Electricity retailer –from liability to asset

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Electricity retailer –

from liability to asset

ANTON BERGKVIST

JOHAN LINDROTH

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Elhandel –

från motgång till tillgång

ANTON BERGKVIST

JOHAN LINDROTH

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Elhandel –

från motgång till tillgång

av

Anton Bergkvist

Johan Lindroth

Examensarbete INDEK 2016:46

KTH Industriell teknik och management

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Electricity retailer –

from liability to asset

by

Anton Bergkvist

Johan Lindroth

Master of Science Thesis INDEK 2016:46

KTH Industrial Engineering and Management

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Examensarbete INDEK 2016:46

Elhandel – från motgång till tillgång

Anton Bergkvist

Johan Lindroth

Godkänt

2016-06-16

Examinator

Cali Nuur

Handledare

Saara Hollmén

Uppdragsgivare

Sustainable Technologies Fund

Kontaktperson

Jonas Almquist

Sammanfattning

I det rådande energilandskapet finner elhandelsbolag svårigheter att differentiera sig från varandra, detta på grund av ökad konkurrens och politiska regleringar. Elenergihandelsmarknaden står inför ett paradigmskifte.

Syftet med denna studie har varit att undersöka hur ett modernt elhandelsföretag handelsföretag kan undvika nuvarande och kommande svårigheter inom marknaden och vilka riktningar de ska välja för att förbättra sin lönsamhet.

Studien har genomförts genom att använda en kvantitativ och kvalitativ metod. Den kvantitativa metoden användes för att kartlägga alla elhandelsbolag som finns i Sverige idag och samla in data för att analysera dess lönsamhet. De mest intressanta företagen som identifierades i den kvantitativa datainsamlingen valdes sedan ut. Med dessa företag utfördes sedan strukturerade intervjuer.

Från den kvantitativa datainsamlingen konstaterades det att el med förnyelsebart ursprung var upp till fyra gånger mer lönsamt än att sälja el med kärn- och fossilt ursprung. Trots det kunde det fastställas att den totala lönsamheten från elhandel är förvånansvärt lågt. Från urvalet visade det sig att 50 procent av alla elhandelsbolag hade ett rörelseresultat på mindre än en miljon kronor för de två analyserade åren, för dessa är den genomsnittliga lönsamheten ca 0.28 miljoner kronor.

Från den kvalitativa datainsamlingen konstaterades det att de som arbetar mer aktivt med produkter och tjänster som kan relateras till energi eller välgörenhet och lojalitetsprogram uppnår ett högre rörelseresultat. I intervjuerna uppgav de utvalda elhandelsbolagen att vinsten fortfarande är låga (det tar minst fyra år innan en kund blir lönsam) och att den mest lovande lösningen är att expandera verksamheten med produkter tillsammans med tjänster, servitization. Om elhandelsbolag ska expandera sin verksamhet med att sälja produkter tillsammans med tjänster relaterade till elektricitet, servitization, bör de också positionera sig med en viss konkurrensstrategi (kostnadsledarskap, differentiering, fokus) och rikta sig till en särskild målgrupp. Grupper som har identifierats tillsammans med dessa konkurrensstrategier är exempelvis de som vill spara pengar (kostnadsledarskap), miljövänliga/ teknikentusiaster (Fokus) och de som är mitt emellan (differentiering).

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Master of Science Thesis INDEK 2016:46

Electricity retailer – from liability to asset

Anton Bergkvist

Johan Lindroth

Approved

2016-06-16

Examiner

Cali Nuur

Supervisor

Saara Hollmén

Commissioner

Sustainable Technologies Fund

Contact person

Jonas Almquist

Abstract

Electricity retailers have difficulties to differentiate themselves from each other, due to increased competition and political regulations. The electric energy trading

market is facing a paradigm shift.

The purpose of this study has been to investigate how a modern electricity retailer can avoid current and forthcoming difficulties within the market and what directions they should choose in order to improve their profitability.

The study has been conducted using a quantitative and qualitative approach. The quantitative approached was used to systematically describe all electricity retailers that exist today in Sweden and collect data for analyzing how profitable they are. Structured interviews were later conducted in order to gather qualitative data from the most interesting companies from the quantitative data collection.

From the quantitative approach it was found that selling electricity from guarantee of origin was approximately two to four times more profitable than selling nuclear and fossil produced electricity. The total profits from electricity trading alone is surprisingly low. From the quantitative data sample, it was shown that 50 per cent of the electricity retailers earn less than one million SEK and their average profitability is approximately 0.28 million SEK.

In the qualitative study it was concluded that those who had succeeded with higher profits were working with services along with the electricity trading. Examples of such services are charity and loyalty programs. It was stated in the interviews that the profits are still low and will remain low if solely rely on electricity trading. It takes at least four years for a customer to be profitable. The most promising solution to avoid getting stuck in the middle is to expand their business with products together with services, servitization. If the electricity retailers should expand their businesses with selling products together with services related to electricity, servitization, they should also position themselves with a certain competitive strategy (cost leadership, differentiation, focus) and target a specific group. Groups that have been identified together with these competitive strategies are those who wants to save money (cost leadership), environmentally friendly / technology enthusiasts (focus) and inbetweeners (differentiation)

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Acknowledgements

We would like to thank all electricity retailers who participated in this study. Without your participation this thesis would not exist. We are extra grateful for Björn Dahlberg, Lars Elfström and Åke Persson who voluntarily participated in the in-depth interviews.

We would also like to thank our supervisor Saara Hollmén for her good inputs and reflections throughout the entire thesis. Another person we would like to thank is Jonas Almquist at Sustainable Technologies Fund for his knowledge and contributions.

In addition, we would also like to express our gratitude to Pär Blomkvist and the thesis groups that participated in the seminars and gave us constructive feedback.

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List of Figures

1 Data collecting process. (Collis , J., Hussey, R. 2013) . . . 6 2 Survey template sent to marketing managers, sales managers and CEOs . 7 3 Illustrate the four different actors in the energy system. (Svenska Kraftn¨at

2016a) . . . 11 4 Illustrate the possible market share in relation to Return on investment

and differentiation/cost leadership. (CIO 2016) . . . 16 5 The table demonstrate different approaches within different areas of the

company regarding marketing depending the current phase of the company, product or service. (Uggla 2006) . . . 21 6 Illustrate the Ansoff ’s four different growth strategies. (Ansoff 1957) . . . 24 7 The price development of solar panels in Sweden excluding taxes (Johan

