opened a little over a year ago precisely to facilitate the company’s transition from traditional energy player to customer-centric entrepreneur.
We huddle in a small corner office adjoining the smart, open plan ideas centre where groups of EDF employees and funded start-ups work intensely on their “POCs” (proofs of concept) or linger in the “connect kitchen” chatting to Alexa.
The lab, says Bigois, is an important part of EDF’s “quite different” answer to the more overt strategic shifts being carried out by its big rivals.
Speaking rapidly and with fluid gestures, she describes an environment in which “nothing is remaining the same”. Competitors are crowding into the market, with new entrants coming from different industries to challenge the established norms of energy supply. Meanwhile, solar panels have crashed in price and batteries “which when I joined this industry were the Holy Grail”, are now becoming commercially viable.
“All of these things are disrupting our industry, but more importantly, customers are changing and their expectations are shifting dramatically.”
In great part, Bigois attributes this shift to digital technologies that can create “moods and expectations which maybe customers cannot express”. “But we can see so many examples where you give customers a new digital service and they become addicted.”
“There is a rumour that one SMETS2 has been installed – only one.”
EDF sees a glittering opportunity here, but Bigois points out: “We can’t engineer or design those new services in a traditional way. We have to experiment with customers. We have to truly listen to customers. The lab, it is responding to this.”
During a tour before meeting Bigois, Utility Week heard all about the lab’s innovation concept. Located within the business, but operating independently, it aims to keep new ideas “close to the mothership”. “Challenge” competitions are run externally and internally, offering start-up incubation, student funding and employee secondments for the rapid development of prototype business models, technologies and services, while design “sprints” ensure innovations are sense-checked early and iteratively with customers.
The model makes the most of employee potential, says Jean-Benoit Ritz, EDF’s Blue Lab innovation director, who revealed how one call centre operator had won a prized 100-day stint in the hub to realise her vision for improved customer experience. Already, internal challenges have led to “six or seven” innovations being embedded in the mainstream organisation as business as usual, he adds.
Bigois elaborates: “We need to let those ideas emerge from the business. Before, we had some innovation which was generated internally . But, to me, it is a bit a miracle such innovation was able to occur… The lab, it is a bit remote from the core business. It can let ideas emerge and come to life. It allows free thinking and for working with people from all different environments – suppliers, start-ups, customers or different environments within our business.”
But the lab is not EDF’s only answer to the changing nature of competition and commercial opportunity in the energy industry. “In relation to your parallel with Eon and RWE, we have also undertaken a transformation of the core business. We haven’t publicised it so much, but we have completely restructured the core business… this is to make it more fit for purpose, to become more focused on the customer and to do the basics with excellence.”
What it will not do is see any progressive separation of the asset-light, service side of the business from the asset-heavy world of generation. Four years ago, a tripartite segmentation of the business was put in place, aggregating all customer-facing activities in one business unit, while existing generation – of all varieties – was gathered into another and new nuclear projects into a third. “This structure works well,” says Bigois. There is no further division or spin-off looming.
Focusing on her world of customers, Bigois says she has enjoyed the challenge of driving efficiencies and discovering new opportunities since she took up her post in 2014. Coming from a number-crunching background in energy trading and risk management, it might seem a leap for Bigois, but she says: “In all my roles, there has been transformation, and at the heart of this, people. This is the common thread in my career.”
While there “is always more to do”, Bigois is pleased with the progress that she and her colleagues have achieved to make the customers business unit work better. Opportunities for efficiency gains were “everywhere” in 2014, says Bigois but gradually, through marginal gains as well as big “operational excellence” programmes, she insists operations have become slicker.
“My numbers have helped me to deliver this efficiency programme. We have reduced our cost to serve since three years ago, while absorbing the increased cost of the smart metering programme.”
“Dieter will have an impact”
That programme has recently been blamed by several suppliers for driving up the cost of supply and necessitating controversial price rises. With the majority of meters still to roll out and the bulk of internal efficiencies now addressed, Bigois admits that continuing to finance the smart meter rollout will be a “challenge” for EDF and the wider industry. But she declines to label it a burden or a worry.
