Volkswagen has decided to enter the electricity supply market, initially to charge electric vehicles – supplying both the ‘fuel’ and the infrastructure – but soon as an electricity supplier in its own right.

This could be the game-changer the electricity industry has been expecting for the past decade.

Where is everybody?

Long ago, while the smart meter rollout was under discussion, I recall some worried discussions among energy suppliers about the threat from the ‘grocers’. The major supermarkets, it was assumed, would quickly see rich pickings among energy customers and would vie to sell them power and gas, leaving today’s energy suppliers as mere wholesalers.

Bar some ‘white label’ arrangements, that threat has not materialised.

That was just the first of successive threats – the entertainment channels (Sky and BT), the ‘platforms’ (Facebook, Apple, Amazon, Google etc) and the ‘home services companies’ have all failed, so far, to dislodge specialist energy suppliers – in fact, they have left the way clear for tens of new energy specialists to jump into the market.

Why so? Here’s my theories.

Supermarkets are often seen as a good comparison to energy suppliers, and I have heard them lauded for their low margins. The same low margins would cut power prices, some say. But that’s not quite how I see the supermarket model. A supermarket’s aim is not to cut prices in itself. It is a machine for extracting all its customers’ money. The low-cost items are there to draw you in, but they are out of eye-line and hidden at the back. The real money-spinners are right in front of you; the store layout is intended to guide you through the high-value items before you get what you really intended to buy; and two-for-one offers and last-minute treats are placed to pick up as a personal reward if you get near the till with some willpower remaining.

Energy supply does nothing to get customers through the door. Why take on the hassle of dozens of standard letters, the cost of meeting obligations on vulnerable consumers and the risk of finding yourself out of the money in a volatile energy market?

The same is true of the platforms.

Amazon and the other platforms employ a huge number of ‘persuasion architects’ (as, I would guess, do supermarket online sites) whose intention is to shift many items ‘often bought with’ to your basket, alongside the ones you really want. And it takes grim determination and a positive pleasure at being obstructive to avoid taking out membership.

Why is energy supply still the preserve of specialist companies, while (for the most part) consumers no longer buy vegetables from the greengrocers, books from the bookshop and holidays from the travel agent?

Is it just inertia? All the specialists mentioned above required a trip down the high street, but energy has been supplied by faceless corporations using arms-length communications (first letter, now apps or email) for decades.

There is a cost and risk in joining the market and not much in the way of extra opportunities for the supermarkets, the platforms, or the entertainers to add in – although it has to be said that may change when smart meter data on customers starts coming through.

There is a bit more opportunity for the home services companies but this has proved a relatively difficult model and one where energy companies have been the ones able to leverage their existing customer relationship.

EVs are different

I think that electric vehicles, and Volkswagen, may be the real threat.

Their model will disappear: already in cities people rely less on the car and shared vehicles are becoming familiar. The vehicle market is shrinking and the Guardian says that vehicle manufacturers have seen their value fall by £100 million in the past year.

There is a huge opportunity to reduce costs. Petrol and diesel supply is environmentally suspect and administratively complex and the returns are low.

It represents a big jump in customer loyalty and understanding, from a single vehicle or fuel sale to an ongoing contract.

The fuel and vehicle markets have been separate in the past and EVs allow them to be brought together in a way that simultaneously allows the provider to build consumer loyalty as a ‘mobility provider’. That’s a big boost for a company that does not have that type of ongoing customer relationship up to now.

Unlike supermarkets and ‘platforms’, the market model will revolve around leveraging the consumer’s main assets – home and vehicles. And adding domestic power alongside EV and vehicle to grid multiplies the commercial opportunities for the supplier.

I think the advent of EV will finally provide the new type of competitors the energy supply industry has been fearing. Volkswagen will be just the first. This is it.

Further reading

New Power speculates: Who are the energy consumers of 2030?