Lindahl 2016) . . . 26 8 Illustrate the relationship between profitability, customer base and sold

volume for the year 2013. . . 29 9 Illustrate the relationship between profitability, customer base and sold

volume for the year 2014. . . 30 10 The determination coefficient, R2, in per cent for the entire analyzed

en-ergy map. . . 30 11 Visaulize a zoom of the cluster in Figure 7 over the cluster, hence the four

extreme cases are ignored . . . 31 12 Visaulize a zoom of the cluster in Figure 8 over the cluster, hence the four

extreme cases are ignored . . . 31 13 The determination coefficient, R2, in per cent for the cluster of retailers

from Figure 11 and 12. . . 32 14 The chart illustrate the average profitability of different production sources

for the year 2013 and 2014 . . . 32 15 A strategy map for electricity retailers to become more competitive. . . 34 16 A strategy map for electricity retailers to become more competitive by

choosing differentiation as strategy. . . 38 17 A strategy map for electricity retailers to become more competitive by

choosing differentiation as strategy. . . 41 18 A strategy map for how the electricity retailers should position themselves

in order to become more competitive. . . 42 19 A strategy map for electricity retailers to become more competitive. . . 51

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20 A strategy map for how the electricity retailers should position themselves in order to become more competitive. . . 52 21 Illustrate the relationship between profitability, customer base and sold

volume for the year 2013 with correlations . . . 60 22 Visualize a zoom of the cluster for 2013 with correlations . . . 60 23 Illustrate the relationship between profitability, customer base and sold

volume for the year 2014 with correlations . . . 61 24 Visualize a zoom of the cluster for 2014 with correlations . . . 61 25 Compilation of interview questions and answers, question 1. - 2.1 . . . . 63 26 Compilation of interview questions and answers, question 2.2 - 3.4 . . . . 64 27 Compilation of interview questions and answers, question 3.5 - 5. . . 65 28 Compilation of interview questions and answers, question 5.1 - 5.4 . . . . 66 29 Compilation of interview questions and answers, question 5.5 - 7 . . . 67

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1 Introduction

The purpose of this chapter is to provide the reader with background knowledge regarding the paradigm shift the addressed market is facing and why actions needs to be taken in order to stay relevant and competitive in the future. The problem will be formulated along with the purpose of the paper, research questions will be presented as well as the delimitations. At the end of the chapter the contribution to the research field will be stated.

1.1 Background

In the early 20 th century Sweden began to get electrified. In order to enable the electri-fication, line network concession were given for transmitting high voltage of electricity from the production plants to local regions. From the local regions, area networks con-cession were given for distributing low voltage of electricity to supply end consumers. The consequences of the line network concessions and area network concessions resulted in regional and local monopolies. A consumer of electricity could only buy from the local electricity distributor who had area network concession of that specific area. This approach was implemented to ensure the grid owners return on investment, due to the high investment costs. (Bergman 1997)

Over time, the construction of new electricity networks decreased and therefore there was no longer a need for local and regional monopolies, hence a new system was re-quired. The Nordic countries agreed to create a common electricity market with free trading between the countries and Norway was the first country to deregulate their electricity market in 1991. Energy producers sold the generated electricity, to what we know today as, Nord Pool which is a power market that offers energy retailing, clearing and settlement. Electricity retailers procures electricity from Nord Pool and sell it to end customers. (Nord Pool 2016) In 1992 Sweden declared to deregulate the electricity retailing market and the proposal came through in 1996 when Sweden joined Norway in free trading cross borders. (Svensk Energi 2016)

The overall goal with the deregulation of the electricity market was to increase the competition and decrease the price of electricity for end customers. (Regeringen 1991) By this time there were 221 different electricity retailers in Sweden and due to the in-creased competition and free trading, electricity retailers had to cut their margins and hence reduce the profits down to prices that has been converging towards the margin

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production cost. (Staten 2004)

Due to the high competition and difficulties to differentiate the homogeneous product electricity, have resulted in a decrease of electricity retailers to approximately 120 com-panies in 2016, according to results of this study. One might argue that a decrease of electricity retailers would result in decreased competition as well. However, due to the increased availability of information from comparison sites allow the end consumer to compare different electricity contracts effortlessly and therefore has increased the com-petition even more.

Electricity retailers are also indirectly affected by the European targets called 20-20-20 and were introduced in 2007 by leaders of the European Union. The 20-20-20 targets are a common agreement between the countries within the European Union, which together are suppose to reduce their greenhouse gas emission with 20 per cent until 2020 compared with 1990 levels. In addition, 20 per cent of all the energy should origin from renewable sources and the energy efficiency should also be improved with 20 per cent until 2020. However, all countries has a individual target and Sweden has already fulfilled its goals. Although Sweden has committed to reduce the greenhouse gas emissions with 40 per cent until 2020 compared with 1990 levels. (European Union 2016) Electricity retailers are affected indirectly by this policy, while they might have to offer end consumer of energy with electricity that has an origin from renewable sources and help end consumers to reduce their energy consumption.

1.2 Problematization

Political regulations, increased competition and difficulties to differentiate from each other are drivers for a paradigm shift in the electricity retailing market. Electricity re-tailers are indirectly affected by political regulations and need to adapt to them as well as the environmental issues in order to be competitive in the future. There is an absence of knowledge and experience regarding how electricity retailers can distinguish themselves from one another when the main product they offer, electricity, is homogeneous.

1.3 Purpose

The purpose of this study is to investigate how a modern electricity retailer can avoid the current and forthcoming difficulties within the market. Furthermore the study will search for alternative directions in order to improve the profitability in year 2020 and beyond due to the targets set by European Union.

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1.4 Research Questions

In order to investigate the addressed problem the electricity retailing market is facing, a number of questions first needs to be answered. In the following paragraph such questions are presented;

• Main Question Towards what directions should an electricity retailer develop their business in order to improve their competitiveness in the year 2020?

• Sub-Questions To answer the main research question, three sub-questions are needed to be answered. Those are:

· RQ1 What characterize a profitable electricity retailer?

· RQ2 How can electricity retailers position themselves when their products is homogeneous?

· RQ3 Can a general strategy be developed to meet the requirements from different customer segments?

Electricity retailers have recently started do differentiate from each other by offering one hundred per cent renewable electricity which is referred to as ”Guarantee of origin” to the end customers. (EU 2009) Since offering guarantee of origin to the end consumer is a way to differentiate it would increase the profitability. Therefore a hypothesis has been stated and was tested by the researchers assuming that:

”Electricity retailers that offer their customers electricity with guarantee of origin are more profitable that those who do not.”

1.5 Delimitations

This thesis is delimited to investigate electricity retailers in Sweden, since the study will be conducted in Sweden. Data collection is delimited to electricity trading when evaluating how profitable the various companies are in the current market environment. It is not possible to interview all electricity retailers in order to answer the purpose of the research, therefore a sample of the most outstanding companies in respect to profitability, amount of customers and sold volume have been compiled and interviewed. Another delimitation is that the researchers do not consider any new products or services to be introduced and disrupt the market within the time frame.

