Liberalisation of the Belgian energy market: where has the power gone?

Frédéric Du Bois

Since 1 January 2003, the Belgian energy market (including electricity and natural gas) has been liberalised or opened-up to the entire European supplier value chain in order to maximise competition and offer wider consumer choice.

This article describes the market situation and challenges around 2010.

Based on the economic ideal of a free market economy, this process of liberalisation should result in enhanced innovation, leverage consumer benefits (due to competition), and increased employment (foster new initiatives). Attractive goals, but after 5 years the dust has now begun to settle and the time has come for a comprehensive summary. So what do we decisively conclude? In a nut-shell, staggering inertia on all levels. Not only at the government level, but also amongst market players as well as end-consumers. Has market liberalisation overshot its aim? Perhaps. But at the beginning of 2008 we suddenly saw some sector turbulence. Was this an isolated event? Or is there more than meets the eye?

The double role of the government
There is little doubt that the success rate of a liberalisation process is influenced or even determined by the correct definition of the playfield and the game rules established by each governmental party involved (including international, national, regional and local). Strategic vision and thorough case knowledge are fundamental elements. Additionally, the policy makers involved must take into account the historical evolution (were these players former monopolies or not operating within the public context (example energy as a strategic product). At the same time, ensuring the creation of an adequate yet flexible level playing field for newcomers entering this sector so they can fully develop their competitive proposition and assets. At this point we should realize that former monopolies were the (sole) property of national governments, who often remain involved stakeholders after privatizing. The comparison with a ‘simultaneous judge & jury’ scenario is not far-fetched, in particular when a government has financially benefitted during the liberalisation process.

After five years of the liberalisation cycle in Belgium, we may conclude that there are short-falls on every level of governance. The European institutions formulate too little control and critique on the current Belgian energy market, paradigm. At the federal government level, the entire situation remains dubious (see higher judge & jury). While regional and local administrations do not favor any attempt to establish sustainable energy production in Belgium, despite of the growing demand and our current energy production short-fall.

For our windmill project on the Thorton-bank it took two law changes, seven Ministerial Orders, one Royal Order and nine urban development and other licenses to be approved. In total we have filed as much as 600 kilos of paper files with requests and our contracts count almost 7,000 pages “ Filip Martens, general manager at C-power.

Vertical integration is a necessity for newcomers entering the Belgian market, to facilitate and establish independence from the energy giant Electrabel (the former market monopoly). The truth is out. Today, the Belgian energy market still remains heavily dominated by Electrabel as a result of its former dominant position. Electrabel maintains a substantial competitive lead: Establishing an adequate vertical integrated business model is of utmost importance in a network branch as the energy sector, complete with a zero budget investment costs for energy production facilities (debited nuclear plants, funded by the Belgian tax payer. Electrabel has omni-present marketing communication, which results in high brand awareness and funded by the huge corporate profits. This company remains an enormous source of local market and consumer insight.

A noticeable peculiarity of Belgium is the existence of 3 administrative regions. The consequences of which is not only the gradual regional liberalization (Flanders - as from 1st January, 2003, Wallonia & Brussels - as from 1st January 2007), but also the large web of administrations involved in control and drafting of rules). Belgian regionalization does not favorably allow a unified market approach or easily facilitate the inclusion of competitive newcomers. The process requires a great deal of effort to navigate.

When a process of liberalisation is initiated, a sector ‘watch dog’ agency is usually installed so the interests of all market players’ and stakeholders (including producers, transporters, suppliers, consumers and government) may be safeguarded. In order to bring a market model into balance and consolidate that very situation, such an agency must have a sufficient degree of autonomy. Based on a series of reports and publications from the CREG (Comissie voor de Regulering van Elektriciteit en Gas) one can only conclude that the current legislative basis for this authority is failing in its duties, specifically regarding its autonomy (from political authorities and market players) and its agreed authority.

The liberalisation was favorable towards domestic clients. Since 2005 the CREG has put pressure on the distribution tariffs for instance and the benefit was undeniable, but as from 2008 the distribution tariffs have significantly risen as a result of court decisions that have limited the authority of the CREG and by consequence the benefit of the liberalisation has clearly decreased” states the CREG in its Price comparison report of March 2008.
A very clear statement regarding the mission and responsibility of the Belgian government.

Analysis of the market players
A current analysis of the suppliers on the domestic Belgian energy market reveals a number of clusters including:

  • The historical market players (companies that were already active in Belgium before liberalisation and therefore, enjoyed a strategic benefit). Electrabel Customer Services ( 66.3% market-share) and SPE-Luminus (20% market-share).
  • The established newcomers in Belgium: Nuon ( 8.1% market-share) and Essent ( 2.1% market-share) are today profiling as reliable and significant challengers to the historic players.
  • The niche players : mainly addressing one aspect of energy (such as electricity, gasor energy production) and/or maintain a regional focus, Ecopower (sustainable power, 0.37% market-share), Lampiris (100% sustainable power with 0.05% market-share) and Wase Wind (electricity – region of Waasland – 0.01% market-share).

