Utility Customer Switching Research Project


 

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About 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.  It also provides ever-increasing analysis of observed trends and explanations for utility customer switching behavior. Some of this information is provided free or through subscription services to our network members, additional insight is provided through client client offerings.

 

 

The World Energy Retail Market Rankings Report

Available complimentary to qualified candidates, the annual World Energy Retail Market Rankings report is a free summary of global switching activity, highlighting key trends, rankings and explanations. This report focuses on electricity markets with all statistics relating to a weighted aggregation of residential, industrial, commercial and other customer groups. In future this report will be published twice per year. Find Out More About The 2010 Report or View The Latest Press Release

The Liberalised Markets We Track

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. In this context, the UCSRP focuses its research on energy retail competition and those market participants that are all too frequently ignored: the customers.

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.

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Project Scope

Switch Rate Metric

The Project’s 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.

Definition of 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 moves, 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 before 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).

UCSRP Definition of Switching

It should be noted that not all countries/markets collect or document data in a way that corresponds to this definition. Through cooperation with the data sources and careful re-calibration (where necessary) we are mostly 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. In all cases comparability issues are clearly documented.

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 consistently 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 expected 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: Annual switching is between 3.5% and 7%. Customer awareness gains momentum. Typically, switching activity leads to competitors becoming aware of the risk and reality of losing customers, but switching does not pose a major threat to utilities’ pricing or profitability. 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.

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.