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1.6 Contribution

There is a gap in the literature regarding how electricity retailer can differentiate them-selves from each other and what the characteristics are for a profitable electricity retailer. This study will contribute to the literature regarding how electricity retailers can dif-ferentiate from each other and how profitable they are in Sweden. The study will also contributes with concrete proposals and ideas for alternative directions for electricity retailers to develop their businesses in order to be competitive in year 2020. In addition the thesis will provide information regarding what the characteristics are for a profitable electricity retailer.

1.7 Outline of thesis

The thesis consist of six chapters.

In chapter one, introduction, the background was presented together with the pur-pose, research questions, delimitations and the contributions of the study.

In chapter two, Method, describes how the research study was conducted. It presents the research design, the data collection approaches, how the collected data was analysed and also a discussion about the reliability, validity and generalizability of the study.

In chapter three, Literature review, presents the electricity market in general, posi-tioning and growth strategies. Literature about posiposi-tioning and growth strategies was used for analysing how an electricity retailer should be competitive in year 2020.

In chapter four, Empirics and analysis, the results from the quantitative and qualita-tive study is presented together with the researchers own analysis.

In chapter five, Discussion, the implications of findings will be discussed as well as future research.

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2 Method

In this chapter the methodology used in this study will be presented. Firstly the research design of the study will be explained. Later on the data collection methods and- analysis methods are described and at the end of the chapter a discussion regarding the reliability, validity and generalisation of the study will be presented.

2.1 Research design

The purpose of this study was to investigate how a modern electricity retailer should develop their business in order to be more profitable in year 2020. To achieve the pur-pose of the study, a main research question was formulated, although the main research question require a broader knowledge within a couple of areas and hence four sub ques-tions was formulated.

In order to fulfil the purpose of this study the main questions together with the sub-questions needed to be answered. In this study an explanatory study was used together with a case study approach.

The explanatory study was mainly used to answer RQ1. It was used to investigate if there is a relationship between variables in order to form the hypothesis stated in the introduction chapter. Data was independently gathered from different electricity retailers and was later compared with each other in order to find common variables.

The case study approach was used for answering the other two research questions. A case study is used when a single phenomenon will be investigated. Different kinds of methods is used to obtain in-depth knowledge. A case is defined as a particular business, event, person, process, group of workers or another phenomenon. In this research the researchers investigated a particular business, the business of electricity retailers. There are four different types of case studies and the one the researchers used was the illustrative case study. The definition of illustrative case study is when a research attempts to illustrate new and possibly innovative practices that could be adopted by companies (Collis , J., Hussey, R. 2013).

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2.2 Data collection

In this sub-chapter the different data collection methods that were used in order to an-swer the different research questions will be described.

Data collection for RQ1

As stated earlier an explanatory study was conducted for answering the first research questions. This part of the research leaned towards a quantitative approach. A quanti-tative study collects empirical data for a phenomena using statistical or mathematical techniques. (Given 2008) The graph below illustrates how the researchers collected the data for research question one.

Figure 1: Data collecting process. (Collis , J., Hussey, R. 2013)

The study was started by compiling a list in excel with every electricity retailer. A list of all electricity retailers could be found at the website www.elskling.se. (Elskling 2016) The list was not accurate, while some of the electricity retailers had been bought by others. To investigate if the electric retailing company was active and not had been bought by other companies could be verified through the website www.allabolag.se. (Allabolag 2016)

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When the list of all electricity retailers was compiled, the variables for the study were collected.

The variables that were collected was: total turnover, EBIT (Earnings before inter-est and taxes), number of electricity customers and total amount of electricity sold in gigawatt hours for the years 2013 and 2014. Since the study began before the annual reports of 2015 commenced, the researchers decided to exclude the year 2015 from the study.

The researchers searched for these variables in each of the electricity retailers annual reports. Often two or more variables were missing. Approximately one of thirty annual reports had all of the variables. When the variables could not be found, the next step was for the researchers to call all the electricity retailers. The people the researcher contacted were sales- and marketing managers or CEO:s. Some of them did not want to share these variables but most of them agreed to provide the information if they remained anonymous. Some of the electricity retailers started to sell electricity in 2015 and therefore these companies could neither participate in the study. Therefore the list presented of how profitable electricity retailers are today are presented with a number instead of their brand-names. A small table was made in advance that could be sent to the respondents email addresses after the researchers had talked to them and agreed to participate in the survey. The table of questions sent to the employees at the electric retailers can be seen below:

Figure 2: Survey template sent to marketing managers, sales managers and CEOs

A note in the end of the mail always stated: ”Note that the variables is only for elec-tricity retailing”. When the researchers searched for the variables in the annual reports, the variables could be found but in most cases the figures were presented for electricity re-tailing along with other products and heating. In some cases, the numbers received from the sales- and marketing managers did not seem reliable. If such was the case, then the researchers followed up the errors. The problem could mostly be explained due to

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sales-and marketing managers did not see the units in the table, like total turnover in [MSEK].

From the collected variables, the average sales price of electricity could be calculated as well as the profitability per kWh. The electricity retailers were split into several segments, for instance in terms of size which is evaluated by the number of customers and the amount of sold GWh. Furthermore other segments to divide the companies into were guarantee of origin and profitability. Calculating the average profitability was con-ducted in order to test the hypothesis that electricity retailers that offer their customers electricity with guarantee of origin are more profitable.

Data collection for RQ2 and RQ3

From the quantitative data that was collected, some interesting findings were found. The companies that were most outstanding were contacted and asked if they could participate in an interview with the researchers. The researchers used a structured approach, which means that all the questions were prepared in advance. The researchers sent an email containing the questions in advance so those who participated could prepare for the interview questions. There were three interviews with three different electricity retailers. One interview were over the phone and two interviews were face to face at their offices. The interview that were conducted over the phone, were with a company that are located far away from where the researchers are and those who were closer to the researchers were done face to face. All the interviews were recorded and transcribed. There was also one structured interview with a company that is working within service and product related to electricity retailing. Furthermore there were three unstructured interview, two of them regarding options how different combinations of products and services could be used within their specific sectors. The third unstructured interview was conducted with the CEO at a new started electricity retailer regarding different electricity contracts.

2.3 Data analysis

There are four different ways to analyse the data: thematic analysis, narrative analysis, discourse analysis and quantitative analysis. (Blomkvist,P., Hallin, A. 2015)

The data that has been gathered for RQ1 has been used in order to do a quantitative analysis. The approach for doing a quantitative analysis is suitable when quantitative data has been collected. The data that was collected in the interviews for answering RQ2 and RQ3 was analysed by using a thematic approach. The data that was collected were categorized and sorted out in excel.

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2.4 Reliability, validity and generalizability

In this sub-chapter the reliability, validity and generalisation of the study will be dis-cussed.