The above-mentioned market-shares are only valid for the Flanders region. For the markets in Brussels or Wallonia, there is insufficient data to correctly access and analyze. This fact is indisputably being apportioned to the working pace of the involved administrations (BRUGEL for the Brussels region, CWaPe for the region of Wallonia); to cope with and actively support the liberalization of a market and the according need for data transparency.

The sleeping consumer
A well functioning free energy market mandates active consumers who are willing to play the competitive suppliers against each other. Consequently, various elements are required on the consuming end including sufficient information, a minimum level of involvement (and based on these elements), a confident approach of the market proposition.

Firstly, let us formulate a realistic image with the aid of some recent research conclusions (VREG Markt monitor):
1. Five years after the complete liberalisation of the energy market in Flanders, half of all Flemish families still feel insufficiently informed, but only 23% of them are actively in search of information regarding energy suppliers.
2. The Flemish strongly prefer one bill for electricity and gas (78%), they will only opt for another supplier based on guaranteed higher service levels (76%) than current supplier provide and do expect to pay less with comparable suppliers (68%). These key motivational factors can be completed with the aspect of ‘green’ or sustainable power (50%).

The conclusion of poorly informed end-users when contrasted with the general assumption of Belgian marketers that everyone in today’s world is much more informed and communicative about products and services that are being used. With high accessibility to information (via the internet, with a high penetration in Belgium: 2.65 million connections by the end of 2007).

The apparent lack of information and distrust on the consumer side is being reinforced by the occasional mishaps (in 1 out of 2 switch situations), which finally leads to anticipation, lack of interest and conservatism.
The high media and sales exposure – originating from the initial wave of liberalisation – resulted in a number of active contract signings with one of the energy suppliers but did not stimulate any change of allegiance to suppliers.

Casting a critical eye on the general attitude and product perception of energy. Towards the average consumer, electricity and/or gas are equally compelling commodities, which are essential requirements to function in today’s modern society. Like petroleum or telephone, and for which one must pay, does not initiate any attractive product experience.

Other factors to include are:
1. a pre-determined household budget,
2. the archaistic product model (transport piping, tubes with meters and written meter reading) and
3. the non-transparent invoicing documents

Energy pricing follows a complex structure and is not that simple to explain but reinforces the current apathetic consumer behavior. During the early stages of the liberalisation, financial discounts offered were appealing but today’s Belgian situation is characterized by a general leveling of price.

Various end consumers behaved (as stated), quite indifferent, even sleeping. There is proof in the fact that even after five years, 1 household out of 5 has not actively choose for an contract offer made by any energy supplier. By so doing, renounced a large saving on their part by this simple act.

Marketing in a liberated market environment
Since 2003, the Belgian end-consumer has become acquainted with new energy brand and company names such as WattPlus, Nuon, Essent, Luminus, CityPower, Eneco, Wase Wind and others.
With the liberalisation of the energy market, the mission of the established players in the market is to reactively protect their market-share, by means of building a central positioning in combination with client bonding and retention (evident in organization, consumer contracting as well as market communication).

The challenge for new companies entering this market is to establish their companies on a larger scale:
1. Organization (set up and expanding of several key corporate departments)
2. Sales (definition and start up of several effective sales channels)
3. Marketing (analysis of market and consumer profiles, definition of market positioning)
4. Communication (building of brand awareness and preference, carry out the assumed positioning) Administration (supporting services such as purchase, sourcing, legal and accountancy)
5. Financial (having the required investments available to enter this specific high-investment market).

The gradually opening of the Belgian energy market (firstly in Flanders) signified a diminished investment and theoretically allowed a chance to learn important lessons for successive market liberalisation in Wallonia and Brussels.

From a communication perspective, we may conclude that the current market is evidently saturated by the 2 historical players - Electrabel and Luminus. The competition is limiting itself to incidental and ad hoc communication (including the occasional press & PR, trade show participation, etc). Above-the-line communication efforts of challengers during the first years of liberalisation, has resulted in fair brand awareness. These incumbents must realize that in the long run, it takes much more to persuade the rather inert Belgian end consumer to switch energy suppliers and allegiance.

It is characteristic for the liberalisation of the Belgian energy market that ‘the market has quickly closed down’, meaning that the period when the Flemish consumer actively confirmed or altered his preferred choice of energy supplier (and this in quite large quantities - about 25%), seemed very short. After nearly 1 year, the ‘largest movement’ faded away and today the switch dynamic is present (although limited - about 2.5%).
This is very uncanny especially when the moving dynamic in Belgium is circa 10%. This percentage is a precise indicator (and presents an ideal switch-moment) for suppliers of home-bound services and products such as TV-cable, electricity & gas, telecom, internet etc.).

