Our energy system is changing – digitalisation, decentralisation and decarbonisation – are all transforming how consumers buy, use and pay for the heat and power they use at home.
This presents challenges throughout the energy system: how can Government policy anticipate and support the transition to low carbon technologies? How can regulation provide the freedom to innovate in a changing environment whilst still “keeping the lights on”? How can new market entrants bring innovations in technology, business models and service to the customer?
Last week, the Energy Systems Catapult (ESC) hosted a conference in partnership with BEAMA UK and Energy UK. It explored the opportunities for placing the customer at the heart of industry, as we collectively decarbonise the energy system. The conference was attended by a range of organisations operating in the energy sector, including network operators, energy retailers, hardware and technology providers along with policymakers and researchers. Read on for a summary of the day’s key take-aways.
Energy policy landscape
The UK is leading the way in decoupling economic growth and carbon emissions and it’s a collective achievement. However, to achieve upcoming carbon budgets, we require efforts to reduce emissions to increase in pace. The Clean Growth Strategy sets out aspirations for different types of customers (business, household, public sector).
The Smart Systems and Flexibility Plan was launched in July 2017, recognising that our energy system is undergoing fundamental change from a top-down, linear, producer-led system, to a much lower carbon, more distributed system with greater opportunities for business and domestic consumers to be directly involved and engaged in creation of value.
Over the next year, Government will be responding to Dieter Helm’s independent review of energy costs. The Government’s strategy on electric vehciles is due out relatively shortly. The Energy Networks Association are looking at opening-up networks, a great opportunity for innovators to deliver new types of services in local markets.
In discussion, delegates felt that the challenges are not around technology but about adoption. Government thinking is evolving in this area and the Clean Growth Strategy is a strong step. Technology does remain a challenge for heat: whilst there will be more electrification, it may not be the right solution for everyone and there are research questions around using existing gas network infrastructure (for example, with hydrogen).
The consumer proposition is at the heart of work such as BEAMA’s Electrification by Design report and Energy UK’s forthcoming set of insight papers.
Howard Porter, BEAMA, commented that technology needs to be digital and dynamic and include many parts of the industry who in the past may not have talked to each other or delivered solutions together.
Barbara Vest, Energy UK, noted that we are already in the midst of a huge transformation to a more decentralised system. Others agreed that this opens-up opportunities for more regional and local approaches to energy and that the regulatory system needs to do more to support innovation and investment whilst creating the right conditions for customers.
From a networks perspective, Ben Godfrey, Western Power Distribution, said that there isn’t a single part of their network that hasn’t been affected by distributed generation and that the trend is continuing. There are opportunities to improve the signals about where people could locate new assets, for example, encouraging storage to be located close to solar PV and wind generation. Tim Rotheray, Associated for Decentralised Energy, noted that heat is about people and place, and that different technology options have different strengths and weaknesses. A key challenge is integration.
In discussion, delegates emphasised that the barriers are around commercialisation rather that technology. Other sectors, such as telecoms, have been able to shift consumers away from buying units to buying service and aspirational outcomes. Exciting business models could come into the energy sector if enabled by the regulatory system and if the opportunities for investment were clear.
Reflecting on the role of regulation, Laura Sandys, Challenging Ideas, said that the current regulatory framework is very much about regulating process rather than outcome, so we always get the same results. Bundling services (for example, energy purchased alongside broadband or entertainment packages) would create the need for greater alignment between regulators. A more consumer oriented approach to policy and regulation could help avoid some of the potential conflicts; the key question for policy design becomes “how do you enable the customer to have something that works for them within what the Government is trying to achieve?”
There were concerns about the costs of connection, how these are communicated to consumers, the timescale for approvals, and how to best share the costs of socialised or individual installations. The issue of consumer engagement and control was also discussed, with recognition that different consumers will want a different level of involvement in the market.
The UK needs to decarbonise but current market structures do not support the transition to low carbon heat. In most retail markets, consumers create demand with the desire to buy something – so businesses have to create products and services that appeal to the consumer. In addition, structural incentives need to support the direction Government wishes to travel.