Reliability

Reliability is about the credibility in the findings of the research and if it will be the same results if the study was repeated. (Collis , J., Hussey, R. 2013) The researchers need to ask themselves if the evidences would stand up to a scrutiny process. (Raimond 1993) For answering RQ1 the collected data delivers high reliability, because the people that was contacted were sales- and marketing managers who works with collecting such vari-ables in their daily work. However, as mentioned earlier sometimes the numbers that the sales- and marketing managers had given did not look reliable. In order to strengthen the reliability, they were followed up and an explanation could be drawn that the man-agers did not see the units in the table, like total turnover in [MSEK]. The reliability of the collected data decreases because some of the electricity retailers wanted to be anonymous. The response rate from the electricity retailers have been around 50 per cent, which is a bit low. However it is a large sample and general conclusions could be drawn.

The data collected for answering RQ2 and RQ3 delivers high reliability. The struc-tured interviews that was recorded, transcribed and how the answers would be written in the thesis was mailed to the participants. They responded to the mail and some minor changes was made.

Validity

Validity is to which extent the findings of the research reflects the phenomena under study. (Collis , J., Hussey, R. 2013) According to Coolican a test is valid if it measures or demonstrates what the researchers think or claim it does. (Coolican 1992)

After compiling the list of electricity retailers the researchers can draw the conclusion that there is no longer high profitability in only selling electricity. This was confirmed by what was stated in the interviews and therefore the validity is high.

Generalizability

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settings or cases.

This study has been delimited to Sweden and electricity retailers. The results of what directions an electricity retailer should expand their business could be generalizable to other electricity retailers that have a similar electricity market situation as Sweden and a deregulated electricity retailing market. The results may be generalizable to other settings that has a deregulated market together with homogeneous products, such as petrol filling stations. Electricity is a homogeneous product and petroleum is also a homogeneous product and it is a keen competition in both industries to get customers.

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3 Review of electricity market, business strategies and

positioning

In this chapter relevant literature for the thesis will be presented.

3.1 The electricity market

This chapter will give a general introduction how the electricity market is built and identify the various actors that are present in the market. Furthermore the researchers will present the actual cost of electricity for end consumers and what the most common different contracts that are offered by the electricity retailers.

3.1.1 Actors on the electricity market

Most people have come in contact with electricity in their everyday life, for example when lighting a light-bulb or charging their phone. In order for this process to work a number of actors and operations needs to cooperate simultaneously. In fact, in order to light a lightning bulb connected to the grid, the energy lighting up the lamp will have to be produced at the very same moment. First the electricity needs to be generated and this is done when a generator is in motion in a power-plant. When the electricity is generated it needs to be distributed to the households. The electricity is distributed to the households through power-lines/grids. (Svenska kraftn¨at 2016b)

The actors in the electricity market can be divided into four categories as seen in the figure below:

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Electric energy consumers

The electric energy consumer extract electricity from the grid. The consumer of elec-tricity sign a contract with one of the elecelec-tricity retailers in order to buy elecelec-tricity. A contract between the grid-owner and the electric energy consumer is also signed in order to pay the transport of electricity. (Energimyndigheten 2016)

Electric energy producers

The producers that usually own the power-plants generate electricity and transmit it into the grid. When the energy has been transmitted it gets sold to the power market Nord Pool or directly to the consumer. (Energimyndigheten 2016)

Grid owners and system administrator

The grid owners have the responsibility to transmit the electricity from the power-plants to the consumer. The system administrator, Svenska Kraftn¨at, has the responsibility to have the electricity system in balance, which means that the production/import of electricity have to meet the consumption/export in the system. (Energimyndigheten 2016)

Electricity retailers and balance-responsible

An electricity retailer can be both supplier of electricity and balance-responsible. The electricity retailer procures power from producers and/or the power market Nord Pool and sell it to the consumers. The electricity retailer can also produce electricity and therefore act both as a producer and as a supplier of electricity. At every point where electricity is extracted from the grid there need to be a balance-responsible. To have balance-responsibility means to have economical responsibility of having production and consumption in balance. (Energimyndigheten 2016)

This thesis will focus on the electricity retailers. 3.1.2 Pricing of electricity

When receiving the electricity bill the end consumer will at the end find a total amount to be payed. This amount however is divided into five different costs that are specified in the end consumers electricity bill. These cost are presented below:

• The electricity cost • Network fee

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• Energy tax • Value added tax

(Energimyndigheten 2014)

There is solely one cost in the electricity bill that the end consumer actually can affect, namely the cost of electricity. This cost can be affected when choosing electricity retailer and selecting electricity contract.

The network fee is payed to the local grid owner to transmit the electricity to the households. (Energimyndigheten 2014)

The energy tax is regulated by the state and is set for one year at the time. The current cost for 2016 is 0.293 SEK/kWh and in some municipalities 0.193 SEK/kWh. (Energimyndigheten 2014)

Value added tax is also regulated by the state and is set to 25 percent of the total cost. (Energimyndigheten 2014)

The part of the electric energy price that is of interest for this thesis is the actual electricity cost. The most common different contracts for the electricity retailers will now be explained.

Electricity cost with variable price

The actual electricity cost follows the movement on the power market Nord Pool. The average monthly electricity price at Nord Pool is the base of the electricity cost with variable price. A contract of this kind means a certain risk for the consumer even though the electricity retailer is barely affected. For instance when there is shortage of electricity the price will increase dramatically. Although, there are also advantages, for example when there is an over production of electricity the price will decrease. (Ramqvist, P. 2011)

Electricity cost with fixed price

The actual electricity cost has a fixed price over a certain period. The most usual periods are 1,2 or 3 years. The advantage for the retailer with fixed price is the possibility to increase profitability if the electricity price drops. (Ramqvist, P. 2011)

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Electricity cost at current rate

The electricity cost at current rate is the price the consumer pay when they have not made an active choice of electricity contract. The price follows the movement at Nord Pool comparable to electricity cost with moving price but to a considerable higher cost. The consumer can not choose to have electricity cost at current rate, it only occur when moving into a new household and no active choice of contract has been made. (Ramqvist, P. 2011)

A mix of electricity cost with variable price and fixed price

The electricity cost is, as the name states, a mix of fixed price and moving price. The consumer pays a certain amount of the consumption to a variable price and the rest to a fixed price. For instance if the consumer prefers a variable price during the summer and a fixed price in the winter. (Ramqvist, P. 2011)

Electricity cost with guarantee of origin

Certain electricity retailers offer contracts where the electricity is produced specifically by renewable sources such as wind and hydro power. There are many different types of environmental contracts that the electricity retailers offer. Lately some companies have for instance introduced solar energy contracts. (Ramqvist, P. 2011)

3.2 Positioning

Positioning is about when a new company or brand position themselves in the minds of consumers. They have to create something different about the brand, product or service in order for the consumers to be aware of them and stake out a bit of territory. (Uggla 2006) The theories will be adopted in the Empirical Study and analysis in Chapter 4. 3.2.1 Competitive strategies