Wallonia, as well as Brussels, has coped with the same dynamics. With this as the starting observation, one may conclude that large shifts in market-share will only occur in the pending years through mergers or acquisitions. Merger attempts between Nuon and Essent in 2007, and the branch turbulence on a European level, surly supports this insight.

Which players are currently active in the Belgian energy market (for end- consumers)?
A short overview;

Electrabel: A subsidiary company of Suez, Electrabel has over 9000 employers in Belgium and commercializes and markets its products and services under the brand Electrabel Consumer Solutions. Being the historic dominant player and current market leader, Electrabel’s challenge lays in its overall management and company re-engineering from a large public institution to a semi-private, market-driven organization. The key objectives are to place the marketing emphasis squarely on client segmentation and retention, building customer and business insights, developing a client-oriented corporate culture, managing negative image, and managing ‘politically’ correctly, the polluting nuclear energy these goals are mainly realized through a well thought-out and balanced communication policy. The continuous and costly advertising campaign (from TV commercials, over abribus to advertising) around the theme of “it’s your energy”, characterizes itself through a high level of recognition and consistency. At the same time, many efforts are invested in press relations, sponsored publications (Energiek) and sponsored TV formats (Onder Hoogspanning XL).

Luminus/SPE : Are the second largest player on the Belgian market with over 1000 employees, grew out of a complex construction in October 2005 between Centrica, Gaz de France and local intercommunales (or public infrastructure service providers). In 2004, SPE already overtook another newcomer City Power and from that moment, the brand name Luminus was pushed as the single consumer brand. Today SPE is positioned as the greenest of all major market players (production), besides offering comfort products and personalized advice. SPE is vertically integrated as reinforced by the Pax Electrica II of 2008 – transfer of nuclear capacity from Electrabel to SPE. SPE limits itself mainly to safeguarding it’s historic client portfolio (in the Flemish regions where it operates as a standard supplier), via occasional above-the-line campaigns (Radio, TV, advertising – with a communication focus on saving).

Eni: Are the third largest Belgian player employing circa 250 employees and offering a dual fuel mix including electricity and gas. Eni has been active in Belgium since end 2002 and initially was positioned as price breaker (same as City Power) and on a second level ´sustainability´, initiated very obvious SWITCH –oriented media campaigns, but has made the shift towards service-oriented and reliable energy supplier (quasi 60% green energy in the fuel mix and 99% client satisfaction).

Essent : Fourth largest market player with 120 employees, is seeded from Dutch origins. Essent entered the Belgian market under the brand name WattPlus, but changed into the current corporate brand name during 2004 to support the European ambitions of the Group Holding. Essent invests in vertical integration (production capacity) and its present positioning reflects ‘sustainable & green’, which makes this market segment very interesting to monitor from a marketing and management perspective.

Smaller market players such as Lampiris, Wase Wind and Ecopower are mainly known for their specific, unique energy supply (only electricity), often concentrated operating area and the marketing and communication focus on the sustainable elements of energy sourcing (via renewable sources), in combination with very limited mar-com efforts.

Energy, banking and telecom
Over the past years, market liberalisation did not only manifest itself in the energy sector, but also in telecom and television services (and very soon - postal services). Typical issues such as organizational back-office bottlenecks (client and invoicing services), non-transparent information and communication (the very often fancy start-up campaigns not included), and mergers & acquisitions (the most recent being the acquisition of Scarlet – n° 3 on the ADSM market- by market leader Belgacom); do not lead automatically to great joy when an end-consumer try to benefit from their ‘freedom of choice’.

In March 2008, the European Authority once again criticized telecom operator Belgacom for their market dominance and the consequential limited growth of broadband internet and competitive restraint on mobile and fixed-line telephony. The former monopolist defense mainly through package deal offers and fixed tariff packages. Only one competitor on the fixed network had market share of 10%, the rest of the competition has circa 2% to 5% market-share.

Similarly in the Belgian energy sector, the EU report demanded the Belgian authorities to eliminate the juridical uncertainty for newcomers to enter the telecom market. Any decision by the regulator BIPT is being systematically disputed and the procedures take a very long time. The EU commission explicitly doubts if the Belgian Council for Competition has sufficient staff and expertise.

The inertia by the modal Belgian also manifests itself in other crucial matters, such as Finance and banking. Recently published market research by De Tijd and L’Echo (October 2007), highlighted that a quarter of the Belgian population does not know how much money they have in their bank account each month. Barely a quarter of the Belgian population searches actively for information before they initiate an investment with almost half of the interviewed persons not looking for an alternative for limited yielding savings account.

