Innovation for all: ensuring vulnerable consumers benefit from the smart energy future

Comment by Guy Newey and Dr Rose Chard

Chief Executive Officer and Fair Futures Programme Lead

Ten years ago, if you were on a prepayment gas and electricity meter and you had forgotten to top up your meter, what happened?

You might have had to traipse down to the corner shop. Sod’s law meant it probably happened when you were having a shower – now a cold shower – and were running late for work, so you might have had to make the trip in your dressing gown. You topped up your key or card, or whatever elaborate, Mission Impossible-esque ritual your prepayment meter required, and then trudged home, before scrambling to work late – your day ruined before it had even started.

For too many, this experience is still part of their engagement with the energy system. But for hundreds of thousands of energy customers, they can now top up their prepayment meter on their phone, quickly and easily. The app might give them information to help them budget, and can certainly give them a warning when their money is running out.

This innovation – smart prepayment – was introduced by suppliers like Utilita, using innovative technology from meter manufacturer Secure. It didn’t solve all the world’s problems – people still struggle with bills – but it made people’s lives better. It improved consumer outcomes (avoiding dressing gown-based, corner shop-expeditions is a big plus) and actually reduced vulnerability (you’re much more likely to hold onto your job if you turn up on time).

It also reduced the cost to serve for the suppliers who picked up the innovation, helping them make their prices keener, therefore further benefiting consumers. Win-win-win-win, perhaps.

The move to a smarter, low carbon energy system – where our car and our heating could be electrified, and where there’ll be demand for these loads to be as flexible as possible for the wider energy system – creates a whole new challenge for how we think about vulnerable consumers (caveat: of course, ‘vulnerability’ covers a huge range of needs within the broad categorisation, from lack of digital access to poor housing stock).

How do we ensure their transition is fair?

One risk, which too often lurks behind some of the current approach, is to avoid vulnerable consumers when innovating: ‘Let’s try it on mainstream consumers first, and only when we’ve bottomed out all the kinks, bestow it on the vulnerable’ is how I might caricature the thinking (although there are some notable exceptions, including this pioneering Ofgem project).

That is wrong-headed for a few reasons.

First, as with the smart prepayment example, lots of innovations can help vulnerable consumers (and the decarbonising energy system) now. Lots of people, particularly those in fuel poverty or experiencing other sources of vulnerability, are getting bad outcomes now – damp, draughts, mould, over-heating, confusing billing and tariff choices, etc. Two thirds of homes suffer bad heating outcomes like those.

If there is a new gizmo or service that can help them now, many would be willing to try them out, even if it carries a bit more risk. This is, of course, even more essential as energy prices skyrocket.

Innovations that help vulnerable consumer are commonplace in lots of other sectors (examples include Monzo working with Big Issue sellers to provide easier payment for the magazine, and many of the digital innovations that have been tested during the COVID crisis). It seems immoral, even, to prevent them benefiting in such an essential service as energy – particularly in a crisis.

Secondly, it’s not like it is a static situation. Not only are prices at record levels due to the international gas market, but as the grid becomes windier, and as the system need for flexibility services increase, as the switch to EVs and electrified heating becomes more urgent, those who can benefit from flexible tariffs and load shifting should not just be people who can afford a Tesla.

The smart, flexible energy system is also going to create new types of vulnerability. We need to be agile in responding to those new types of vulnerability and designing in solutions that work for different people, not waiting to reverse engineer the solutions onto a system.

How might that work in practice?

First, it means working hard to find out what vulnerable consumers actually want. The energy sector has been traditionally pretty poor at that, and good at imposing solutions on people.

Other sectors see vulnerable consumers as a potential market. Not in a predatory way, but in a significant cohort of people with needs that can be met at the right price. Pre-pay smart phones, no frills flights, alternatives to pay day loans, have all found a market for their ideas.

Then it is testing what the right solutions might be and iterating. This can be about the tech, but also about the policy options. Is the Warm Home Discount payment useful for consumers? How could it be delivered better? Are there better options that people would value more (for the same money, or less, so more can be spent on other stuff)? These questions are ever more pertinent as the cost of living crisis raises questions about how consumers spend the little money they do have and how governments can best help them have access to everyday essentials.

Tech could be a great enabler, here. This is not about everyone becoming an energy trader in the evening, watching the wholesale electricity market and staying up to switch the washing machine on at 3am to take advantage of a windy spell. No, it’s more likely to about designing services that mean that such smart flexibility goes on in the background, while learning and delivering what consumers actually want (my car charged by 7am, I don’t care exactly what time).

This consumer-first, design approach is essential if we are to deliver the transition we need. If people feel the transition is being done to them, they will baulk at the implications. But if they can see something better – more control of their heating, a way to more easily make improvements to their homes which could make their health better – then we have a fighting chance.

If we are successful, it might mean that the money we spend on addressing fuel poverty is better targeted and can go further. Of the billions we are spending a year, how confident are we that this money is going to the right people and making significant improvements to their lives? Can innovation, including digital innovation, help us better target our interventions and make real improvements to people’s lives? 2022 has been a time when the options of how to support people are being consistently re-considered. Let’s not miss the opportunity to learn what works well.

The future smart home will require new consumer protections, as new types of vulnerability emerge. It will require intervention to create new standards and regulation to ensure we have a fully interoperable system – so that people are not stuck with a particular technology or supplier, even if better options emerge. This will require testing, learning and iteration – of the kind we are pioneering in energy in our Living Lab.

But if we are overly-cautious about protecting the vulnerable, we risk stifling the kind of innovations that could be transformative for their lives. Getting that balance right is essential if we are to shift to smarter, low carbon homes at the pace and scale we need to.

 

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