There are generally three main types of competitive position strategies. The three gen-eral competitive position strategies are:

• Focusing • Cost leadership

• Differentiation (Porter 1998) Focusing

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com-pany focus on a certain part of the market instead of the whole market. This strategy will lead to only a few people will love the company or product. One example is the company Select Travel who only offers exclusive travels to consumers with special desires that can not be met at the mass-market or the more differentiated actors. (Uggla 2006)

Cost leadership

The cost leadership strategy is established on having low distribution- and production costs in order to create economies of scale. Economies of scale is when production in-creases the average cost per unit dein-creases and this results in that big companies are more profitable (Businessdictionary 2016). Companies adopting this strategy concen-trate on cost efficiency to ensure as low production- and distribution costs as possible in order to offer their customers the lowest price on the market. Hence the company need to have a strong cost control in order to keep their prices low and be successful. It can be difficult to handle this strategy with success since it is easy to copy low price concepts. (Uggla 2006)

Differentiation

This strategy is used when a company want to offer their customers something addi-tional compared to current products or services and therefore charge customers a higher price for these added features. In this strategy the company want to create a positive experience for the customers that their competitors do not satisfy. It can for example be a new technical innovation or a product that has an advanced shape and design. One example is the company Boomerang who works with advanced design combined with high qualitative fabrics with unique fibres in their clothes. The company creates a unique demand-curve where they have the possibility to charge their customers more, since it is a more advanced product. (Uggla 2006)

If there is no difference between the companies it will lead to a price competition. It is no other option to avoid price competition if companies do not offer customers some-thing different or somesome-thing in addition (Aaker 2004). Aaker states:

”There is considerable logic behind the importance of differentiation. If a brand fails to develop or maintain differentiation, all brands will start to look the same to consumers, and price will become the dominant decision determinant.” (Aaker 2004)

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Stuck in the middle

The graph below shows how a company can be positioned. The right side refers to a com-pany that has a high market share and use the cost leadership strategy. The comcom-pany sells many different kinds of products and services at a low price with low profit margin. Their motto would be sell everything to everyone. On the left side of the graph there are companies using differentiation or focusing as position strategies. The company sells services or products that are unique but to a considerable higher price. The products and services that the company sells has a high profit margin, but a lower market share compared to cost leadership. A company will be stuck in the middle if it tries to use more than one competitive strategy and hence would not be as profitable. (Lundqvist, O., Albertsson, S. 1999)

Figure 4: Illustrate the possible market share in relation to Return on investment and differentiation/cost leadership. (CIO 2016)

A company that has used the differentiation strategy is Apple. They have sold a lot of products to many people, but their product range is narrow. Due to Apple’s extreme differentiation to a specific niche they have been able to maximise their profitability. (Herbert 2015)

A company that has used the cost leadership strategy successfully is Walmart. They have very low prices and can sell everything to everyone who enters one of their stores. Walmart has maximized their cost leadership and have managed to become the largest retailer in the world and therefore have a massive return on investment. (Herbert 2015)

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According to (Stanton 2001), the stuck in the middle theory as well as the theory about competitive strategies has been adopted in the Australian electricity retailing market and has been well adaptable. In the study it was proven to be possible to identify the various positioning strategies, low-cost i.e cost leader, focus and differentiation. In the journal nine of the fourteen electricity retailers were identified as cost leaders, three were using the differentiation strategy, one was considered to use focus while one was stuck in the middle. Hence the theory would be adaptable in the Swedish electricity retailing market as well.

3.2.2 General value positioning

Kotler and Armstrong refer in their publication from 2004 that Jean-No¨el Kapferer states:

”Consumers typically choose products and services that gives them the greatest value. Thus, marketers, want to position their brands on the key benefits that they offer relative to competing brands.” (Kotler, P., Armstrong, G. 2004)

Value can emerge in relation to competitors and consumers on the market. Within marketing management there are nine possible value positions and four are desirable for the marketer. They are:

• More for more • More for same • Same for less

• Less for much less. (Uggla 2006) More for more

In a market there is always a small group of consumers who always desire something that other people do not have. For example an exclusive travel, a more expensive car or a finer perfume. The marketers should not believe that this small group of individuals are more interesting or better, it only signals that they want something more exclusive. The value position strategy “more for more” is about to offer the market a premium product to a much higher price. It is about having high margins and have loyal consumers. Some companies or brands that have succeed with this strategy are: Rolex, Grand Hotel, Mont Blanc, Select Travel etc. (Brady, D. 2004)

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More for same

This value position strategy is about to give consumers something more or more exclusive for the same price. It aims to compete with the brands in the extreme luxury-segments. It is about giving consumers a similar promise as the more exclusive brands in the value position strategy “more for more”, but to a lower price. Toyota have used this strategy when they introduced the premium brand Lexus. Toyota communicated that consumers for the first time got more value for the same amount of money. Kotler stated it was perhaps the first time a 72000 dollar car could be traded for a Toyota car that costs 36000 dollar. (Kotler, P., Armstrong, G. 2004)

Same for less

Many consumers wish to maximize the value of their money and therefore seeks for bud-get alternatives on the market. Almost everyone wants to bud-get same quality to a lower price, consumers wants to make a good deal. To offer same quality to a lower price is extremely attractive from a consumer’s perspective. The value position strategy “same for less” is trying to offer consumers the same quality as other brands or companies to a lower price. One example is 7-eleven who has created the beer Santiago with this strat-egy. Santiago has the same positioning as the beer Corona and other similar brands, but to a lower price. In order to maintain the same for less strategy, companies need to compromise on factors such as service and production. (Uggla 2006)

Less for much less

The low price strategy less for much less relies on removing every possible cost and only focus on the absolute foundation of the product or service. For example within air trav-eling, the service on the airplane can be cut down. Furthermore air travel companies can remove rebookable air tickets and only serve food and beverages for additional costs. This strategy uses the price as the competitive weapon, but can be a vulnerable strategy in the long run, since the strategy is easy to replicate. One typical company that have embraced the value position strategy less for much less is Ryanair. They only offer the air travel and have removed everything else. (Uggla 2006)

As stated earlier, electricity is a homogeneous product. This signify that electricity will not be adaptable to the different general value positioning strategies. However the theory can be used with products and services related to electricity.

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3.2.3 The marketing mix

Philip Kotler states that the marketing mix is a set of marketing tools that are control-lable. These tools are product, price, place and promotion that is “mixed” by a company in order to receive the desired response from the targeted market. (Kotler 2001)

This theory will be used when analysing products and services related to electricity.