The Energy Systems Catapult is working with the concept of a ‘home energy services gateway’, using consumer data to help energy providers shape offers to provide energy as a service, with energy service providers able to differentiate themselves with distinct levels of service rather than simply offering the same units of energy for a different price . From the system side, there are producers, networks and storage companies who again would have service level agreements with the energy provider, managed through an ‘energy resource service gateway’.
The cost profile of energy will change. David Casale, Turquoise, stated that domestic electricity costs will come to be dominated by fixed costs rather than variable. In addition, there seems to be a logical move to a prepay approach for consumers.
Data as the route to customer targeting and satisfaction
Richard Hampshire, CGI, explained some of the changes that will be brought about by GDPR, and considerations around data ethics in the Each Home Counts review.
The energy landscape is changing as users become more technically literate and engage more with choices. Rik Temmink and Thom Whiffen, GEO, explained that consumers are starting to expect that systems will control more and make more choices for them. People are becoming less interested in the pure data and more in the benefit that is derived from that data and presented automatically to them.
From an equipment manufacturer’s perspective, Andrew Bissell, Sunamp, identified that the role of the manufacturer may not be to become an aggregator, but rather to open-up access to their technology for others’ apps, working to common standards.
Energy services – the key to creating the bundled proposition?
In the present heating market, the consumer does not know how much fuel they need or use, what it will cost or what the experience will be. In a future market, the consumer should be able to know what outcome they will receive for what cost.
Matt Lipson, ESC Head of Consumer Insight, outlined some of the findings from the ESC’s field trials looking at ways to build consumer understanding, learn patterns and develop offers which are attractive to people. Rebecca Yates, Smart Energy GB, also shared research findings that consumers with smart meters were more likely to be attracted by bundled services and lifestyle packages than those without.
Delegates were interested in the concept of bundled services. Some consumers might find a full bundle of utilities and entertainment attractive, with one contract covering all services. Other households may wish to contract separately with different providers (for heat, for an electric vehicle and so forth).
In discussion, delegates also talked about the potential role for intermediaries in building trust between consumers and the energy sector. New entrants to the energy retail market have differentiated themselves based on customer service and there are opportunities for other trusted brands to enter the market. Data sharing can unlock opportunities for energy savings and the development of new services; both Smart Energy GB and Ovo Energy had found that consumers were willing to share their data in this sector.
How do we make sure that every place benefits from the transition to a decarbonised energy system and not just the places which have volume and density? At a local level, there is a lot of change. Devolution is progressing in different ways. Every Local Enterprise Partnership (LEP) in England will be developing a local industrial strategy and these have massive energy implications.
It’s not just about energy: local authorities are also thinking about housing, transport, waste, leisure, agriculture – all of which drive energy demand. The planning system is the way that we can bring these things together. The National Planning Policy Framework is out for consultation and it’s a chance to think about how the buildings that are built in the next decade should be.
Looking beyond the energy sector, John Batterbee, ESC Head of Systems Architecture and Transformation, provided an analogy with the global mobile telephony market. This operates across three domains: policy and regulation; technical and commercial interoperability, with a “shared ecosystem” enabling any phone to work and be billed on any network anywhere in the world; and businesses developing networks, technologies and phones.
Much of this thinking is captured by the ESC within the concept of developing a test and demonstration environment that brings together businesses, policy-makers, regulators and consumers to trial innovations within a “shared ecosystem” – a data-driven, interoperable platform, that allows value to flow between parties, and clearly differentiates between what should be open and proprietary. The purpose of the “shared ecosystem” is to encourage innovation in products, services, business models and the energy system as a whole.
Lastly, the discussions touched on the importance of having the right skills. With bundled services, installers could be expected to work with energy systems, security systems, entertainment systems, and this changes the demands on the skills and training.
The event highlighted, in many ways, just how far the UK has already come in transforming our energy system, but it also highlighted the long road ahead to ensuring the whole system can interact and move forward together, effectively.
Kelly Butler, BEAMA, said: “We’re on the cusp of phenomenal change in the energy market in the UK… Energy services has been discussed for a long time, but it does feel that we have moved on a long way. We have talked about trust and services today; we’ve talked about people and place; we’ve talked about regional approaches to solve a national problem. We’ve talked about the death of the kilowatt hour, and about lessons we could learn from industries like mobile telephony. It’s a fascinating time for the industry as we are on the cusp of so much change.”