The Utility Customer Switching Research Project was founded jointly in 2004 by Dr Philip E. Lewis of VaasaETT and Paul Grey co-founder of the Peace CIS.

The Project monitors switch rates and trends in all fully liberalised energy retail markets worldwide and has provided the first global view of utility customer switching activity. The Project continues to be the most comprehensive and uniform source of comparable switching statistics in the electricity and gas markets worldwide, and provides ever-increasing analysis of observed trends and explanations for utility customer switching behavior.

Worldmap - The Liberalised Markets We Track

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 Utility Customer Switching Research Project contends that both retail and wholesale markets must be successful for consumers to receive the full benefits of competition. In this context, the Project focuses its research on energy retail competition and those market participants that are all too frequently ignored: the customers.

Project Scope:

  • Research, measure and compare customer switch rates
  • Historical customer switching trends and projections
  • Identify factors promoting and hindering competitive retail activity
  • Insights into successful customer acquisition and retention strategies
  • Customer switch rates as a benchmark for market success
  • Retail market share analysis

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 proposed a comprehensive definition of utility customer switching which has been supported by the CEER (Council of European Energy Regulators) and ERGEG (European Regulator’s Group for Electricity and Gas):

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).

Levels of Activity

Taking account of the rapid growth in the number of competitive markets, and increasing variance between market switching activity and maturity, the levels of activity have been extended from three to five categories. Levels of activity reflect the findings of nearly 12 years of research.

  • Hot Markets:

    Annual switching 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 9.5% and 15%. 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 mainly related to occasional stimulants in the market, such as price rises or profit announcements.

  • Active Markets:

    Annual switching is between 3.5% and 9.5%. Typically, switching activity leads to competitors becoming more customer-focused, 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. Customer awareness can also gain momentum.

  • Cool Active Markets:

    Annual switching is between 1% and 3.5%. Typically, switching is noticeable and measurable, but insufficient to affect any substantial change in the attitudes or behaviour of utilities. Competition is barely visible and customer awareness poor.

  • Dormant Markets:

    Annual switching 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.