Product

Product is a confused concept, but in marketing it is defined as everything that can satisfy a need. In this definition it can therefore be a service, a physical product or even an idea that can be marketed. Within marketing the term ”product” is sometimes associated with offering, which describes how a service or product is positioned. There is always something on a market that constitutes an offering, hence nothing can be ex-cluded from this definition. The traditional concept of product involves quality, service, name, attribute and guarantees. (Kotler, P., Armstrong, G. 1996)

Price

The price of a product or service indicates to some extent the quality. A high price would imply that the product has high quality, while a low price would signal less quality. Price is defined as what the consumers pay for the product or service along with additional costs, for example insurances. In a market with perfect competition the price is set by demand and supply. The price is a function of the single firm marginal cost. This means that firms or companies cannot set the price themselves to compete in a market with perfect competition. The starting point of all marketing is how the consumers experience the product. The only way for a company to entirely set the price themselves is when they act in a monopoly market. (Uggla 2006)

Place

Another highly important factor in marketing is what is referred to as ”place”. The concept of place includes distributors, retailers, location, storage and transport. It has a strategic impact, while it prevents future possibilities to reposition the brand. (Uggla 2006) The place can be compressed or expanded in positioning, for example by inte-grating units to get a wider range of products or services. (Young 2001) Within the distribution theory, a sales channel is defined as a set of organizations that are depen-dent on each other and is involved in the process of making a service or product available for consumption. (Stern, L., Ansary, A.I, Coughlan, A.T 1996)

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There are in general two distribution principles: • Intensive

• Selective

Within intensive distribution the product or service goes through all possible channels to make it available for as many people as possible on the market. While selective dis-tribution focuses on a certain channel in order to reach out to a specific city or region. (Uggla 2006)

Promotion

Promotion is a tool that the marketer can use in order to communicate an offering. Some of them are:

• Commercial • Event marketing • Word of mouth • Personal selling

• Sales promotion and point of sales merchandising. (Uggla 2006) 3.2.4 Product life cycle

The product life cycle has four different phases, those are: • Introduction

• Growth • Maturity

• Decline (Anderson 1984)

Henrik Uggla states that there is more or less an optimal product, promotion, distri-bution and price strategy in each phase of the product life cycle.(Uggla 2006)

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Figure 5: The table demonstrate different approaches within different areas of the company regarding marketing depending the current phase of the company, product or service. (Uggla 2006)

This theory will also be used when analysing different products and services related to electricity.

Positioning in the introduction phase

In the introduction phase there is an extensive work to establish a trustworthy position on the market. It is the same for brand-extensions and new products as well. Kapferer who is a well known brand identity researcher describes that many companies underesti-mate the amount of work that is needed to establish existing brands into new categories. Kapferer means that if the brand is well known it does not mean that the brand has a trustworthy position in a new category. The overall goal during the introduction phase is to establish a market position. The product or service need to have high quality in order to achieve a successful marketing. The promotion in the introduction phase is to establish knowledge and identification on the market. The brand also need to establish a distribution network for the product or service so that consumers can access it. The price is low or high depending on to what degree the product or service should penetrate. A high price often means a low penetration of the market and a low price often means a high penetration of the market. (Uggla 2006)

Positioning in the growth phase

The overall goal in this phase is an expansion of the targeted market. The focus is to reinforce the brand and expand the consumer segment. (Rajagopal 2004) In this phase the products and services weaknesses needs to be found and also analysed whether the services and products can be better both from the consumers and distributors

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perspec-tive. The price in this phase needs to be set efficiently in relation to the competitors on the market. Extreme discounts and sales promotion in this stage is not to recommend while it creates ambiguity of the brand. (Uggla 2002)

Positioning in the maturity phase

A strategic goal in this phase is to reposition which is an alternative course of action. Repositioning in this phase can create relevance for brands that earlier had a burden in the minds of consumers. A reposition can be incremental or radical. (Uggla 2006) The product or service needs to adapt to the attributes consumers have in order for the brand to strengthen their new position. During the promotion new attributes needs to be communicated and have a good offer in all channels. (Rajagopal 2004)

Positioning in the decline phase

The positioning in the decline phase can often be seen to have a more reactive than proactive characteristic. It can be seen that the brand has an image of a typical cash cow product and the consequences of this is to capitalise on a product or service for investments that has an uncertain future. The reactive strategy assumes that there is a variation of products and services that gives the brand a width and do not only rely on just one product or service. If the brand does not have a variation of products or services, there is a risk that the brand becomes extinct. (Uggla 2006)

3.3 Growth strategies

In this chapter the growth strategies for companies will be described. The first growth strategy is to have strong customer satisfaction which will lead to high customer retention. The second strategy is based on the Ansoff matrix which will later be explained.

3.3.1 Customer retention and satisfaction

A company’s long term competitiveness is according to Hennig-Thurau and Klee, de-termined by the key drivers of the services and products offered by the company along with customer satisfaction. (Hennig-Thurau 1997) In recent years the general trend of marketing has changed towards a relationship marketing, compared with the traditional transactional marketing approach. (Gr¨onroos 1994) Transactional marketing is a busi-ness strategy with insignificant customer relationship and aims to maximize the sales of products and services. This strategy is often referred to as “one off” sales. Relationship marketing is a business strategy which aims at retaining and maintain a relation of com-mitment, where commitment is the willingness for one partner to stay in a relationship

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with another partner. (Fruchter 2009)

Customer satisfaction is necessary for retention of customers, therefore the number of companies adopting this approach of relationship marketing is increasing. Kotler states that the key to customer retention is customer satisfaction. (Kotler 1994)

In a study conducted by Anderson, Fornell and Lehmann, they question if there are economic benefits for companies to improve their customer satisfaction and how cus-tomer satisfaction correlates with market share. They conclude that the higher the market share a firm has there is a downward trend in customer satisfaction. In their sample no firm has both high customer satisfaction and high market share. Increases in market share will probably be associated with decreases in customer satisfaction. They also conclude that firms who achieve higher customer satisfaction will increase their eco-nomic returns. If customer satisfaction increase with one point it will have a net present value of 7.48 million dollars over five years for a common firm in Sweden. (Anderson 1994)

In a study conducted by Cai, Deilami and Train found that the most important factor in the electricity market is service reliability. Their sample showed that 83 per cent of business customers and 76 per cent of the residential customers would not switch suppliers if the other supplier has more outages but offered a price discount. Customer service is the second most important factor, where approximately 50 per cent of the surveyed customers said they would not switch to another supplier who offered fewer services. Renewable resources and conservation programs were not as important as the previous stated factors. Less than 40 per cent of business customers and approximately 40 per cent of residential customers would not switch to another supplier if they did not offer renewable resources or conservation programs. (Yongxin Cai 1998)

