Consumer confidence key to energy transition

THE transition to green energy is in full swing, but are consumers convinced of the benefits? Last year, global investment in low-carbon technologies surpassed US$1.1trillion (RM4.59 trillion).

Geopolitical tensions and the resulting energy crisis acted as catalysts, accelerating spending. Analysts suggest that the rapid injection of capital may have shortened the energy transition timeline by up to 10 years. However, a new global consumer insight warns that wavering consumer confidence could pose a challenge to the progress made.

We know from the fields of economics and marketing that consumer confidence serves as a robust indicator of sentiment and a predictor of future behaviour.

Put simply, when consumers are confident, they are more inclined to invest and spend money.

Therefore, energy consumer confidence plays a crucial role in driving future actions and unlocking investment in energy transition. It can either accelerate or hinder the breadth and momentum of the energy transition.

To gain a deeper understanding of the impact of the energy transition on consumer confidence, EY has developed a new Energy Consumer Confidence Index (ECCI). This index incorporates research conducted on 36,000 residential energy consumers across 18 markets, including Malaysia.

Additionally, it integrates the World Economic Forum’s Energy Transition Index, which evaluates countries based on 38 indicators of energy transition progress.The findings revealed an interesting correlation between a country’s progress in energy transition and energy consumer confidence.

Initially, as a country advances through energy transition, consumer confidence experiences an initial rise, reflecting positive sentiment regarding future possibilities.

However, as the journey progresses from being theoretical to becoming practical, encompassing scale, complexity, and disruption, consumer confidence sharply declines. Over time, as the realities of the new energy landscape become apparent, consumers start recognising the value in the changes happening around them, leading to a subsequent rise in confidence.

Building and maintaining consumer confidence throughout the energy transition journey is an important determinant in a country’s ability to achieve and accelerate its decarbonisation goals.

Malaysia now has a unique opportunity to learn from the experiences of countries that have made significant progress in their energy transition journeys.

By doing so, Malaysia can choose to approach certain aspects differently while working towards its own net-zero emission commitments. The research highlights five areas that influence consumers’ confidence in the energy transition, and among these areas, a few warrant further exploration.

Interestingly, the research does not establish a clear link between energy market competition and consumer confidence. In fact, most markets that rank higher in the ECCI exhibit limited energy competition.

While it can be argued that energy market competition brings many benefits, in several countries where competition exists, it has resulted in a confusing array of consumer options, price volatility, and failures among energy companies.

These factors appear to have eroded consumer confidence.

In contrast, Malaysian consumers still possess relatively high levels of confidence in their energy market design and trust in their energy providers.

In fact,93% of Malaysian consumers express a desire for their energy provider to play an even bigger role in helping them navigate the energy transition.

Maintaining a stable energy market will help provide consumers with the confidence to make investments in the energy transition. Furthermore, offering consumers a smaller number of appropriate options will assist them in making decisions and committing to a particular course of action. Both factors will be important for Malaysian energy consumers in the years ahead.

The research also establishes a link between income levels and consumer confidence. Across all markets included in the ECCI, consumers with lower incomes exhibit lower levels of confidence.

This finding could reflect a sense of being left behind and the inability to afford or access new energy solutions such as rooftop solar panels, home battery storage, and electric vehicles (EVs).

To date, the focus on higher income consumers as early adopters of these solutions has limited options for individuals with lower incomes to actively participate in the energy transition and reap its benefits.

For consumers with lower incomes, the primary motivation for engagement is likely to be “help me save money”, rather than “help me save the planet”.

Accelerating the availability of products and services that establish a stronger connection between energy use and cost is an important first step.

This could involve leveraging existing investments in smart metering and digitisation of the electricity grid, such as offering energy prepayment, time of use tariffs, and green tariffs. These measures enable consumers, irrespective of income levels, to save money while contributing to environmental sustainability.

Affordability is an interesting area for Malaysian energy consumers, particularly considering the existing cross-subsidy in the electricity tariff and the subsidies for certain grades of petrol and diesel.

This becomes significant because Malaysia’s energy transition is estimated to require a substantial amount of new investment, approximately ranging from US$350bil (RM1.61 trillion) to US$415bil (RM1.9 trillion), as indicated by recent estimates by the International Renewable Energy Agency.

Ultimately, Malaysian customers bear the cost of the energy transition and fund this investment, whether through energy tariffs, taxes, levies, and subsidies, or by making new product purchases such as rooftop solar and EVs. A positive finding from the research is that over half of Malaysians (57%) expressed a willingness to pay more for sustainable energy products and services.

It is reasonable to assume that if consumers are expected to pay higher energy costs, especially in the medium term, they should expect greater value from their energy providers.

Finally, achieving the energy transition necessitates greater customer engagement in how and when they consume energy.

The era of passive customers, who merely consume and pay for energy without active involvement, is already dwindling in Malaysia.

According to the International Panel on Climate Change behavioural changes have the potential to reduce emissions by 40% to 70% by 2050. Encouraging further investment in energy consumer technology is important to foster more engaged consumers throughout Malaysia.

These consumers would be incentivised to shift their energy consumption patterns to times when renewable power is abundant and cost-effective. By successfully implementing these measures, we can facilitate a more equitable energy transition, empowering consumers to save money and contribute to environmental sustainability, while granting them greater control over their energy usage.

Mark Bennett is the EY Asia-Pacific Energy and Resources Customer Experience Leader, and Partner at Ernst & Young Consulting Sdn Bhd. The views expressed here are the writer’s own.

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