The conservatism that manifest itself in the retail banking sector where the market leaders Fortis, KBC, Dexia and ING Belgium (aka the Big Four) thrive, seems to be under pressure especially over the last months. The unprecedented low interest rates on savings account, seems to have finally shake up the financial awareness of the Belgian consumer. Supported by the alarming communication on decreasing buying power, the prominent multimedia approach and the attractive offers of new market competitors has resulted in rapid gains of market-share & profit The reaction of crisis communication by means of ultimate silence (compared to the transparent / openness of the past years) , indicates the seriousness of the situation.
Has the typical apathetic Belgian consumer behavior then finally met its end?

A broader perspective
Product innovation
Product development and innovation are options to improve the perception and experience of the product energy’. As the energy suppliers and distributors are well aware of the archaic production model, new territory in this field is being explored. In the coming years, The Netherlands, Sweden, Spain and Italy will install ‘smart meters’ for their total population base, which will replace the current models. These new models allow end-users to closely monitor their energy use, via a small display installed in an accessible room area). This technological advanced tool will create accessibility and more awareness of consumptive monitoring by the end consumer. Additionally, this awareness will be possibly reinforced by promotional or communicational usage of the device by the energy suppliers (e.g. price promotions during periods of low use or sending of messages via interactive display). This device is also being tested in Flanders and from interviews, the measured interest of the households increased to 60%.

The growing number of product formulas with each energy supplier could possibly increase the attractiveness of energy products, as they would become tailor-made to the end-customer need. Formulas with a fixed or variable contract basis, with different time duration, or for dual metering have been introduced and garnered interest fast, as they focus on price benefits and cost savings. In addition there is a marked interest in the growing potential of green energy products – with a strong focus on sustainability. One question that does arise is with the growing number of product and price formulas, will the consumer be able to make an objective judgment or comparison, and will this non- transparency eventually lead into another feeling of inertia and disinterest for the product ‘energy’?

Market dynamics beyond the (branch) borders
In the Netherlands, the energy market has been liberated since 1 July 2004. In Holland, the market dynamic is measured monthly and is being closely analyzed and monitored by the market regulator Dte. A comparison between the Dutch and Flemish market shows that the results are very similar with a switch percentage of roughly 2.5%.

The UK market has been opened in several stages and since May 1999, the entire energy market is open to individual end-consumer. The UK is clearly in a more mature stage and the local regulator OFGEM, publishes a market dynamics indicator. The latest figures reveal that during the first 7 months of 2007 2.8 million households switched from energy supplier, but a switch rate score of 1.5% indicates less dynamic than in Belgium or Holland.

Comparing these figures with other liberalized branches in Belgium, the market dynamic for the mobile industry in 2007 was merely 1.7% ( exceptional percentiles for a arguably ‘volatile’ product). One possible explanation could be the current proliferation of various product/product formulas where the end-consumer has lost ‘touch of reality’.

Reallocation of the international energy market
Coupled with the phenomenon of liberalisation and privatisation, is the free market syndrome of consolidation within the branch surfaces. This is certainly occurring in Belgium and the sale of Distrigas, the sister company of Electrabel, was a direct consequence from the international acquisition policy of the holding Suez. Medium-term – this may result in the introduction of new, large-scale players on the Belgian energy market.

The sale of Distrigas will also play a decisive role in other European mergers. At this point there is a clear power struggle of the leading role of EDF (France), Enel (Italy) and E.ON (Germany). The last two companies are not active in Belgium. The end result of this is still not clear, but from a end-consumers perspective the possible decrease of energy suppliers could mean a decrease of consumers rights. The European Council for Competition will have to fully exploit its rights and responsibilities.

At the beginning of March 2008, statistics from the Flemish energy regulator VREG clearly indicated unseen market dynamics. The recent ecological evolutions notably global warming and Al Gore’s award-winning documentary ‘An inconvenient truth’, has stimulated public awareness and discussion about sustainability and rational energy usage and consumption. After four years the end-consumer does not seem tired of understanding more about ‘sustainability’.

Exponential growing energy prices over the past two years (Flanders: +5 to +10% per annum for electricity, and +25% per annum for natural gas); and the perceived decrease of buying power (accelerating inflation in 2008) seems to have finally awaken the consumer about the energy product.

The first results are here although they do not mean a breakthrough, but at least one element seemed to have been eliminated; the inertia of the general public. The comparison with events occurring in related sectors such as banking is alerting the public. Marketers can use these situations to their advantage and pro-actively win market-share from competitive parties by maneuvering through legislative bottlenecks and winning for energy players emerging in Belgium.
Summarizing all geographic and segment parameters, the liberalisation dynamics seem to manifest itself in haphazard processes rather than being the result of solid strategic marketing management.

One tip for every consumer and supplier: be wise with your energy!

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