She has more to say about the technical headaches that have disrupted the programme, particularly the struggle to transition from deployment of SMETS1 smart meters, with their limited functionality and interoperability issues, to fully smart SMETS2 meters, capable of communicating with the central IT system run by the Data and Communications Company (DCC).
“If you look at the original schedules, we all thought that we would be rolling out only SMETS2 meters at this time. If I remember well, in 2014 SMETS2 transition was viewed as happening at the end of 2015… so we are at the very least, two years late.”
The impact of this is that suppliers can still only offer smart to a relatively small pool of customers “because some customers can only have a SMETS2 meter”. For instance, there is no SMETS1 offer for prepayment customers, which represent 15 per cent of EDF’s domestic retail business.
The continued delay for SMETS2 meters seems odd when you consider that the DCC announced in November last year that it had finally released the functionality required to support them. But Bigois frowns and shrugs, “the systems were not released” – or at least not in fully fledged and tested form.
“There were some releases, but only then testing started and, as you would expect with a massive IT project, we found a number of issues”.
Suppliers are all now feverishly working to complete system testing in a “live” environment and to get SMETS2 on walls as quickly as possible. “We know that everyone is trying to deploy a SMETS2 and have a SMETS2 that has passed security validations, and put it on a wall to see it interact with the system,” says Bigois.
In part, this drive is motivated by a desire to deliver better customer experience from the technology and associated services, but the quest for SMETS2 also comes back to a question of costs.
“We are really looking forward to SMETS2 coming,” says Bigois. “It will make our lives much easier, and it is really much less expensive, because the asset life for SMETS2 is longer. And then some components in the meters are less expensive too.”
Furthermore, SMETS1 meters, which have been rolled out in much higher numbers than originally intended, carry an additional cost to suppliers because they require individual comms hubs, while the newer technology will talk to the centralised DCC comms hub.
So when can we expect fully functioning SMETS2 meters to start appearing on walls? Bigois says that EDF is aiming for the end of this year, and that she believes this is common across most suppliers.
But, suddenly mischievous, she adds: “There is a rumour that one SMETS2 has been installed – only one.” She laughs, “I don’t know where this stems from, maybe it is just a myth.”
Assuming the deployment of mature smart meters can move from myth to reality, Bigois is hopeful they will deliver tangible benefits to consumers. They may not be innovative in themselves, she admits, but they are “an enabler” for a new range of energy services and they will also reduce billing-related complaints – the main cause of customer dissatisfaction.
Bringing an end to estimated bills, which leave room for error and make energy pricing seem opaque to the public, will have “an instantaneous” impact on energy company relationships with customers, Bigois suggests.
It’s a pertinent point at a time when the government has just launched a high-profile review of the costs that contribute to electricity prices in the UK. The review, to be led by Oxford professor Dieter Helm, will explore the electricity value chain from generation through transmission and distribution to supply, aiming to recommend ways to cut the costs associated with each and help government deliver its promise of “the lowest energy costs in Europe” for UK households and businesses.
The review has frustrated some industry leaders because of its short timescale and relatively limited terms of reference; and because it comes on the heels of a two-year investigation of the energy market by the Competition and Markets Authority which many, including EDF Energy’s chief executive Vincent de Rivaz, hoped would “clear the air” around the energy sector.
Bigois, however, says it was “unrealistic” for industry to expect the CMA investigation to close the public debate over the cost of energy. Despite the Helm project being “quite a quick review”, she believes “Dieter will have an impact”.
Declining to admit frustration with the inability of suppliers to satisfy political and public doubts about the workings of the energy market, Bigois simply says: “The government has felt the need for this review. So it means that it is needed… I think we have to be ready, being in such a sensitive sector as energy, to do these reviews as required and to constructively engage in the public debate.”
With Bigois hopeful that EDF Energy will make its first “very small” profit in 2017 for the first time in almost ten years, questions about what constitutes a “fair” return for energy retailers far from settled, and a price cap looming, no doubt she will have ample opportunity to do so.