3.3.2 Servitization

Servitization is according to Vandermerwe and Rada a market strategy which involves market packages or bundles of customer focused combinations of services, goods, sup-port, knowledge and self-service. There is a trend today that almost all industries on a global scale apply servitization, because of deregulations, globalization and competitive pressure. By combining products with services it creates more value for the customers and it also creates a dependency between the company and the customers. (Vander-merwe & Rada 1988)

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3.3.3 Ansoff matrix

In a paper from 1957 the market strategic Igor Ansoff presents four basic alternatives for a company to grow. They can grown through market penetration, through market development, through product development or through diversification. The four differ-ent market strategies can be applied as single alternative paths for a company to grow, however a frequently encountered strategy for successful businesses are a mixture of the different strategies except from diversification, which requires a different kind of knowl-edge, expertise and technology. (Ansoff 1957)

Figure 6: Illustrate the Ansoff ’s four different growth strategies. (Ansoff 1957)

When companies decide which strategy to choose, there are commonly two different approaches to adopt in order to execute the strategy. Those approaches are trend anal-ysis and disruptive forces analanal-ysis. According to Ansoff the trend analanal-ysis is basically determined through a total GDP analysis as well as estimates of the total industry growth, yet these analysis are highly uncertain due to lack of possible ways to assess changes in the business environment. Hence companies are encouraged to perform sev-eral different forecasts or scenario analysis. The second approach to determine which strategy to adopt is the disruptive analysis which evaluates different outcomes if a certain event occurs. These events are usually probable to occur, although difficult to estimate when they would take place. (Ansoff 1957)

If the trend analysis or the disruptive force analysis proves to imply that a company should diversify there are three different opportunities to explore. The first opportu-nity is generally implied for manufacturing companies who purchase parts to assemble the final product. In which case the company can broaden their production in a

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strat-egy called vertical diversification. It refers to produce the assembly part themselves. Although, these parts are likely to deviate from the company’s ordinary business and implies therefore a new mission and new products. The second diversity strategy is hor-izontal diversification and refers to a company to use their existing expertise, economy and market to develop new products beyond their current market. Lateral diversifica-tion is the third opportunity which unlike horizontal and vertical diversificadiversifica-tion aims to enter new markets with new products and entirely opens new possibilities. (Ansoff 1957) Ansoff argues that choosing a diversification strategy depends on what reason a com-pany have decided to reach their objectives. For instance, a vertical change could for instance improve the current production line whilst a horizontal change could help ad-vance into new markets. Lateral changes on the other hand could be to avoid devastating changes in the entire industry they operate in or to broaden the technical knowledge within the company. Furthermore there are quite precise descriptions when a company should not use the specific opportunity. (Ansoff 1957)

3.4 Potential products in the electricity retailing market

The various products that are available in the global market can be divided into the following categories.

• Micro production is a small-scale renewable energy production technology. Solar power is ofter associated with roof mounted panels, however there are many other applications of the technology. For instance there are garbage cans with solar panels on top that provide a motor with electricity to compact the garbage which result in reduced emptying frequency. The traditional solar system have in recent years grown rapidly. (Department of energy and climate change 2011) The cost of solar panels have dropped dramatically and are still decreasing (Johan Lindahl 2016).

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Figure 7: The price development of solar panels in Sweden excluding taxes (Johan Lindahl 2016)

The electricity that we use in our life is in the form of alternating current. The solar panels generate direct current and therefore needs to be converted to alter-nating current before entering our houses. There are two types of inverters, central inverters and micro inverters. The benefit with micro inverters is that if one solar panel is defected it will not drag down the performance of an entire solar array. (Maehlum, M.A 2014)

• Energy storage uses forms of energy such as kinetic, potential or chemical energy to store energy that will later be converted to electricity. These storages can for example be used to supply peak electricity demand by using electricity that has been generated during periods with lower demands and hence balance the supply and demand. (California public utilities commission 2010) One example of Kinetic energy storage is the Flywheel which store energy with an angular speed of a spinning mass. When charging, the flywheel is spun up by a motor. The flywheel spins at high velocities in order to store as much rotational kinetic energy as possible. The motor that spins up the flywheel will act as a generator during discharge, the rotational energy that is stored in the flywheel will then be released in order to produce electricity. (Haisheng Chen 2009) A flywheel can store from 3 to 133 kWh (Castelvecchi 2007)

Potential energy storage are when energy is stored through differences in altitude, there are for instance pumped hydro electric energy storage which is a technology that uses electricity to pump water uphill to be stored. Later the water will be

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released back down through a turbine and the energy will be recaptured. The capacity is depending of the altitude and the size of the reservoir. (Levine 2003) Chemical energy storage however is a non-motion storage and are used in every day life as batteries. Batteries consists of two electrodes, a positive cathode and a negative anode. Between the electrodes there is a porous separator. The separator and electrodes are placed in an electrolyte solution in order to support the chemical reaction. When a battery is discharged an internal chemical process occur. Ions are moving from one electrode to the other through the electrolyte. This means that one electrode generates ions and the other electrode consumes the ions. During charging of a battery, the process is reversed. Depending on how this process is carried out will impact the performance of the battery. (Cope & Podrazhansky 1999)

• Energy efficiency are products that are used to decrease the consumption of energy. Some of them are:

· Geothermal heat pumps By replacing electric resistance heat with geothermal heat pumps in the residential sector it can reduce the electricity use with more than 2 per cent. (Nadel, S. 2016)

· Air heat pumps have been shown to be one and a half to three times as efficient as electric resistance heating. This because a heat pump moves heat instead of converting it from a fuel. (U.S department of energy 2016a)

· Smart plugs gives the end customer a better control of the energy consumption in the household by for instance enable the consumer to switch ”on and off” devices in the house when you are not home. This can save both money and energy. (Vattenfall 2016)

· LED is very energy efficient, it consumes 75 per cent less energy and lasts for 25 times as longer than conventional light bulbs. (U.S department of energy 2016b)

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4 Empirical study and analysis

The empirical study is conducted to apply the different theories into real life scenarios by using observations to evaluate the potential of the market. The observations may be used to identify alternative products and services to introduce into the market.

In the introduction chapter a hypothesis was presented assuming that if an electricity retailer would exclusively offer their customers renewable electricity, the overall profit would increase. Furthermore according to the Stuck in the middle theory a homoge-neous product would increase in profit in case of cost leadership. That would conclude that there are two factors that could increase the profitability, namely the number of electricity customers and the total sold volume. In the empirical study this hypothesis is being tested and evaluated if there are any other correlations between the different key drivers for increasing an electricity retailer’s profitability. Secondly the observed data was used to conduct in depth interviews with the most outstanding companies found during the quantitative data collection.

