Electricity retailer –from liability to asset

Abstract: Electricity retailers have difficulties to differentiate themselves from each other, dueto increased competition and political regulations. The electric energy tradingmarket is facing a paradigm shift.The purpose of this study has been to investigate how a modern electricity retailercan avoid current and forthcoming difficulties within the market and what directionsthey should choose in order to improve their profitability.The study has been conducted using a quantitative and qualitative approach. Thequantitative approached was used to systematically describe all electricity retailersthat exist today in Sweden and collect data for analyzing how profitable they are.Structured interviews were later conducted in order to gather qualitative data fromthe most interesting companies from the quantitative data collection.From the quantitative approach it was found that selling electricity from guaranteeof origin was approximately two to four times more profitable than selling nuclearand fossil produced electricity. The total profits from electricity trading alone issurprisingly low. From the quantitative data sample, it was shown that 50 per centof the electricity retailers earn less than one million SEK and their averageprofitability is approximately 0.28 million SEK.In the qualitative study it was concluded that those who had succeeded with higherprofits were working with services along with the electricity trading. Examples ofsuch services are charity and loyalty programs. It was stated in the interviews thatthe profits are still low and will remain low if solely rely on electricity trading. Ittakes at least four years for a customer to be profitable. The most promisingsolution to avoid getting stuck in the middle is to expand their business withproducts together with services, servitization. If the electricity retailers shouldexpand their businesses with selling products together with services related toelectricity, servitization, they should also position themselves with a certaincompetitive strategy (cost leadership, differentiation, focus) and target a specificgroup. Groups that have been identified together with these competitive strategiesare those who wants to save money (cost leadership), environmentally friendly /technology enthusiasts (focus) and inbetweeners (differentiation)