Belgian energy companies struggle with high costs and IT legacy

Belgian energy companies are facing financial hardship and underperforming internationally, according to a new European benchmark by Arthur D. Little. 

The analysis by the global management consulting firm compared the financial results of large energy companies in five European countries (Belgium, Italy, Netherlands, Germany and the UK), and found that financially the Belgians are clear underperformers. 

Combined, Belgium’s largest energy companies booked an operational loss in each of the past four years. In 2019 for instance, the companies generated an operational loss of nearly €10 for every €100 million in revenue. In comparison, Dutch counterparts managed to record an operational profit of €10 per €100 million turnover. 

Belgium’s poor performance stems according to the researchers from two factors. First, the large players in the market such as Electrabel, Luminus, Eneco and Lampiris face a heavy cost structure. “The operational efficiency is not what it should be,” said Florence Carlot, an energy expert at Arthur D. Little in discussion with De Tijd. 

Alongside crippling innovation, a legacy IT system is leading to a high total cost of IT ownership. “They still work with outdated IT infrastructure and software systems. Investments in digitisation are therefore heavy. New players enjoy a much more efficient digital landscape.” Without the burden of legacy, they can from scratch build systems that are more fit for purpose and cheaper to run and maintain.

Also, compared to international players, Belgian energy companies on average have more staff on their payroll compared to their revenue, meaning that their organisation is from a resourcing perspective less efficient and agile. Carlot points at opportunities of improving and streamlining internal processes. 

The second main factor lies in the efforts needed to attract new and retain existing clients. According to data from last year, the number of people in Belgium that have switched from energy supplier jumped to a record high of 25%. They are incentivized to switch in part due to aggressive sales strategies from energy players, and a mature market of online price comparison sites. 

However, to attract a customer, energy companies spend approximately €150 or more in advertising, administration, promotions and discounts. But, if that customer subsequently leaves to a rival after the first year of contract, energy companies are unable to recoup their investment.

Carlot: “More and more consumers are switching suppliers and this trend is even more pronounced in Belgium than in other European countries. Suppliers are struggling with this. It means that they face higher costs to bring in customers, but also to keep customers on board.”

More than electricity and gas

To stay ahead of their competition, energy companies are experimenting with met new business models aimed at generating new revenue streams. Kurt Baes, a partner at Arthur D. Little said, “this includes selling smart meters or services and applications that make the home more sustainable.”

They also are trying to extend their value added to customers. By for example offering more than just electricity and gas. Baes: “They can unburden customers by also becoming the point of contact for, among others, the installation of solar panels, the management of electric charging stations or broader energy management initiatives that can ‘green’ their home.”