4.1 Study of profitability electricity retailers in Sweden

In this sub-chapter the quantitative data will be presented. This chapter presents the empirical data and analysis to RQ1

Choice of Key Drivers

In order to define the key drivers for a profitable electricity retailer, theories regard-ing homogeneous products have been evaluated. Electricity is a homogeneous product which, according to the Ansoff matrix, would result in choosing market penetration as the marketing strategy. However, in order to be successful with market penetration it require a large focus on cost leadership which can be achieved through selling large quantities or having a very large customer base. Although these two are likely to have a high correlation. In the present electrical retailing market an increasingly amount of ac-tors have decided to exclusively offer their customers electricity with guarantee of origin which would therefore also be a key driver. Lastly since the study examine profitability there are a couple more key drivers that are interesting for this project; namely economy indicators such as total turnover and the earnings before interests and taxes (EBIT). Through these key drivers it would be possible to calculate the profit and average cost per kWh.

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Description of the electricity market in Sweden

Approximately 50 per cent of all the electricity retailers were participating in the survey and the respondents were either sales managers, marketing managers, CEOs or CFOs. They were contacted by phone and asked to participate in the data collection, then they would receive a mail with instructions and a table were they could enter the requested data. The result can be see in the table below. Most of the participants requested anonymity and have therefore been assigned with a name which represent the quantity of electricity sold.

In Sweden, approximately 50 per cent of all electricity retailers exclusively offer their customers guarantee of origin in their energy mix. Which can be seen in the sample of the researchers data collection, see Appendix A. These companies will be identified with the color green in the following graphs and non-renewable sources are colored grey, the actual electricity mix can be seen in Appendix A with the percentage of the various origin sources. In Figure 8 the profitability in respect to the amount of electricity customers and the amount of sold electricity is presented for 2013.

Figure 8: Illustrate the relationship between profitability, customer base and sold volume for the year 2013.

The bubble chart above clearly shows that there is a linear relationship between amount of customers, sold volume and the profitability. The more customers a retailer

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gets and the larger volume they provide the more profitable they seem to become. The trend of increased profitability in relation to the amount of customers and sold volume can also be seen in Figure 9 which illustrate the profitability for the various retailers for the year 2014.

Figure 9: Illustrate the relationship between profitability, customer base and sold volume for the year 2014.

Figure 8 and 9 illustrate the relationship of the profitability which is visualized by the size of the bubble in relation to the number of customers on the horizontal axis and the sold quantity on the vertical axis. It seems like there is a linear correlation between the different key drivers, hence more customers or larger sold quantity result in more profitable companies. Hence the determination coefficient, also known as the linear relationship, R2_{, for the two years was analyzed and the result can be seen in the}

table below. In Appendix B, the linear relationship can be seen with deviations from a customized straight line.

Figure 10: The determination coefficient, R2, in per cent for the entire analyzed energy map.

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sales are following the theory of economies of scales. Although there is a large cluster of electricity retailers with small quantities of sold electricity and few customers. In Figure 11 and Figure 12 a zoom of the cluster with those companies can be seen.

Figure 11: Visaulize a zoom of the cluster in Figure 7 over the cluster, hence the four extreme cases are ignored

Figure 12: Visaulize a zoom of the cluster in Figure 8 over the cluster, hence the four extreme cases are ignored

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and amount of customers seems even more obvious for smaller companies, hence the determination coefficient was calculated to prove that smaller companies have a larger impact on the profit if the amount of sold electricity and amount of customers increase. The determination coefficients were as followed:

Figure 13: The determination coefficient, R2, in per cent for the cluster of retailers from Figure 11 and 12.

It is clear how the relationship of increased amount of customers and sold quantities are related to higher profitability. It can also be assumed that exclusively offering renew-able energy to their customers will also be a driver for increased profits. The hypothesis was tested and the result is presented in Figure 14 where the average earnings per kWh of electricity from different orients is presented.

Figure 14: The chart illustrate the average profitability of different production sources for the year 2013 and 2014

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The result from the study has proven that the hypothesis was correct. In fact the profitability of guarantee of origin is approximately two to four times as profitable as nuclear and fossil produced electricity. Although, the profitability is larger with renew-able production source in comparison with other production sources, the actual EBIT is surprisingly low and seems not to be able to carry the entire company by itself. Therefore in depth interviews with the most successful companies were conducted. The companies were found in the bubble charts in order to identify the most outstanding companies to collect information from. The companies that were chosen were high profit companies that in some way distinguished themselves from the other retailers.

4.2 Strategy and positioning maps of electricity retailers

In this sub-chapter the result from the qualitative data collection will be presented to-gether with a strategy and positioning map. This chapter presents the empirical data and analysis to RQ2 and RQ3

When the hypothesis was tested through the quantitative data collection it was proven that guarantee of origin is more profitable to sell than other energy sources, in fact it was up to four times as profitable as electricity with fossil origin. According to ˚Ake Person, Head of electricity sales manager at Skellefte˚a Kraft, the findings are unique and have never previously been discovered. Although in the data collection it was also noticed that almost fifty per cent of those companies that answered the survey had less than one million SEK per year in profits with an average of 0.28 million SEK per year. Thus it became interesting to evaluate what made the more profitable companies supe-rior on the market. By using the collected data and analysing the bubble charts, three outstanding companies were asked to participate in in-depth interviews. The requested interviews were required to possess great knowledge within energy retailing i.e. CEO of electricity trading, sales managers and customer developers were asked to participate. The interviewees received a mailing in advance with the questions that would be dis-cussed in order to prepare their answers. The interviews lasted for approximately one to two hours and were either conducted through personal meetings or through telephone.

The following is a description of the selection of interviewees.

Firstly it was noticed that there was a relationship between higher profits and large amount of sold electricity and many customers. Therefore those companies that inter-ested the researchers the most were those companies that differed the most from the linear relationship and had an relatively high profit compared to equally sized

Electricity retailer –from liability to asset

Electricity retailer –

from liability to asset

ANTON BERGKVIST

JOHAN LINDROTH

Elhandel –

från motgång till tillgång

ANTON BERGKVIST

JOHAN LINDROTH

Elhandel –

från motgång till tillgång

av

Anton Bergkvist

Johan Lindroth

Examensarbete INDEK 2016:46

KTH Industriell teknik och management

Electricity retailer –

from liability to asset

by

Anton Bergkvist

Johan Lindroth

Master of Science Thesis INDEK 2016:46

KTH Industrial Engineering and Management

Examensarbete INDEK 2016:46

Elhandel – från motgång till tillgång

Anton Bergkvist

Johan Lindroth

2016-06-16

Cali Nuur

Saara Hollmén

Sustainable Technologies Fund

Jonas Almquist

Master of Science Thesis INDEK 2016:46

Electricity retailer – from liability to asset

Anton Bergkvist

Johan Lindroth

2016-06-16

Cali Nuur

Saara Hollmén

Sustainable Technologies Fund

Jonas Almquist

Contents

List of Figures

1 Introduction

2 Method

3 Review of electricity market, business strategies and

positioning

4 Empirical study and analysis