Extreme volatility in the energy wholesale price is keeping European energy retail executives worried!
The scale of the challenge is unmistakable. According to the International Energy Agency (IEA), energy markets in Europe have had a volatile start to 2025, with prices surging to their highest level in two years.
Wild price swings create chaos for energy retailers, and when wholesale costs spike unexpectedly, suppliers face difficult choices about how to respond: When wholesale prices spike unexpectedly, suppliers must decide whether to absorb the costs or pass increases through to customers. Both options are problematic. Absorbing costs hurts the business, whilst price increases drive customer churn.
The challenge is compounded by customer expectations. Most energy customers have little tolerance for sudden bill increases, putting retailers in a difficult position when wholesale costs surge.
However, forward-thinking energy retailers are leveraging a powerful tool available today to provide a hedge against wholesale chaos: customer-side demand flexibility.
The solution to the market volatility challenge lies in transforming customers from passive energy consumers into active flexibility partners.
According to Eurelectric, consumption flexibility can be defined as “temporarily increasing or reducing electricity consumption based on grid conditions and market signals.” This flexibility requires more than smart thermostats and off-peak electric vehicle charging, though both play an important role. True demand flexibility requires building systematic capabilities to holistically influence customer consumption patterns in response to wholesale market conditions.
When wholesale prices rise, retailers with effective demand flexibility programmes can reduce their customers’ aggregate consumption, lowering their exposure to high-cost energy purchases. When wholesale prices drop, they can encourage increased consumption to take advantage of low-cost periods.
Retailers with effective TOU tariffs, managed charging or other demand flexibility programmes are able to reduce their customers’ aggregate consumption when dealing with predictable variations, such as peak vs. off-peak periods, during which price changes are expected.
Further, in the case of unpredictable volatility, in which wholesale prices suddenly spike or plummet due to unforeseen events, responsive demand flexibility becomes even more critical.
The goal in both scenarios is to create a natural hedge against volatility whilst providing value to customers through reduced bills.
Successfully implementing demand flexibility requires moving beyond ad hoc appeals for conservation during crisis periods. Instead, retailers need systematic capabilities to influence customer behaviour both proactively and responsively.
Proactive Demand Management
Time-of-Use tariffs represent the foundation of proactive demand flexibility. However, effective Time-of-Use programmes require sophisticated customer engagement to help consumers make energy choices that maximise savings and load shift.
Electric vehicle managed charging programmes offer another powerful tool for proactive demand management.
Responsive Demand Flexibility
Responsive demand flexibility involves real-time adjustments to consumption based on immediate market conditions. When wholesale prices spike unexpectedly, retailers with responsive capabilities can quickly reduce customer demand through targeted communications, smart device controls or demand response incentives.
Achieving responsive demand flexibility requires sophisticated communication capabilities and customer segmentation by appliance ownership, contribution to peak load, time-of-day usage patterns, and historic responsiveness. Different customers respond to different types of appeals, such as cost savings messages, environmental benefits, and convenience features. Effective responsive demand management delivers the right message with the right incentive to the right customer at the right time.
Demand flexibility programmes succeed or fail based on customer participation, which is directly proportional to customers’ level of engagement with their retailer. Getting customers to actively manage their energy use requires reimagining customer experience around 4 core principles:
1) Hyper-Personalised, Appliance-Specific Engagement
Generic energy-saving messages don’t drive any meaningful engagement nor any behaviour change. Customers need accurate, relevant insights delivered through their preferred channels. If energy use and cost insights aren’t trustworthy or personally relevant, customers won’t engage, and their relationship with the retailer will remain transactional.
This means moving beyond mass communications to personalised engagement based on individual energy use habits, appliance ownership and demonstrated preferences. For example, a customer with supplemental electric heating needs different messages than one with a heat pump, and a household with solar panels will respond to different incentives than one without. AI-powered behind-the-meter data analysis can identify which customers have the greatest flexibility potential based on their unique energy profiles.
Effective demand flexibility programmes connect behavioural calls-to-action to optimal timing. For example, if a customer is trending toward a high bill, it’s an ideal moment to encourage conservation and promote Time-of-Use tariffs or managed charging programmes.
This requires sophisticated analytics to identify the right moments for engagement. Successful programmes don’t wait for monthly bills to arrive. They provide real-time insights and recommendations that help customers make better decisions in the moment.
3) Trust Through Transparency
Customers participate in demand flexibility programmes when they trust their energy supplier and understand the benefits. This requires transparent communication about how programmes work, what customers can expect to save and how their participation contributes to overall system reliability.
Building this trust takes time and a proven track record for delivering on promises. Retailers who over-promise savings or fail to deliver on programme commitments quickly lose customer confidence, engagement and participation.
4) Continuous Improvement
Real-time analytics allow retailers to continuously measure and optimise demand flexibility performance among the customer target group. Understanding which messages drive behaviour change, which customers participate most actively and which programmes deliver the greatest wholesale cost savings enables continuous improvement and expansion.
Energy retailers who build systematic demand flexibility capabilities will enjoy significant advantages in the midst of volatile wholesale markets. Lower exposure to price spikes translates directly to improved financial performance. Plus, stronger customer relationships built through valuable energy management services reduce churn.
Perhaps most importantly, demand flexibility capabilities create differentiation that extends beyond price competition. Customers who actively participate in their supplier’s flexibility programmes develop sticky relationships that are difficult for competitors to replicate.
Wholesale market volatility isn’t going away. Climate change, geopolitical tensions and the energy transition ensure that European energy markets will remain challenging for the foreseeable future. Rather than remaining vulnerable to these market forces, energy retailers can build capabilities that transform this volatility into competitive advantage.
The suppliers who will thrive in volatile markets are those who stop viewing customers as passive consumers and start empowering them as active flexibility partners. Customers continue to demonstrate their appetite and appreciation for energy management tools. Empowering them with the insights to take action strengthens customer relationships and reduces wholesale exposure through sophisticated demand flexibility programmes.
In fact, it’s possible to turn volatility into an asset with Bidgely:
To learn more about how Bidgely turns market volatility into opportunity and see how AI-powered demand flexibility works in practice, explore Bidgely’s personalised customer engagement and demand flexibility solutions in our demo portal or contact us for a chat.
